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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of
The Securities Exchange Act of 1934
Pursuant to Section 13 OR 15(d) of
The Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported) October 31, 2006
Electro-Optical Sciences, Inc.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation) |
333-125517 (Commission File Number) |
13-3986004 (IRS Employer Identification No.) |
||
| 3 West Main Street, Suite 201, Irvington, New York (Address of principal executive offices) |
10533 (Zip Code) |
Registrant’s telephone number, including area code (914) 591-3783
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions (see General Instructions
A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item 1.01 — Entry into a Material Definitive Agreement
On
October 31, 2006
Electro-Optical Sciences, Inc. (the “Company”) entered into securities
purchase agreements and a registration rights agreement with certain accredited investors for the
private placement of 2,312,384 shares of the Company's common stock
and warrants to purchase up to 346,858 shares of the Company's common
stock for aggregate gross proceeds of approximately $13.2 million.
Pursuant to the securities purchase agreements, for a purchase price
of $5.70 each investor will receive one share of the Company's common
stock and a warrant to purchase 0.15 of a share of common stock. The
warrants are five-year warrants with an exercise price of $6.70 per
share. The private placement will be completed pursuant to an exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended, and Regulation D
promulgated thereunder. Pursuant to the terms of the registration rights agreement, the Company
has agreed to cause a resale registration statement covering the shares, including the shares
issuable upon exercise of the warrants, to be filed within 30 days after closing. Jefferies &
Company, Inc. acted as placement agent for the private placement. The transaction is further
described in the press release issued by the Company on
November 1, 2006, a copy of which is
filed herewith as Exhibit 99.1.
The foregoing description is only a summary and is qualified in its entirety by reference to the
aforementioned transaction documents contained in Exhibits 4.1, 10.1,
10.2, 10.3 and 10.4, each of
which is incorporated herein by reference.
Item 3.02 — Unregistered Sales of Equity Securities
The information set forth under Item 1.01 of this current report on Form 8-K is hereby
incorporated by reference into this Item 3.02.
Item 9.01 — Financial Statements and Exhibits
(b) Exhibits.
| Exhibit | ||
| Number | Description | |
4.1
|
Form of Warrant | |
10.1
|
Form of Securities Purchase Agreement among the Company and the purchasers identified on the signature pages thereto, dated as of October 31, 2006 | |
10.2
|
Form of Securities Purchase Agreement among the Company and the purchasers identified on the signature pages thereto, dated as of October 31, 2006 | |
10.3
|
Form of Registration Rights Agreement among the Company and the purchasers identified on the signature pages thereto, dated as of October 31, 2006 | |
10.4
|
Placement Agency Agreement by and between the Company and Jefferies & Company, Inc., dated as of October 31, 2006 | |
99.1
|
Press Release of the Company dated November 1, 2006 titled “Electro-Optical Sciences Announces $13.2 Million Private Placement” |
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Electro-Optical Sciences, Inc. |
||||
| Date: November 1, 2006 | By: | /s/ Joseph V. Gulfo | ||
| President & Chief Executive Officer | ||||
| (Principal Executive Officer) | ||||
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EXHIBIT INDEX
| EXHIBIT NO. | DESCRIPTION | |
4.1
|
Form of Warrant | |
10.1
|
Form of Securities Purchase Agreement among the Company and the purchasers identified on the signature pages thereto, dated as of October 31, 2006 | |
10.2
|
Form of Securities Purchase Agreement among the Company and the purchasers identified on the signature pages thereto, dated as of October 31, 2006 | |
10.3
|
Form of Registration Rights Agreement among the Company and the purchasers identified on the signature pages thereto, dated as of October 31, 2006 | |
10.4
|
Placement Agency Agreement by and between the Company and Jefferies & Company, Inc., dated as of October 31, 2006 | |
99.1
|
Press Release of the Company dated November 1, 2006 titled “Electro-Optical Sciences Announces $13.2 Million Private Placement” |
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Exhibit 4.1
[FORM OF WARRANT]
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH
COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
ELECTRO-OPTICAL SCIENCES, INC.
Warrant To Purchase Common Stock
Warrant No.:
Number of Shares of Common Stock:
Date of Issuance: October [___], 2006 (“Issuance Date”)
Number of Shares of Common Stock:
Date of Issuance: October [___], 2006 (“Issuance Date”)
Electro-Optical Sciences, Inc., a corporation organized under the laws of Delaware (the
“Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, [BUYERS], the registered holder hereof or its permitted assigns
(the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, at
the Exercise Price (as defined below) then in effect, upon surrender of this Warrant to Purchase
Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or
replacement hereof, the “Warrant”), at any time or times on or after the date hereof, but not after
11:59 p.m., New York time, on the Expiration Date (as defined below),
( )1 fully paid nonassessable shares of Common Stock (as defined below) (the
“Warrant Shares”). Except as otherwise defined herein, capitalized terms in this Warrant shall
have the meanings set forth in Section 16. This Warrant is one of the Warrants to purchase Common
Stock (the “SPA Warrants”) issued pursuant to Section 1 of certain Securities Purchase Agreements,
dated as of October ___, 2006 (the “Subscription Date”), by and among the Company and the investors
(the “Buyers”) referred to therein (collectively, the “Securities Purchase Agreement”).
| 1 | Insert number of shares equal to 15% of the number of Common Stock purchased under the Securities Purchase Agreement. |
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof (including,
without limitation, the limitations set forth in Section 1(f)), this Warrant may be exercised by
the Holder on any day on or after the date hereof prior to the Expiration Date, in whole or in
part, by (i) delivery of a written notice, in the form attached hereto as Exhibit A (the
“Exercise Notice”), of the Holder’s election to exercise this Warrant and (ii) (A) payment to the
Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant
Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) in cash or by
wire transfer of immediately available funds or (B) by notifying the Company that this Warrant is
being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not
be required to deliver the original Warrant in order to effect an exercise hereunder. Execution
and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have
the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares. On or before the second (2nd)
Business Day following the date on which the Company has received each of the Exercise Notice and
the Aggregate Exercise Price (or notice of a Cashless Exercise) (the “Exercise Delivery
Documents”), the Company shall transmit by facsimile an acknowledgment of confirmation of receipt
of the Exercise Delivery Documents to the Holder and the Company’s transfer agent (the “Transfer
Agent”). On or before the third (3rd) Business Day following the date on which the
Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the
Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company
(“DTC”) Fast Automated Securities Transfer Program and the Warrant Shares may be issued without any
restrictive legends in accordance with Section 2(g) of the Securities Purchase Agreement, upon the
request of the Holder, credit such aggregate number of Warrant Shares to which the Holder is
entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC
through its Deposit Withdrawal Agent Commission system, or (Y) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, issue and dispatch by
overnight courier to the address as specified in the Exercise Notice, a certificate, registered in
the Company’s share register in the name of the Holder or its designee, for the number of shares of
Common Stock to which the Holder is entitled pursuant to such exercise, which certificate shall
bear any legends required in accordance with Section 2(g) of the Securities Purchase Agreement.
Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect to which this
Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the
Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares, as
the case may be. If this Warrant is submitted in connection with any exercise pursuant to this
Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is
greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall
as soon as practicable issue a new Warrant (in accordance with Section 7(d)) representing the right
to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. No
fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather
the number of shares of Common Stock to be issued shall be rounded up to the nearest whole number.
The Company shall pay any and all taxes which may be
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payable with respect to the issuance and delivery of Warrant Shares upon exercise of this
Warrant.
(b) Exercise Price. For purposes of this Warrant, “Exercise Price” means $6.70,
subject to adjustment as provided herein.
(c) Company’s Failure to Timely Deliver Securities. If the Company shall fail for any
reason or for no reason to issue to the Holder within three (3) Business Days of receipt of the
Exercise Delivery Documents, a certificate for the number of shares of Common Stock to which the
Holder is entitled and register such shares of Common Stock on the Company’s share register or to
credit the Holder’s balance account with DTC for such number of shares of Common Stock to which the
Holder is entitled upon the Holder’s exercise of this Warrant or if the Company fails to deliver to
the Holder a certificate or certificates representing the applicable Warrant Shares within three
(3) Trading Days after its obligation to do so under clause (ii) below, and if on or after such
Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon
such exercise or receipt that the Holder anticipated receiving from
the Company (a “Buy-In”), then
the Company shall, within three (3) Business Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase
price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the
“Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue
such Warrant Shares) shall terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Warrant Shares and pay cash to the Holder in
an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the date of exercise.
(d) Cashless Exercise. Notwithstanding anything contained herein to the contrary, if
a Registration Statement (as defined in the Registration Rights Agreement) covering the Warrant
Shares that are the subject of the Exercise Notice (the “Unavailable Warrant Shares”) is not
available for the resale of such Unavailable Warrant Shares, the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment
otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate
Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common
Stock determined according to the following formula (a “Cashless Exercise”):
| Net Number = | (A x B) - (A x C) | |||||
| B | ||||||
| For purposes of the foregoing formula: | ||||||
| A= | the total number of shares with respect to which this Warrant is then being exercised. |
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| B= | the Closing Sale Price of the shares of Common Stock (as reported by Bloomberg) on the date immediately preceding the date of the Exercise Notice. | |||
| C= | the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise. |
(e) Limitations on Exercises; Beneficial Ownership. The Company shall not effect the
exercise of this Warrant, and the Holder shall not have the right to exercise this Warrant, to the
extent that after giving effect to such exercise, such Holder (together with such Holder’s
affiliates, and any other Persons whose beneficial ownership of Common Stock would be aggregated
with such Holder’s for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) would beneficially own in excess of 4.99% of the shares of Common Stock
outstanding immediately after giving effect to such exercise. For purposes of the foregoing
sentence, the aggregate number of shares of Common Stock beneficially owned by such Holder and its
affiliates shall include the number of shares of Common Stock issuable upon exercise of this
Warrant with respect to which the determination of such sentence is being made, but shall exclude
shares of Common Stock which would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant beneficially owned by such Holder and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of the Company
beneficially owned by such Person and its affiliates (including, without limitation, any
convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion
or exercise analogous to the limitation contained herein. Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this
Warrant, in determining the number of outstanding shares of Common Stock, the Holder may rely on
the number of outstanding shares of Common Stock as reflected in (1) the Company’s most recent Form
10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and Exchange
Commission, as the case may be, (2) a more recent public announcement by the Company or (3) any
other notice by the Company or the Transfer Agent setting forth the number of shares of Common
Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the
Company shall within two (2) Business Days confirm orally and in writing to the Holder the number
of shares of Common Stock then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the conversion or exercise of securities of
the Company, including the SPA Warrants, by the Holder and its affiliates since the date as of
which such number of outstanding shares of Common Stock was reported. By written notice to the
Company, the Holder may from time to time increase or decrease the Maximum Percentage to any other
percentage not in excess of 9.99% specified in such notice; provided that (i) any such increase
will not be effective until the sixty-first (61st) day after such notice is delivered to
the Company, and (ii) any such increase or decrease will apply only to the Holder and not to any
other holder of SPA Warrants.
(f) Insufficient Authorized Shares. If at any time while any of the Warrants remain
outstanding the Company does not have a sufficient number of authorized and unreserved shares of
Common Stock to satisfy its obligation to reserve for issuance upon exercise of the Warrants at
least a number of shares of Common Stock equal to 100% (the
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“Required Reserve Amount”) of the number of shares of Common Stock as shall from time to time
be necessary to effect the exercise of all of the Warrants then outstanding, then the Company shall
immediately take all action necessary to increase the Company’s authorized shares of Common Stock
to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the
Warrants then outstanding.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. If the Company, at any
time while this Warrant is outstanding, subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of Warrant Shares will be proportionately increased. If
the Company, at any time while this Warrant is outstanding, combines (by combination, reverse stock
split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares will be proportionately decreased. Any
adjustment under this Section 2 shall become effective at the close of business on the date the
subdivision or combination becomes effective.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares
of Common Stock (which dividend or other distribution has not already been given to the Holders of
the Warrants), by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a dividend, spin
off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction)
(a “Distribution”), at any time after the issuance of this Warrant and prior to the Expiration
Date, then, in each such case:
(a) any Exercise Price in effect immediately prior to the close of business on the record date
fixed for the determination of holders of shares of Common Stock entitled to receive the
Distribution shall be reduced, effective as of the close of business on such record date, to a
price determined by multiplying such Exercise Price by a fraction of which (i) the numerator shall
be the Closing Bid Price of the shares of Common Stock on the Trading Day immediately preceding
such record date minus the value of the Distribution (as determined in good faith by the Company’s
Board of Directors) applicable to one share of shares of Common Stock, and (ii) the denominator
shall be the Closing Bid Price of the shares of Common Stock on the Trading Day immediately
preceding such record date; and
(b) the number of Warrant Shares shall be increased to a number of shares equal to the number
of shares of Common Stock obtainable immediately prior to the close of business on the record date
fixed for the determination of holders of shares of Common Stock entitled to receive the
Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding
paragraph (a); provided that in the event that the Distribution is of shares of Common Stock (or
common stock) (“Other Shares of Common Stock”) of a company whose common shares are traded on a
national securities exchange or a national automated quotation system, then the Holder may elect to
receive a warrant to purchase Other Shares of
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Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall
be identical to those of this Warrant, except that such warrant shall be exercisable into the
number of shares of Other Shares of Common Stock that would have been payable to the Holder
pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record
date and with an aggregate exercise price equal to the product of the amount by which the exercise
price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the
immediately preceding paragraph (a) and the number of Warrant Shares calculated in accordance with
the first part of this paragraph (b).
4. FUNDAMENTAL TRANSACTIONS. If, at any time while this Warrant is outstanding there
is a Fundamental Transaction, then the Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the same amount and kind of securities, cash or property as it would have
been entitled to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the Holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the “Alternate Consideration”). For purposes of
any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration. If holders of Common Stock are
given any choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such Fundamental Transaction. Any successor
to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new
warrant substantially in the form of this Warrant and consistent with the foregoing provisions and
evidencing the Holder’s right to purchase the Alternate Consideration for the aggregate Exercise
Price upon exercise thereof. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or surviving entity to
comply with the provisions of this paragraph (b) and insuring that the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will
not, except and to the extent as waived or consented to by the Holder, by amendment of its
Certificate of Incorporation, Bylaws or through any reorganization, transfer of assets,
consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of
this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and
take all action as may be required to protect the rights of the Holder. Without limiting the
generality of the foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect,
(ii) shall take all such actions as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant, and (iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued shares of Common Stock,
solely for the purpose of effecting the exercise of the SPA Warrants, 100% of the number of shares
of Common Stock as shall from time to time be
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necessary to effect the exercise of the SPA Warrants then outstanding (without regard to any
limitations on exercise).
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided
herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be
entitled to vote or receive dividends or be deemed the holder of share capital of the Company for
any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a shareholder
of the Company or any right to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise,
prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to
receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant
shall be construed as imposing any liabilities on the Holder to purchase any securities (upon
exercise of this Warrant or otherwise) or as a shareholder of the Company, whether such liabilities
are asserted by the Company or by creditors of the Company. Notwithstanding this Section 6, the
Company shall provide the Holder with copies of the same notices and other information given to the
shareholders of the Company generally, contemporaneously with the giving thereof to the
shareholders.
7. REISSUANCE OF WARRANTS.
(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall
surrender this Warrant to the Company, together with a written assignment of this Warrant duly
executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of such transfer, if any, whereupon the Company will forthwith issue and
deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as
the Holder may request, representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less than the total number of Warrant Shares then underlying this
Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder
representing the right to purchase the number of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this
Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company reasonably satisfactory to the Company and, in the case of mutilation, upon
surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a
new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares
then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a new Warrant or
Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the
number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the
right to purchase such portion of such Warrant Shares as is designated in writing by the Holder at
the time of such surrender; provided, however, that no
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Warrants for fractional shares of Common Stock shall be given.
(d) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant
pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this
Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase
the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued
pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when
added to the number of shares of Common Stock underlying the other new Warrants issued in
connection with such issuance, does not exceed the number of Warrant Shares then underlying this
Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is
the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.
8. COMPANY OPTIONAL EXERCISE. (a) If at any time following the date the Registration
Statement is declared effective and from and after the two (2) year anniversary of the Issuance
Date (the “Optional Exercise Eligibility Date”), the Closing Sale Price of the Common Stock of the
Company is no less than one hundred fifty percent (150%) of the Exercise Price for any ten (10)
consecutive Trading Days (an “Optional Exercise Measuring Period”) and the Company has not failed
to satisfy all of the Equity Conditions during the period commencing on the Optional Exercise
Notice Date (as defined below) and ending on the Optional Exercise Date (as defined below), the
Company shall have the right to require the Holder to exercise all or any portion of this Warrant
as designated in an Optional Exercise Notice (as defined below), as of the Optional Exercise Date
(as defined below) (an “Optional Exercise”). The Company may exercise its right to require
exercise of this Warrant under this Section 8(a) by delivering a written notice thereof by
facsimile and overnight courier to the Holder and the Transfer Agent (the “Optional Exercise
Notice” and the date all of the holders received such notice is referred to as the “Optional
Exercise Notice Date”) no later than ten (10) Trading Days after the applicable Optional Exercise
Measuring Period. The Optional Exercise Notice delivered shall be irrevocable and shall state (A)
the date on which the Optional Exercise shall occur (the “Optional Exercise Date”) which date shall
be the twentieth (20th) Trading Day after the Optional Exercise Notice Date, and (B) the
aggregate number of Warrant Shares of which the Company has elected to be subject to Optional
Exercise from all of the Buyers pursuant to this Section 8.
(b) Pro Rata Redemption Requirement. If the Company elects to cause an Optional
Exercise pursuant to Section 8(a), then it must simultaneously take the same action with respect to
the other SPA Warrants. If the Company elects to cause an Optional Exercise pursuant to Section
8(a) (or similar provisions under the other SPA Warrants) with respect to less than all of the
Warrant Shares underlying the SPA Warrants then outstanding, then the Company shall require
exercise of the Warrant Shares from each of the holders of the SPA Warrants equal to the product of
(i) the aggregate number of Warrant Shares which the Company has elected to cause to be exercised
pursuant to Section 8(a), multiplied by (ii) a fraction, the numerator of which is the sum of the
aggregate number of Warrant Shares underlying the SPA Warrants issued to such holder pursuant to
the Securities Purchase Agreement and the denominator of which is the sum of the aggregate number
of Warrant Shares underlying the SPA Warrants issued to all holders pursuant to the Securities
Purchase Agreement (such fraction with respect to each holder is referred to as its “Exercise
Allocation Percentage,” and such amount with respect to each holder is referred to as its “Pro Rata
Exercise Amount”). In the event that
- 8 -
the initial holder of any SPA Warrants shall sell or otherwise transfer any of such holder’s
SPA Warrants, the transferee shall be allocated a pro rata portion of such holder’s Exercise
Allocation Percentage and Pro Rata Exercise Amount.
9. NOTICES. Whenever notice is required to be given under this Warrant, unless
otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of
all actions taken pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the foregoing, the Company
will give written notice to the Holder (i) promptly upon any adjustment of the Exercise Price,
setting forth in reasonable detail, the calculation of such adjustment and (ii) at least fifteen
days prior to the date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property to holders of shares of Common Stock or (C) for determining rights to
vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case
that such information shall be made known to the public prior to or in conjunction with such notice
being provided to the Holder.
10. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this
Warrant may be amended and the Company may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if the Company has obtained the written consent
of the Required Holders; provided that no such action may increase the exercise price of any SPA
Warrant or decrease the number of shares or class of stock obtainable upon exercise of any SPA
Warrant without the written consent of the Holder. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the SPA Warrants then outstanding.
11. GOVERNING LAW. This Warrant shall be governed by and construed and enforced in
accordance with, and all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.
12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the
Company and all the Buyers and shall not be construed against any person as the drafter hereof.
The headings of this Warrant are for convenience of reference and shall not form part of, or affect
the interpretation of, this Warrant.
13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two Business Days of
receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder. If
the Holder and the Company are unable to agree upon such determination or calculation of the
Exercise Price or the Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall, within two
- 9 -
Business Days submit via facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by the Holder or (b)
the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside
accountant. The Company shall cause at its expense the investment bank or the accountant, as the
case may be, to perform the determinations or calculations and notify the Company and the Holder of
the results no later than ten Business Days from the time it receives the disputed determinations
or calculations. Such investment bank’s or accountant’s determination or calculation, as the case
may be, shall be binding upon all parties absent demonstrable error.
14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies
provided in this Warrant shall be cumulative and in addition to all other remedies available under
this Warrant and the other Transaction Documents, at law or in equity (including a decree of
specific performance and/or other injunctive relief), and nothing herein shall limit the right of
the Holder to pursue actual damages for any failure by the Company to comply with the terms of this
Warrant. The Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate.
The Company therefore agrees that, in the event of any such breach or threatened breach, the holder
of this Warrant shall be entitled to seek, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic loss and without any
bond or other security being required.
15. TRANSFER. Subject to applicable law, this Warrant may be offered for sale, sold,
transferred or assigned without the consent of the Company, except as may otherwise be required by
Section 2(f) of the Securities Purchase Agreement.
16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have
the following meanings:
(a) “Bloomberg” means Bloomberg Financial Markets.
(b) “Business Day” means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required by law to remain closed.
(c) “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the
last closing bid price and last closing trade price, respectively, for such security on the
Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing trade price, as
the case may be, then the last bid price or last trade price, respectively, of such security prior
to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the
principal securities exchange or trading market for such security, the last closing bid price or
last trade price, respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any
- 10 -
market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly
the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price cannot be
calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price
or the Closing Sale Price, as the case may be, of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 13. All such determinations to be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction during the applicable
calculation period.
(d) “Common Stock” means (i) the Company’s shares of Common Stock, par value $0.001 per share,
and (ii) any share capital into which such Common Stock shall have been changed or any share
capital resulting from a reclassification of such Common Stock.
(e) “Convertible Securities” means any stock or securities (other than Options) directly or
indirectly convertible into or exercisable or exchangeable for shares of Common Stock.
(f) “Dollar”, “US Dollar” and “$” each mean the lawful money of the United States.
(g) “Eligible Market” means the Principal Market, The New York Stock Exchange, Inc., the
American Stock Exchange, The NASDAQ Global Market or The NASDAQ Global Select Market.
(h) “Equity Conditions” means each of the following conditions: (i) the Warrant Shares are
either registered for resale pursuant to an effective registration statement naming the Holder as a
selling stockholder thereunder (and the prospectus thereunder is available for use by the Holder as
to all Warrant Shares) or freely transferable without volume restrictions pursuant Rule 144(k)
promulgated under the 1933 Act, as determined by counsel to the Company pursuant to a written
opinion letter addressed and in form and substance reasonably acceptable to the Holder, (ii) the
Company shall have been in material compliance with and shall not have materially breached any
provision, covenant, representation or warranty of any Transaction Document and (iii) the Common
Stock shall at all times be listed or quoted on an Eligible Market.
(i) “Expiration Date” means the date 60 months from the Closing Date or, if such date falls on
a day other than a Business Day or on which trading does not take place on the Principal Market (a
“Holiday”), the next date that is not a Holiday.
(j) “Fundamental Transaction” means that the Company shall, directly or indirectly, in one or
more related transactions, (i) consolidate or merge with or into (whether or not the Company is the
surviving corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise dispose
of all or substantially all of the properties or assets of the Company to another Person, or (iii)
allow another Person to make a purchase, tender or exchange offer that is accepted by the holders
of more than the 50% of the outstanding shares of Common Stock (not including any shares of Common
Stock held by the Person or Persons making or party
- 11 -
to, or associated or affiliated with the Persons making or party to, such purchase, tender or
exchange offer), or (iv) consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock held by the other
Person or other Persons making or party to, or associated or affiliated with the other Persons
making or party to, such stock purchase agreement or other business combination), (v) reorganize,
recapitalize or reclassify its Common Stock, or (vi) any “person” or “group” (as these terms are
used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock..
(k) “Options” means any rights, warrants or options to subscribe for or purchase shares of
Common Stock or Convertible Securities.
(l) “Person” means an individual, a limited liability company, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.
(m) “Principal Market” means The NASDAQ Capital Market.
(n) “Registration Rights Agreement” means that certain registration rights agreement by and
among the Company and the Buyers.
(o) “Required Holders” means the holders of the SPA Warrants representing at least a majority
of shares of Common Stock underlying the SPA Warrants then outstanding.
(p) “Trading Day” means any day on which the Common Stock is traded on the Principal Market,
or, if the Principal Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock is then traded;
provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to
trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is
suspended from trading during the final hour of trading on such exchange or market (or if such
exchange or market does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York time).
[Signature Page Follows]
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IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly
executed as of the Issuance Date set out above.
| ELECTRO-OPTICAL SCIENCES, INC. | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
WARRANT TO PURCHASE COMMON STOCK
ELECTRO-OPTICAL SCIENCES, INC.
The undersigned holder hereby exercises the right to purchase of the
shares of Common Stock (“Warrant Shares”) of Electro-Optical Sciences, Inc., a corporation
organized under the laws of Delaware (the “Company”), evidenced by the attached Warrant to
Purchase Common Stock (the “Warrant”). Capitalized terms used herein and not otherwise defined
shall have the respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be
made as:
a “Cash Exercise” with respect to Warrant
Shares; and/or
a “Cashless Exercise” with respect to Warrant
Shares.
2. Payment of Exercise Price. In the event that the holder has elected a Cash Exercise with
respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the
Aggregate Exercise Price in the sum of $ to the Company in accordance with the
terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder Warrant
Shares in accordance with the terms of the Warrant.
Date: __, ________
| Name of Registered Holder | ||||
By: |
||||
| Title: | ||||
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs American Stock
Transfer & Trust Company to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated October [___], 2006 from the Company and
acknowledged and agreed to by American Stock Transfer & Trust Company.
| ELECTRO-OPTICAL SCIENCES, INC. | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
Exhibit 10.1
FORM OF
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of October 31, 2006, by and among
Electro-Optical Sciences, Inc., a Delaware corporation, with its principal offices 3 West Main
Street, Suite 201, Irvington, New York 10533 (the “Company”), and the investors listed on the
Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”).
WHEREAS:
A. The Company and each Buyer is executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of
1933, as amended (the “1933 Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by
the United States Securities and Exchange Commission (the “SEC”) under the 1933 Act.
B. Each Buyer wishes to purchase on a several and not joint basis, and the Company
wishes to sell, upon the terms and conditions stated in this Agreement, (i) that aggregate number
of shares of the Common Stock, par value $0.001 per share, of the Company (the “Common Stock”), set
forth opposite such Buyer’s name in column (3) on the Schedule of Buyers (which aggregate amount
for all Buyers together with the Other Buyers (as defined below) shall be 2,312,384 shares of
Common Stock and shall collectively be referred to herein as the “Common Shares”), and (ii) a
warrant to acquire up to that number of additional shares of Common Stock set forth opposite such
Buyer’s name in column (4) on the Schedule of Buyers (collectively, the “ Warrant Shares”), in
substantially the form attached hereto as Exhibit A (each a “Warrant” and, collectively,
the “ Warrants”).
C. Contemporaneously with this execution and delivery of this Agreement, the Company
will execute and deliver one or more Securities Purchase Agreements (the “Other Securities Purchase
Agreements”) with other buyers of Common Shares and Warrants (the “Other Buyers”) each of such
Other Securities Purchase Agreement will be substantially similar to this Agreement.
D. Contemporaneously with the execution and delivery of this Agreement, the parties
hereto are executing and delivering a Registration Rights Agreement, substantially in the form
attached hereto as Exhibit B (the “Registration Rights Agreement”) pursuant to which the
Company has agreed to provide certain registration rights with respect to the Common Shares, and
the Warrant Shares under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
E. The Common Shares, the Warrants and the Warrant Shares collectively are referred
to herein as the “Securities”.
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF COMMON SHARES AND WARRANTS
(a) Purchase of Common Shares and Warrants.
Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below,
the Company shall issue and sell to each Buyer, and each Buyer severally, but not jointly, shall
purchase from the Company on the Closing Date (as defined below), the number of Common Shares as is
set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers, along with a Warrant
to acquire up to that number of Warrant Shares as is set forth opposite such Buyer’s name in column
(4) on the Schedule of Buyers (the “Closing”).
(i) Closing. The date and time of the Closing (the “Closing Date”) shall be 10:00
a.m., New York City time, on the date hereof (or such later date as is mutually agreed to by the
Company and the Buyers) after notification of satisfaction (or waiver) of the conditions to the
Closing set forth in Sections 6 and 7 below at the offices of Schulte Roth & Zabel LLP, 919 Third
Avenue, New York, New York 10022 or such other location as is mutually agreed by the Company and
the Buyers of a majority in interest of the Securities.
(ii) Purchase Price. The aggregate purchase price for the Common Shares and the
Warrants to be purchased by each such Buyer at the Closing (the “Purchase Price”) shall be the
amount set forth opposite each Buyer’s name in column (5) of the Schedule of Buyers.
(b) Form of Payment. On the Closing Date, (i) immediately after each Buyer is
delivered the Securities contemplated in clause (ii) below, each such Buyer shall pay its Purchase
Price to the Company for the Common Shares and the Warrants to be issued and sold to such Buyer at
the Closing, by wire transfer of immediately available funds in accordance with the Company’s
written wire instructions and (ii) the Company shall deliver to each Buyer certificates
representing the Common Shares (allocated in the amounts as such Buyer shall request) which such
Buyer is then purchasing hereunder along with certificates representing the Warrants (allocated in
the amounts as such Buyer shall request) which such Buyer is purchasing, in each case duly executed
on behalf of the Company and registered in the name of such Buyer or its designee.
2. BUYER’S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
(a) No Public Sale or Distribution. Such Buyer is acquiring the Common Shares and the
Warrants, and upon exercise of the Warrants will acquire the Warrant Shares issuable upon exercise
of the Warrants, for its own account and not with a view towards, or for resale in connection with,
the public sale or distribution thereof, except pursuant to sales registered or exempted under the
1933 Act; provided, however, that by making the representations herein, such Buyer does not agree
to hold any of the Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a registration statement or
an exemption under the 1933 Act and pursuant to the applicable terms of the Transaction Documents
(as defined in Section 3(b)). Such Buyer is acquiring the Securities hereunder in the ordinary
course of its business. Such Buyer does not
-2-
presently have any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities. Such Buyer is not a broker-dealer registered with the SEC under
the 1934 Act or an entity engaged in a business that would require it to be so registered as a
broker-dealer.
(b) Accredited Investor Status. At the time such Buyer was offered the Securities,
it was, and at the date hereof it is, and on each date on which it exercises any Warrants, it will
be an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(5), (a)(6), (a)(7) or
(a)(8) under the 1933 Act.
(c) Reliance on Exemptions. Such Buyer understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying upon the truth and
accuracy of, and such Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of such Buyer to acquire the Securities.
(d) Information. Such Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities that have been requested by such Buyer. Such Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if
any, or its representatives shall modify, amend or affect such Buyer’s right to rely on the
Company’s representations and warranties contained herein. Such Buyer understands that its
investment in the Securities involves a high degree of risk and is able to afford a complete loss
of such investment. Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its acquisition of the
Securities. Such Buyer has not relied on any information or advice furnished by or on behalf of
the Agent (as defined below) or by counsel to the Company in connection with the transactions
contemplated hereby.
(e) No Governmental Review. Such Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities or the fairness or suitability of the investment in
the Securities nor have such authorities passed upon or endorsed the merits of the offering of the
Securities.
(f) Transfer or Resale. Such Buyer understands that except as provided in the
Registration Rights Agreement: (i) the Securities have not been and are not being registered under
the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to
the Company an opinion of counsel, in form, scope and substance reasonably acceptable to the
Company, to the effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or (C) such Buyer provides
the Company with reasonable assurance that such Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended, (or a successor rule
thereto) (collectively, “Rule 144”); (ii) any sale of the Securities made in
-3-
reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if
Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller
(or the Person (as defined in Section 3(q)) through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither
the Company nor any other Person is under any obligation to register the Securities under the 1933
Act or any state securities laws or to comply with the terms and conditions of any exemption
thereunder. The Securities may be pledged in connection with a bona fide margin account or other
loan or financing arrangement secured by the Securities and such pledge of Securities shall not be
deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer effecting a
pledge of Securities shall be required to provide the Company with any notice thereof or otherwise
make any delivery to the Company pursuant to this Agreement or any other Transaction Document (as
defined in Section 3(b)), including, without limitation, this Section 2(f).
(g) Legends. Such Buyer understands that the certificates or other instruments
representing the Common Shares and the Warrants and, until such time as the resale of the Common
Shares and the Warrant Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the stock certificates representing the Warrant Shares, except as
set forth below, shall bear any legend as required by the “blue sky” laws of any state and a
restrictive legend in substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN][THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO
THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a certificate without such
legend to the holder of the Securities, if, unless otherwise required by state securities laws, (i)
such Securities are registered for resale under the 1933 Act, (ii) in connection with a sale,
assignment or other transfer, such holder provides the Company with an opinion of a law firm
reasonably acceptable to the Company, in form, scope and substance reasonably acceptable to the
Company, to the effect that such sale, assignment or transfer of the Securities may be made
-4-
without registration under the applicable requirements of the 1933 Act, or (iii) such holder
provides the Company with reasonable assurance that the Securities can be sold, assigned or
transferred pursuant to Rule 144 or Rule 144A.
(h) Validity; Enforcement. Each Buyer is duly organized, validly existing and in good
standing under the laws of its jurisdiction of formation, and has all requisite power and authority
to enter into this Agreement and consummate the transactions contemplated hereby. This Agreement
and the Registration Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of such Buyer and shall constitute the legal, valid and binding obligations of such Buyer
enforceable against such Buyer in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and remedies.
(i) No Conflicts. The execution, delivery and performance by such Buyer of this
Agreement and the Registration Rights Agreement and the consummation by such Buyer of the
transactions contemplated hereby and thereby will not (i) result in a violation of the
organizational documents of such Buyer or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which such Buyer is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities laws) applicable to
such Buyer, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults,
rights or violations which would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on the ability of such Buyer to perform its obligations hereunder.
(j) Residency. Such Buyer is a resident of that jurisdiction specified below its
address on the Schedule of Buyers.
(k) General Solicitation. Such Buyer is not purchasing the Securities as a result of
any advertisement, article, notice or other communication regarding the Securities published un any
newspaper, magazine or similar media or broadcast over television or radio or presented at any
seminar or any general advertisement.
(l) Experience of Such Buyer. Such Buyer, either alone or together with its
representatives, has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment. Such Buyer is able to
bear the economic risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(m) Brokers and Finders. No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim against or upon the
Company or an Investor for any commission, fee or other compensation pursuant to any agreement,
arrangement or understanding with a placement agent entered into by or on behalf of such Buyer.
-5-
(n) Prohibited Transactions. Since the time when such Buyer was first contacted by the
Company or the Agent regarding the transactions contemplated hereby, neither such Buyer nor any
Affiliate of such Buyer nor any Person acting on behalf of or pursuant to any understanding with
such Buyer (collectively, “Trading Affiliates”) has, directly or indirectly, effected or agreed to
effect any short sale, whether or not against the box, established any “put equivalent position”
(as defined in Rule 16a-1(h) under the 1934 Act) with respect to the Common Stock, granted any
other right (including without limitation, any put or call option) with respect to the Common Stock
or with respect to any security that includes, relates to or derived any significant part of its
value from the Common Stock or otherwise sought to hedge its position in the Securities (each, a
“Prohibited Transaction”), and neither such Buyer nor its Trading Affiliates will enter into a
Prohibited Transaction after the date hereof until the transactions contemplated hereby are
announced pursuant to the 8-K Filing set forth in Section 4(i) hereof.
(o) Acknowledgement. Such Buyer acknowledges and agrees that the foregoing
representations, warranties, covenants and acknowledgments are made by it with the intention that
they may be relied upon by the Company and its agents and legal counsel in determining its
eligibility or (if applicable) the eligibility of others on whose behalf it is contracting
hereunder to purchase the Securities under the applicable securities legislation. Such Buyer
further agrees that by accepting delivery of the Securities at the Closing Date, it shall be
representing and warranting that the foregoing representations and warranties are true and correct
as at the Closing Date with the same force and effect as if they had been made by such Buyer at the
Closing Date and that they shall survive the purchase by such Buyer of the Securities and still
continue in full force and effect notwithstanding any subsequent disposition by such Buyer of the
Securities. The Company and its counsel shall be entitled to rely on the representations and
warranties of such Buyer contained in this paragraph.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that, except as set forth in its SEC
Documents:
(a) Organization and Qualification. The Company is a corporation duly organized and
validly existing in good standing under the laws of the jurisdiction in which it is incorporated,
and has the requisite corporate power and authorization to own its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary, except to the extent
that the failure to be so qualified or be in good standing would not reasonably be expected to have
a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means any material
adverse effect on the business, properties, assets, operations, results of operations, condition
(financial or otherwise) or prospects of the Company, taken as a whole, or on the transactions
contemplated hereby and the other Transaction Documents or by the agreements and instruments to be
entered into in connection herewith or therewith, or on the authority or ability of the Company to
perform its obligations under the Transaction Documents (as defined below). The Company has no
subsidiaries (which for purposes of this Agreement
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means any entity (i) in which the Company, directly or indirectly, owns capital stock or holds
an equity or similar interest and (ii) which has operations and material assets).
(b) Authorization; Enforcement; Validity. The Company has the requisite corporate
power and authority to enter into and perform its obligations under this Agreement, the Other
Securities Purchase Agreements, the Registration Rights Agreement, the Irrevocable Transfer Agent
Instructions (as defined in Section 5), the Warrants and each of the other agreements entered into
by the parties hereto in connection with the transactions contemplated by this Agreement and the
Other Securities Purchase Agreements (collectively, the “Transaction Documents”) and to issue the
Securities in accordance with the terms hereof and thereof. The execution and delivery of the
Transaction Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of the Common Shares
and the Warrants and the reservation for issuance and the issuance of the Warrant Shares issuable
upon exercise of the Warrant have been duly authorized by the Company’s Board of Directors and no
further filing, consent or authorization is required by the Company, its Board of Directors or its
stockholders. This Agreement and the other Transaction Documents have been duly executed and
delivered by the Company, and constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.
(c) Issuance of Securities. The Common Shares and the Warrants are duly authorized
and, when issued and paid for in accordance with the terms hereof, shall be validly issued and free
from all preemptive or similar rights, taxes, liens and charges with respect to the issue thereof
and the Common Shares shall be fully paid and nonassessable with the holders being entitled to all
rights accorded to a holder of Common Stock. As of the Closing, a number of shares of Common Stock
shall have been duly authorized and reserved for issuance which equals or exceeds 100% of the
aggregate of the maximum number of shares of Common Stock issuable upon exercise of the Warrants.
Upon exercise in accordance with the Warrants, the Warrant Shares will be validly issued, fully
paid and nonassessable and free from all preemptive or similar rights, taxes, liens and charges
with respect to the issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. Assuming the accuracy of each of the representations and warranties set
forth in Section 2 of this Agreement, the offer and issuance by the Company of the Securities is
exempt from registration under the 1933 Act.
(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the Common Shares and Warrants
and reservation for issuance and issuance of the Warrant Shares) will not (i) result in a violation
of the certificate of incorporation, or bylaws of the Company or (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a default) in any
respect under, or give to others any rights of termination, amendment, acceleration or cancellation
of, any agreement, indenture or instrument to which the Company is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including foreign, federal and
state securities laws and regulations and the rules and regulations
-7-
of The NASDAQ Capital Market (the “Principal Market”) applicable to the Company or by which
any property or asset of the Company is bound or affected, except for any such violation set forth
in clauses (ii) or (iii) above as could not reasonably be expected to result in Material Adverse
Effect.
(e) Consents. The Company is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court, governmental agency or any regulatory
or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of
its obligations under or contemplated by the Transaction Documents, in each case in accordance with
the terms hereof or thereof other than such as have been made or obtained, and except for the
registration of the Securities under the 1933 Act pursuant to the Registration Rights Agreement,
the filing of Form D, any filings required to be made under state securities laws, and any required
filings or notifications regarding the issuance or listing of additional securities with the
Principal Market. The Company has no knowledge of any facts or circumstances that might prevent
the Company from obtaining or effecting any of the registration, application or filings pursuant to
the preceding sentence. The Company is not in violation of the listing requirements of the
Principal Market and has no knowledge of any facts that would reasonably lead to delisting or
suspension of the Common Stock in the foreseeable future. As used herein, “knowledge” shall mean
actual knowledge of the executive officers (as defined in Rule 405 under the 1933 Act) of the
Company after due inquiry.
(f) Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges
and agrees that each Buyer is acting solely in the capacity of an arm’s length purchaser with
respect to the Transaction Documents and the transactions contemplated hereby and thereby and that
no Buyer is acting as a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to the Transaction Documents and the transactions contemplated hereby and thereby, and
any advice given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to
such Buyer’s purchase of the Securities. The Company further represents to each Buyer that the
Company’s decision to enter into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.
(g) No General Solicitation; Placement Agent’s Fees. Neither the Company, nor any of
its affiliates, nor any Person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D) in connection with the
offer or sale of the Securities. The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, or brokers’ commissions (other than for persons engaged by
any Buyer or its investment advisor) relating to or arising out of the transactions contemplated
hereby. The Company acknowledges that it has engaged Jefferies & Company, Inc. as placement agent
(the “Agent”) in connection with the sale of the Securities. Other than the Agent, the Company has
not engaged any placement agent or other agent in connection with the sale of the Securities.
(h) No Integrated Offering. Assuming the accuracy of the Buyers’ representations and
warranties set forth in Section 2 hereof, none of the Company, any of their affiliates, and any
Person acting on their behalf has, directly or indirectly, made any offers or
-8-
sales of any security or solicited any offers to buy any security, under circumstances that
would require registration of the issuance of any of the Securities under the 1933 Act, whether
through integration with prior offerings or otherwise, or cause this offering of the Securities to
require approval of stockholders of the Company for purposes of any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of any exchange or
automated quotation system on which any of the securities of the Company are listed or designated.
None of the Company, their affiliates and any Person acting on their behalf will take any action or
steps referred to in the preceding sentence that would require registration of the issuance of any
of the Securities under the 1933 Act or cause the offering of the Securities to be integrated with
other offerings for purposes of any such applicable stockholder approval provisions.
(i) Application of Takeover Protections; Rights Agreement. The Company and its board
of directors have taken all necessary action, if any, in order to render inapplicable any control
share acquisition, business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Certificate of Incorporation (as
defined in Section 3(p)) or the laws of the State of Delaware which is or could become applicable
to any Buyer as a result of the transactions contemplated by this Agreement, including, without
limitation, the Company’s issuance of the Securities and any Buyer’s ownership of the Securities.
The Company and its board of directors have taken all necessary action, if any, in order to render
inapplicable any stockholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
(j) SEC Documents; Financial Statements. Since October 28, 2005 (the “Reporting
Period”), the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting requirements of the
1934 Act (all of the foregoing filed during the Reporting Period or prior to the date of the
Closing and all exhibits included therein and financial statements, notes and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”).
The Company has delivered to the Buyers or their respective representatives true, correct and
complete copies of the SEC Documents not available on the EDGAR system, if any. As of their
respective filing dates, the SEC Documents complied in all material respects with the requirements
of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the
SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained
any untrue statement of a material fact or omitted 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
under which they were made, not misleading. As of their respective filing dates, the financial
statements of the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and regulations of the SEC
with respect thereto. Such financial statements have been prepared in accordance with generally
accepted accounting principles, consistently applied, during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case
of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal
-9-
year-end audit adjustments). No other information provided by or on behalf of the Company to
the Buyers which is not included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement or in any disclosure schedules, 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 circumstance under which they are or were made not
misleading.
(k) Absence of Certain Changes. Since June 30, 2006, there has been no material
adverse change and no material adverse development in the business, properties, operations,
condition (financial or otherwise), or results of operations or prospects of the Company. Since
June 30, 2006, the Company has not declared or paid any dividends. The Company has not taken any
steps to seek protection pursuant to any bankruptcy law nor does the Company have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact that would reasonably lead a creditor to do so. The Company is not as
of the date hereof, and after giving effect to the transactions contemplated hereby to occur at the
Closing, will not be Insolvent (as defined below). For purposes of this Section 3(k), “Insolvent”
means, with respect to any Person (as defined in Section 3(q)), (i) the present fair saleable value
of such Person’s assets is less than the amount required to pay such Person’s total Indebtedness
(as defined in Section 3(q)), (ii) such Person is unable to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured,
(iii) such Person intends to incur or believes that it will incur debts that would be beyond its
ability to pay as such debts mature or (iv) such Person has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted and is currently
proposed to be conducted.
(l) Conduct of Business; Regulatory Permits. The Company is not in violation of any
term of or in default under its Certificate of Incorporation, any certificate of designations of
any outstanding series of preferred stock of the Company or the Bylaws. The Company is not in
violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable
to the Company, and the Company will not conduct its business in violation of any of the foregoing,
except for possible violations which could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Without limiting the generality of the foregoing, the
Company is not in violation of any of the rules, regulations or requirements of the Principal
Market and has no knowledge of any facts or circumstances that would reasonably lead to delisting
or suspension of the Common Stock by the Principal Market in the foreseeable future. Since October
28, 2005, (i) the Common Stock has been designated for quotation or included for listing on the
Principal Market, (ii) trading in the Common Stock has not been suspended by the SEC or the
Principal Market and (iii) the Company has received no communication, written or oral, from the SEC
or the Principal Market regarding the suspension or delisting of the Common Stock from the
Principal Market. The Company possess all certificates, authorizations and permits issued by the
appropriate regulatory authorities necessary to its business, except where the failure to possess
such certificates, authorizations or permits could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, and the Company has not received any
notice of proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
-10-
(m) Foreign Corrupt Practices. Neither the Company nor any director, officer, agent,
employee or other Person acting on behalf of the Company has, in the course of its actions for, or
on behalf of, the Company (i) used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or employee from corporate
funds; (iii) violated or is in violation in any material respect of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic government
official or employee.
(n) Sarbanes-Oxley Act. The Company is in material compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof,
and any and all applicable rules and regulations promulgated by the SEC thereunder that are
effective as of the date hereof.
(o) Transactions With Affiliates. Except as set forth in the SEC Documents and as set
forth in Schedule 3(o) hereof, none of the officers, or directors, and to the knowledge of
the Company , none of the employees of the Company is presently a party to any transaction with the
Company (other than for ordinary course services as employees, consultants, officers or directors),
including any contract, agreement or other arrangement providing for the furnishing of services to
or by, providing for rental of real or personal property to or from, or otherwise requiring
payments to or from any such officer, director or employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any such officer, director, or employee
has a substantial interest or is an officer, director, trustee or partner.
(p) Equity Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of (x) 30,000,000 shares of Common Stock, of which as of the date hereof,
10,964,602 shares are issued and outstanding, 2,529,378 shares are reserved for issuance pursuant
to the Company’s employee incentive plan and other options and warrants outstanding and no shares
are reserved for issuance pursuant to securities (other than the Warrants) exercisable or
exchangeable for, or convertible into, shares of Common Stock, and (y) 10,000,000 shares of
preferred stock, of which as of the date hereof, none are issued and outstanding. All of such
outstanding shares have been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as set forth above in this Section 3(p): (i) none of the Company’s capital
stock is subject to preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; and (ii) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities
or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company,
or contracts, commitments, understandings or arrangements by which the Company is or may become
bound to issue additional capital stock of the Company or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of the Company; (iii) there
are no outstanding debt securities, notes, credit agreements, credit facilities or other
agreements, documents or instruments evidencing Indebtedness of the Company or by which the Company
is or may become bound; (iv) there are no financing statements securing obligations in any material
amounts, either singly or in the aggregate, filed in connection with the Company; (v) there are no
agreements or arrangements under which the
-11-
Company is obligated to register the sale of any of its securities under the 1933 Act (except
pursuant to the Registration Rights Agreement); (vi) there are no outstanding securities or
instruments of the Company which contain any redemption or similar provisions, and there are no
contracts, commitments, understandings or arrangements by which the Company is or may become bound
to redeem a security of the Company; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of the Securities;
(viii) the Company does not have any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement; and (ix) the Company has no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC Documents, other than
those incurred in the ordinary course of the Company’s business and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect. The Company has furnished or made
available to the Buyers true, correct and complete copies of the Company’s Certificate of
Incorporation, as amended and as in effect on the date hereof (the “Certificate of Incorporation”),
and the Company’s Bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and the
terms of all securities convertible into, or exercisable or exchangeable for, shares of Common
Stock and the material rights of the holders thereof in respect thereto.
(q) Indebtedness and Other Contracts. The Company (i) does not have any outstanding
Indebtedness (as defined below), (ii) is not a party to any contract, agreement or instrument, the
violation of which, or default under which, by the other party(ies) to such contract, agreement or
instrument could reasonably be expected to result in a Material Adverse Effect, (iii) is not in
violation of any term of or in default under any contract, agreement or instrument relating to any
Indebtedness, except where such violations and defaults would not result, individually or in the
aggregate, in a Material Adverse Effect, or (iv) is not a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s
officers, has or is expected to have a Material Adverse Effect. For purposes of this Agreement:
(x) “Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed
money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property
or services, including (without limitation) “capital leases” in accordance with generally accepted
accounting principles (other than trade payables entered into in the ordinary course of business),
(C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and
other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses, (E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case with respect to any
property or assets acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles, consistently
applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness
referred to in clauses (A) through (F) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which owns such assets or
property has not assumed or become liable for the payment of such indebtedness, and (H) all
Contingent Obligations in respect of indebtedness or obligations of
-12-
others of the kinds referred to in clauses (A) through (G) above; (y) “Contingent Obligation”
means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person
with respect to any indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is
to provide assurance to the obligee of such liability that such liability will be paid or
discharged, or that any agreements relating thereto will be complied with, or that the holders of
such liability will be protected (in whole or in part) against loss with respect thereto; and (z)
"Person” means an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any department or agency
thereof.
(r) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company, the Common Stock or any of the Company’s officers or directors,
whether of a civil or criminal nature or otherwise that if adversely determined would reasonably be
expected to have a Material Adverse Effect.
(s) Insurance. The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the Company is engaged. The
Company has not been refused any insurance coverage sought or applied for and the Company does not
have 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.
(t) Employee Relations.
(i) The Company is not a party to any collective bargaining agreement or employs any member of
a union. No executive officer of the Company has notified the Company that such officer intends to
leave the Company or otherwise terminate such officer’s employment with the Company. No executive
officer of the Company is in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any
other contract or agreement or any restrictive covenant, and the continued employment of each such
executive officer does not subject the Company to any liability with respect to any of the
foregoing matters.
(ii) The Company, to its knowledge, is in compliance with all federal, state, local and
foreign laws and regulations respecting labor, employment and employment practices and benefits,
terms and conditions of employment and wages and hours, except where failure to be in compliance
would not, either individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.
(u) Title. The Company has good and marketable title in fee simple to all real
property and good and marketable title to all personal property owned by them which is material to
the business of the Company, in each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not interfere
-13-
with the use made and proposed to be made of such property by the Company. Any real property
and facilities held under lease by the Company are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company.
(v) Intellectual Property Rights. The Company owns or possesses adequate rights or
licenses to use all trademarks, service marks and all applications and registrations therefor,
trade names, patents, patent rights, copyrights, original works of authorship, inventions, trade
secrets and other intellectual property rights (“Intellectual Property Rights”) necessary to
conduct its business as conducted on the date of this Agreement, except for such Intellectual
Property Rights, the inability to use would not have a Material Adverse Effect. To the knowledge
of the Company, no product or service of the Company infringes the Intellectual Property Rights of
others which could reasonably be expected to result in a Material Adverse Effect. There is no
claim, action or proceeding being made or brought, or to the knowledge of the Company, being
threatened, against the Company regarding (i) its Intellectual Property Rights, or (ii) that the
products or services of the Company infringe the Intellectual Property Rights of others. The
Company has taken reasonable security measures to protect the secrecy, confidentiality and value of
all of its Intellectual Property Rights.
(w) Environmental Laws. The Company (i) is in compliance with any and all
Environmental Laws (as hereinafter defined), (ii) has received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct its business and (iii) is
in compliance with all terms and conditions of any such permit, license or approval where, in each
of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected
to have, individually or in the aggregate, a Material Adverse Effect. The term “Environmental
Laws” means all federal, state, local or foreign laws relating to pollution or protection of human
health or the environment (including, without limitation, ambient air, surface water, groundwater,
land surface or subsurface strata), including, without limitation, laws relating to emissions,
discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or
otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees,
demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders,
permits, plans or regulations issued, entered, promulgated or approved thereunder.
(x) Tax Status. Except for matters that would not, individually or in the aggregate,
have or reasonably be expected to have a Material Adverse Effect, the Company (i) has made or filed
all foreign, federal and state income and all other tax returns, reports and declarations required
by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and (iii) has set aside on its
books provision reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of
the Company know of no basis for any such claim.
-14-
(y) Internal Accounting and Disclosure Controls. Except as described in the SEC
Documents, the Company maintains a system of internal accounting controls sufficient to provide
reasonable assurance 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 generally accepted accounting principles and to maintain
asset and liability accountability, (iii) access to assets or incurrence of liabilities is
permitted only in accordance with management’s general or specific authorization and (iv) the
recorded accountability for assets and liabilities is compared with the existing assets and
liabilities at reasonable intervals and appropriate action is taken with respect to any difference.
Except as disclosed in the SEC Documents, the Company maintains disclosure controls and procedures
(as such term is defined in Rule 13a-14 under the 1934 Act) that are effective in ensuring that are
designed to ensure that information required to be disclosed by the Company in the reports that it
files or submits under the 1934 Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC including, without limitation, controls
and procedures designed in to ensure that information required to be disclosed by the Company in
the reports that it files or submits under the 1934 Act is accumulated and communicated to the
Company’s management, including its principal executive officer or officers and its principal
financial officer or officers, as appropriate, to allow timely decisions regarding required
disclosure.
(z) Off Balance Sheet Arrangements. There is no transaction, arrangement, or other
relationship between the Company and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that
otherwise would be reasonably likely to have a Material Adverse Effect.
(aa) Investment Company Status. The Company is not, and upon consummation of the sale
of the Securities will not be, an “investment company,” a company controlled by an “investment
company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment
company” as such terms are defined in the Investment Company Act of 1940, as amended.
(bb) Form S-3 Eligibility. The Company is eligible to register the Common Shares and
the Warrant Shares for resale by the Buyers using Form S-3 promulgated under the 1933 Act.
(cc) Manipulation of Price. The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in
the stabilization or manipulation of the price of any security of the Company to facilitate the
sale or resale of any of the Securities, (ii) other than the Agent, sold, bid for, purchased, or
paid any compensation for soliciting purchases of, any of the Securities, or (iii) other than the
Agent, paid or agreed to pay to any person any compensation for soliciting another to purchase any
other securities of the Company.
(dd) Disclosure. The Company confirms that neither it nor any other Person acting on
its behalf has provided any of the Buyers (other than Dan W. Lufkin) or their agents or counsel
with any information that constitutes or could reasonably be expected to constitute material,
nonpublic information other than the terms of, and the existence of, the transactions
-15-
contemplated hereby. The Company understands and confirms that each of the Buyers (other than
Dan W. Lufkin) will rely on the foregoing representations in effecting transactions in securities
of the Company. All disclosure provided to the Buyers regarding the Company, its business and the
transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on
behalf of the Company is true and correct and does not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading. No event or
circumstance has occurred or information exists with respect to the Company or its business,
properties, prospects, operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed.
(ee) U.S. Real Property Holding Corporation. The Company is not, nor has it ever
been, a U.S. real property holding corporation within the meaning of Section 897 of the Internal
Revenue Code of 1986, as amended, and the Company shall so certify upon any Buyer’s request.
4. COVENANTS.
(a) Best Efforts. Each party shall use its reasonable best efforts timely to satisfy
each of the covenants and conditions to be satisfied by it as provided in Sections 6 and 7 of this
Agreement.
(b) Form D and Blue Sky. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly
after such filing. The Company, on or before the Closing Date, shall take such action as the
Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify
the Securities for sale to the Buyers at the Closing pursuant to this Agreement under applicable
securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption from
such qualification), and shall provide evidence of any such action so taken to the Buyers on or
prior to the Closing Date. The Company shall make all filings and reports relating to the offer
and sale of the Securities required under applicable securities or “Blue Sky” laws of the states of
the United States following the Closing Date.
(c) Reporting Status. Until the date on which the Investors (as defined in the
Registration Rights Agreement) shall have sold all the Common Shares and Warrant Shares and none of
the Warrants is outstanding (the “Reporting Period”), the Company shall timely file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale of the
Securities for general corporate purposes, and not for (A) the repayment of any outstanding
Indebtedness of the Company or (B) redemption or repurchase of any of its equity securities.
(e) Financial Information. The Company agrees to send the following to each Investor
(as defined in the Registration Rights Agreement) during the Reporting Period (i) unless
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the following are filed with the SEC through EDGAR and are available to the public through the
EDGAR system, within one (1) Business Day after the filing thereof with the SEC, a copy of its
Annual Reports and Quarterly Reports on Form 10-K, 10-Q, any interim reports or any consolidated
balance sheets, income statements, stockholders’ equity statements and/or cash flow statements for
any period other than annual, any Current Reports on Form 8-K and any registration statements
(other than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day as the
release thereof, facsimile or e-mailed copies of all press releases issued by the Company, and
(iii) copies of any notices and other information made available or given to the stockholders of
the Company generally, contemporaneously with the making available or giving thereof to the
stockholders. As used herein, “Business Day” means any day other than Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or required by law to remain
closed.
(f) Listing. The Company shall promptly secure the listing of all of the Registrable
Securities (as defined in the Registration Rights Agreement), once they have been issued, upon each
national securities exchange and automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents. The Company shall maintain the
Common Stock’s authorization for quotation on the Principal Market. The Company shall not take any
action which would be reasonably expected to result in the delisting or suspension of the Common
Stock on the Principal Market. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(f).
(g) Fees. The Company shall be responsible for the payment of any placement agent’s
fees, financial advisory fees, or broker’s commissions (other than for Persons engaged by any
Buyer) relating to or arising out of the transactions contemplated hereby, including, without
limitation, any fees or commissions payable to the Agents. Except as otherwise set forth in the
Transaction Documents, each party to this Agreement shall bear its own expenses in connection with
the sale of the Securities to the Buyers.
(h) Pledge of Securities. The Company acknowledges and agrees that the Securities may
be pledged by an Investor (as defined in the Registration Rights Agreement) in connection with a
bona fide margin agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale or assignment of
the Securities hereunder, and no Investor effecting a pledge of Securities shall be required to
provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant
to this Agreement or any other Transaction Document, including, without limitation, Section 2(f) of
this Agreement; provided that an Investor and its pledgee shall be required to comply with the
provisions of Section 2(f) of this Agreement in order to effect a sale, transfer or assignment of
Securities to such pledgee. The Company hereby agrees to execute and deliver such documentation as
a pledgee of the Securities may reasonably request in connection with a pledge of the Securities to
such pledgee by an Investor.
(i) Disclosure of Transactions and Other Material Information. On or before 8:30
a.m., New York City time, on the first Business Day following the date of this Agreement, the
Company shall issue a press release and file a Current Report on Form 8-K describing the
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terms of the transactions contemplated by the Transaction Documents in the form required by
the 1934 Act and attaching the material Transaction Documents (including, without limitation, this
Agreement, the form of Warrant and the form of the Registration Rights Agreement) as exhibits to
such filing (including all attachments, the “8-K Filing”). From and after the filing of the 8-K
Filing with the SEC, no Buyer shall be in possession of any material, nonpublic information
received from the Company or any of its officers, directors, employees or agents, that is not
disclosed in the 8-K Filing. The Company shall not, and shall cause its officers, directors,
employees and agents, not to, provide any Buyer with any material, nonpublic information regarding
the Company from and after the filing of the 8-K Filing with the SEC without the express written
consent of such Buyer. If a Buyer has, or believes it has, received any such material, nonpublic
information regarding the Company, it shall provide the Company with written notice thereof. The
Company shall, within five (5) Trading Days (as defined in the Warrants) of receipt of such notice,
make public disclosure of such material, nonpublic information. Neither the Company nor any Buyer
shall issue any press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure with respect to such
transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and
(ii) as is required by applicable law and regulations (provided that in the case of clause (i) each
Buyer shall be consulted by the Company in connection with any such press release or other public
disclosure prior to its release). Without the prior written consent of any applicable Buyer,
neither the Company nor any affiliates shall disclose the name of such Buyer in any filing,
announcement, release or otherwise other than in connection with the Registration Statement, as
contemplated pursuant to the Registration Rights Agreement, unless such disclosure is required by
law, regulation or the Principal Market.
(j) Reservation of Shares. The Company shall take all action necessary to at all
times have authorized, and reserved for the purpose of issuance, no less than 100% of the number of
shares of Common Stock issuable upon exercise of the Warrants issued at the Closing (without taking
into account any limitations on exercise of the Warrants set forth in the Warrants).
(k) Conduct of Business. The business of the Company shall not be conducted in
violation of any law, ordinance or regulation of any governmental entity, except where such
violations would not result, either individually or in the aggregate, in a Material Adverse Effect.
5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
(a) Register. The Company shall maintain at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to each holder of Securities),
a register for the Warrants in which the Company shall record the name and address of the Person in
whose name the Warrants have been issued (including the name and address of each transferee) and
the number of Warrant Shares issuable upon exercise of the Warrants held by such Person. The
Company shall keep the register open and available at all times during business hours for
inspection of any Buyer or its legal representatives.
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(b) Transfer Agent Instructions. The Company shall issue irrevocable instructions to
its transfer agent, and any subsequent transfer agent, to issue certificates or credit shares to
the applicable balance accounts at The Depository Trust Company (“DTC”), registered in the name of
each Buyer or its respective nominee(s), for the Warrant Shares in such amounts as specified from
time to time by each Buyer to the Company upon exercise of the Warrants in the form of Exhibit
C attached hereto (the “Irrevocable Transfer Agent Instructions”). The Company represents and
warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in
this Section 5, and stop transfer instructions to give effect to Section 2(f) hereof, will be given
by the Company to its transfer agent with respect to the Securities, and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the other Transaction Documents. If a Buyer effects a sale,
assignment or transfer of the Securities in accordance with Section 2(f), the Company shall permit
the transfer and shall promptly instruct its transfer agent to issue one or more certificates or
credit shares to the applicable balance accounts at DTC in such name and in such denominations as
specified by such Buyer to effect such sale, transfer or assignment. In the event that such sale,
assignment or transfer involves Warrant Shares sold, assigned or transferred pursuant to an
effective registration statement or pursuant to Rule 144, the transfer agent shall issue such
Securities to the Buyer, assignee or transferee, as the case may be, without any restrictive
legend.
(c) Breach. The Company acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to a Buyer. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 5 will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of this Section 5, that a
Buyer shall be entitled, in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
(d) Additional Relief. If the Company shall fail for any reason or for no reason to
issue to such holder unlegended certificates within three (3) Business Days of (x) receipt of
documents necessary for the removal of legend set forth above or (y) the date of its obligation to
deliver the shares of Common Stock as contemplated pursuant to clause (ii) below (the “Deadline
Date”), then, in addition to all other remedies available to the holder, if on or after the Trading
Day (as defined in the Warrants) immediately following such three Business Day period, the holder
purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the holder of shares of Common Stock that the holder anticipated
receiving from the Company (a “Buy-In"), then the Company shall, within three Business Days after
the holder’s request and in the holder’s discretion, either (i) pay cash to the holder in an amount
equal to the holder’s total purchase price (including brokerage commissions, if any) for the shares
of Common Stock so purchased (the “Buy-In Price"), at which point the Company’s obligation to
deliver such certificate (and to issue such shares of Common Stock) shall terminate, or (ii)
promptly honor its obligation to deliver to the holder a certificate or certificates representing
such shares of Common Stock and pay cash to the holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the
Closing Bid Price on the Deadline Date. “Closing Bid Price” means, for any security as of any
date, the last closing price for such security on The NASDAQ Capital Market (the “Principal
Market”), as reported by Bloomberg, or, if the Principal Market
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begins to operate on an extended hours basis and does not designate the closing bid price then
the last bid price of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading market for such
security, the last closing price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing price of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid price is reported
for such security by Bloomberg, the average of the bid prices of any market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation
Bureau, Inc.). If the Closing Bid Price cannot be calculated for a security on a particular date
on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the
fair market value as mutually determined by the Company and the holder. If the Company and the
holder are unable to agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 13 of the Warrants. All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar transaction during
the applicable calculation period.
6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Common Shares and the related
Warrants to each Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are for the Company’s
sole benefit and may be waived by the Company at any time in its sole discretion by providing each
Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction Documents to which it is a party
and delivered the same to the Company.
(ii) Such Buyer shall have delivered to the Company the Purchase Price for the Common Shares
and the related Warrants being purchased by such Buyer and each other Buyer at the Closing by wire
transfer of immediately available funds pursuant to the wire instructions provided by the Company.
(iii) The representations and warranties of such Buyer shall be true and correct in all
material respects (except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all respects) as of the
date when made and as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which shall be true and correct as of such
specified date), and such Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Buyer at or prior to the Closing Date.
(iv) Absence of Litigation. No proceeding challenging this Agreement or the
transactions contemplated hereby, or seeking to prohibit, alter, prevent or materially delay the
Closing, shall have been instituted or be pending before any court, arbitrator, governmental body,
agency or official.
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(v) No Governmental Prohibition. The sale of the Securities by the Company shall not
be prohibited by any law or governmental order or regulation.
7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Common Shares and the related Warrants
at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for each Buyer’s sole benefit and may be
waived by such Buyer at any time in its sole discretion by providing the Company with prior written
notice thereof:
(i) The Company shall have duly executed and delivered to such Buyer (i) each of the
Transaction Documents and (ii) the Common Shares (in such amounts as such Buyer shall request) and
the related Warrants (in such amounts as such Buyer shall request) being purchased by such Buyer at
the Closing pursuant to this Agreement.
(ii) Such Buyer shall have received the opinion of Dreier LLP, counsel for the Company
(“Company Counsel”), dated as of the Closing Date, in substantially the form of Exhibit D
attached hereto.
(iii) The Company shall have delivered to such Buyer a copy of the Irrevocable Transfer Agent
Instructions, in the form of Exhibit C attached hereto, which instructions shall have been
delivered to and acknowledged in writing by the Company’s transfer agent.
(iv) The Company shall have delivered to such Buyer a certificate evidencing the incorporation
and good standing of the Company in the Company’s state of incorporation issued by the Secretary of
State as of a date within 10 days of the Closing Date.
(v) The Common Stock (I) shall be listed on the Principal Market and (II) shall not have been
suspended, as of the Closing Date, by the SEC or the Principal Market from trading on the Principal
Market nor shall suspension by the SEC or the Principal Market have been threatened, as of the
Closing Date, either (A) in writing by the SEC or the Principal Market or (B) by falling below the
minimum listing maintenance requirements of the Principal Market.
(vi) The Company shall have delivered to such Buyer a certificate, executed by the Secretary
of the Company and dated as of the Closing Date, as to (i) the resolutions consistent with Section
3(b) as adopted by the Company’s Board of Directors in a form reasonably acceptable to such Buyer,
(ii) the Certificate of Incorporation and (iii) the Bylaws, each as in effect at the Closing, in
the form attached hereto as Exhibit E.
(vii) The representations and warranties of the Company shall be true and correct in all
material respects (except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all respects) as of the
date when made and as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which shall be true and correct as of such
specified date) and the Company shall have performed, satisfied and complied
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in all material respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the
Closing Date. Such Buyer shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer in the form attached hereto as Exhibit
F.
(viii) The Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Common Shares and the Warrants.
(ix) The Company shall have delivered to such Buyer such other documents relating to the
transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request.
8. TERMINATION. In the event that the Closing shall not have occurred with respect to
a Buyer on or before five (5) Business Days from the date hereof due to the Company’s or such
Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above (and the nonbreaching
party’s failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the
option to terminate this Agreement with respect to such breaching party at the close of business on
such date without liability of any party to any other party.
9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of New York. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts
sitting in The City of New York, Borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding
is improper. Each party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy thereof to such party
at the address for such notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL
FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and shall become
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effective when counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an original, not a
facsimile signature.
(c) Headings. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity
or enforceability of any provision of this Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement and the other Transaction Documents
supersede all other prior oral or written agreements between the Buyers, the Company, their
affiliates and Persons acting on their behalf with respect to the matters discussed herein, and
this Agreement, the other Transaction Documents and the instruments referenced herein and therein
contain the entire understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer
makes any representation, warranty, covenant or undertaking with respect to such matters. No
provision of this Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of Common Shares representing at least a majority of the amount of the
Common Shares, or, if prior to the Closing Date, the Buyers listed on the Schedule of Buyers as
being obligated to purchase at least a majority of the amount of the Common Shares. No provision
hereof may be waived other than by an instrument in writing signed by the party against whom
enforcement is sought. No such amendment shall be effective to the extent that it applies to less
than all of the holders of the Common Shares then outstanding. No consideration shall be offered
or paid to any Person to amend or consent to a waiver or modification of any provision of any of
the Transaction Documents unless the same consideration also is offered to all of the parties to
the Transaction Documents, holders of Common Shares or holders of the Warrants, as the case may be.
The Company has not, directly or indirectly, made any agreements with any Buyers relating to the
terms or conditions of the transactions contemplated by the Transaction Documents except as set
forth in the Transaction Documents. Without limiting the foregoing, the Company confirms that,
except as set forth in this Agreement, no Buyer has made any commitment or promise or has any other
obligation to provide any financing to the Company or otherwise.
(f) Notices. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and will be deemed to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with an overnight
courier service, in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
If to the Company:
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Electro-Optical Sciences, Inc.
3 West Main Street, Suite 201
Irvington, New York 10533
Telephone: (914) 591-3783
Facsimile: (914) 591-3701
Attention: Chief Financial Officer
3 West Main Street, Suite 201
Irvington, New York 10533
Telephone: (914) 591-3783
Facsimile: (914) 591-3701
Attention: Chief Financial Officer
with a copy (for informational purposes only) to:
Dreier LLP
499 Park Avenue
New York, NY 10022
Telephone: (212) 328-6100
Facsimile: (212) 328-6101
Attention: Valerie Price
499 Park Avenue
New York, NY 10022
Telephone: (212) 328-6100
Facsimile: (212) 328-6101
Attention: Valerie Price
If to the Transfer Agent:
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
Telephone: (718) 921-8206
Facsimile: (718) 921-8336
Attention: Geraldine Lippman
59 Maiden Lane
New York, NY 10038
Telephone: (718) 921-8206
Facsimile: (718) 921-8336
Attention: Geraldine Lippman
If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers, with copies
to such Buyer’s representatives as set forth on the Schedule of Buyers, or to such other address
and/or facsimile number and/or to the attention of such other Person as the recipient party has
specified by written notice given to each other party five (5) days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by the sender’s
facsimile machine containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight courier service in
accordance with clause (i), (ii) or (iii) above, respectively.
With a copy (for informational purposes only; provided that failure to deliver notice to the
following will not result in a breach by any party hereto) to:
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
Attention: Eleazer N. Klein, Esq.
919 Third Avenue
New York, New York 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
Attention: Eleazer N. Klein, Esq.
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(g) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including any purchasers of the
Common Shares or the Warrants. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the holders of at least a majority of
the aggregate number of Registrable Securities issued and issuable hereunder, including by way of a
Fundamental Transaction. A Buyer may assign some or all of its rights hereunder without the
consent of the Company, in which event such assignee shall be deemed to be a Buyer hereunder with
respect to such assigned rights. A merger or sale of the Company shall not be deemed to be an
assignment for the purposes of this section.
(h) No Third Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person, except that the Agent may rely
upon the representations and warranties contained in Section 2 hereof.
(i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers in Sections 2 and 3 shall survive the
Closing until the eighteen-month anniversary of the Closing Date (except for the representations
and warranties of the Company made pursuant to Section 3(c), which shall survive indefinitely), and
the agreements and covenants set forth in Sections 4, 5 and 9 shall survive the Closing until the
expiration of the applicable statute of limitations. Each Buyer shall be responsible
only for its own representations, warranties, agreements and covenants hereunder.
(j) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as any other party may reasonably request in
order to carry out the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
(k) Indemnification. In consideration of each Buyer’s execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to all of the
Company’s other obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless each Buyer and each other holder of the Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or indirect investors
and any of the foregoing Persons’ agents or other representatives (including, without limitation,
those retained in connection with the transactions contemplated by this Agreement) (collectively,
the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective
of whether any such Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified
Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the Company in the
Transaction Documents or any other certificate, instrument or document contemplated hereby or
thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the
Transaction Documents or any other certificate, instrument or
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document contemplated hereby or thereby or (c) any cause of action, suit or claim brought or
made against such Indemnitee by a third party (including for these purposes a derivative action
brought on behalf of the Company) and arising out of or resulting from (i) the execution, delivery,
performance or enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (ii) any transaction financed or to be financed in whole
or in part, directly or indirectly, with the proceeds of the issuance of the Securities, or (iii)
the status of such Buyer or holder of the Securities as an investor in the Company. To the extent
that the foregoing undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set forth herein, the
mechanics and procedures with respect to the rights and obligations under this Section 9(k) shall
be the same as those set forth in Section 6 of the Registration Rights Agreement.
(l) No Strict Construction. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.
(m) Remedies. Each Buyer and each holder of the Securities shall have all rights and
remedies set forth in the Transaction Documents and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the rights which such
holders have under any law. Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or other security),
to recover damages by reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. Furthermore, the Company recognizes that in the event that it fails
to perform, observe, or discharge any or all of its obligations under the Transaction Documents,
any remedy at law may prove to be inadequate relief to the Buyers. The Company therefore agrees
that the Buyers shall be entitled to seek temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages and without posting a bond or other security.
(n) Payment Set Aside. To the extent that the Company makes a payment or payments to
the Buyers hereunder or pursuant to any of the other Transaction Documents or the Buyers enforce or
exercise their rights hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent
or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, foreign, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such enforcement or setoff had not occurred.
(o) Independent Nature of Buyers’ Obligations and Rights. The obligations of each
Buyer under any Transaction Document are several and not joint with the obligations of any other
Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any
other Buyer under any Transaction Document. Nothing contained herein or in any other
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Transaction Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as, a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Buyers are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated by the Transaction
Documents. Each Buyer shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any other Buyer to be joined as an
additional party in any proceeding for such purpose.
(p) Publicity. The Company agrees that it will not use in advertising or publicity the
names of the Purchaser, Fidelity Management & Research Company, any of its partners or employees,
any of the funds or accounts managed by it or any of its affiliates, or any trade name, trademark,
trade device, service mark, symbol or any abbreviation, contraction or simulation thereof, in any
case without the prior written consent of Fidelity Management & Research Company.
(q) Limitation of Liability. A copy of the Agreement and Declaration of Trust of each
Purchaser is on file with the Secretary of State of the Commonwealth of Massachusetts, and notice
is hereby given that this Agreement is executed on behalf of the Trustees of each Purchaser as
Trustees and not individually and that the obligations of this Agreement are not binding upon any
of the Trustees, officers or stockholders of the Purchaser individually but are binding only upon
the assets and property of such Purchaser. The Company is expressly put on notice that the rights
and obligations of each series of shares of each Purchaser under its Declaration of Trust are
separate and distinct from those of any and all other entities.
[Signature Page Follows]
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IN WITNESS WHEREOF, each Buyer and the Company have caused its respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.
| COMPANY: | ||||
| ELECTRO-OPTICAL SCIENCES, INC. | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.
| BUYERS: | ||||
| [BUYER] | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| Name, as it should appear on the Securities | ||||
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.
| [OTHER BUYERS] | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| Name, as it should appear on the Securities | ||||
EXHIBITS
Exhibit A
|
Form of Warrant | |
Exhibit B
|
Form of Registration Rights Agreement | |
Exhibit C
|
Form of Irrevocable Transfer Agent Instructions | |
Exhibit D
|
Form of Company Counsel Opinion | |
Exhibit E
|
Form of Secretary’s Certificate | |
Exhibit F
|
Form of Officer’s Certificate |
Exhibit 10.2
FORM OF
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of October 31, 2006, by and among
Electro-Optical Sciences, Inc., a Delaware corporation, with its principal offices 3 West Main
Street, Suite 201, Irvington, New York 10533 (the “Company”), and the investors listed on the
Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”).
WHEREAS:
A. The Company and each Buyer is executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of
1933, as amended (the “1933 Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by
the United States Securities and Exchange Commission (the “SEC”) under the 1933 Act.
B. Each Buyer wishes to purchase on a several and not joint basis, and the Company
wishes to sell, upon the terms and conditions stated in this Agreement, (i) that aggregate number
of shares of the Common Stock, par value $0.001 per share, of the Company (the “Common Stock”), set
forth opposite such Buyer’s name in column (3) on the Schedule of Buyers (which aggregate amount
for all Buyers together with the Other Buyers (as defined below) shall be 2,312,384 shares of
Common Stock and shall collectively be referred to herein as the “Common Shares”), and (ii) a
warrant to acquire up to that number of additional shares of Common Stock set forth opposite such
Buyer’s name in column (4) on the Schedule of Buyers (collectively, the “ Warrant Shares”), in
substantially the form attached hereto as Exhibit A (each a “Warrant” and, collectively,
the “ Warrants”).
C. Contemporaneously with this execution and delivery of this Agreement, the Company
will execute and deliver one or more Securities Purchase Agreements (the “Other Securities Purchase
Agreements”) with other buyers of Common Shares and Warrants (the “Other Buyers”) each of such
Other Securities Purchase Agreement will be substantially similar to this Agreement.
D. Contemporaneously with the execution and delivery of this Agreement, the parties
hereto are executing and delivering a Registration Rights Agreement, substantially in the form
attached hereto as Exhibit B (the “Registration Rights Agreement”) pursuant to which the
Company has agreed to provide certain registration rights with respect to the Common Shares, and
the Warrant Shares under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
E. The Common Shares, the Warrants and the Warrant Shares collectively are referred
to herein as the “Securities”.
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF COMMON SHARES AND WARRANTS
(a) Purchase of Common Shares and Warrants.
Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below,
the Company shall issue and sell to each Buyer, and each Buyer severally, but not jointly, shall
purchase from the Company on the Closing Date (as defined below), the number of Common Shares as is
set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers, along with a Warrant
to acquire up to that number of Warrant Shares as is set forth opposite such Buyer’s name in column
(4) on the Schedule of Buyers (the “Closing”).
(i) Closing. The date and time of the Closing (the “Closing Date”) shall be 10:00
a.m., New York City time, on the date hereof (or such later date as is mutually agreed to by the
Company and the Buyers) after notification of satisfaction (or waiver) of the conditions to the
Closing set forth in Sections 6 and 7 below at the offices of Schulte Roth & Zabel LLP, 919 Third
Avenue, New York, New York 10022 or such other location as is mutually agreed by the Company and
the Buyers of a majority in interest of the Securities.
(ii) Purchase Price. The aggregate purchase price for the Common Shares and the
Warrants to be purchased by each such Buyer at the Closing (the “Purchase Price”) shall be the
amount set forth opposite each Buyer’s name in column (5) of the Schedule of Buyers.
(b) Form of Payment. On the Closing Date, (i) immediately after each Buyer is
delivered the Securities contemplated in clause (ii) below, each such Buyer shall pay its Purchase
Price to the Company for the Common Shares and the Warrants to be issued and sold to such Buyer at
the Closing, by wire transfer of immediately available funds in accordance with the Company’s
written wire instructions and (ii) the Company shall deliver to each Buyer certificates
representing the Common Shares (allocated in the amounts as such Buyer shall request) which such
Buyer is then purchasing hereunder along with certificates representing the Warrants (allocated in
the amounts as such Buyer shall request) which such Buyer is purchasing, in each case duly executed
on behalf of the Company and registered in the name of such Buyer or its designee.
2. BUYER’S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
(a) No Public Sale or Distribution. Such Buyer is acquiring the Common Shares and the
Warrants, and upon exercise of the Warrants will acquire the Warrant Shares issuable upon exercise
of the Warrants, for its own account and not with a view towards, or for resale in connection with,
the public sale or distribution thereof, except pursuant to sales registered or exempted under the
1933 Act; provided, however, that by making the representations herein, such Buyer does not agree
to hold any of the Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a registration statement or
an exemption under the 1933 Act and pursuant to the applicable terms of the Transaction Documents
(as defined in Section 3(b)). Such Buyer is acquiring the Securities hereunder in the ordinary
course of its business. Such Buyer does not
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presently have any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities. Such Buyer is not a broker-dealer registered with the SEC under
the 1934 Act or an entity engaged in a business that would require it to be so registered as a
broker-dealer.
(b) Accredited Investor Status. At the time such Buyer was offered the Securities,
it was, and at the date hereof it is, and on each date on which it exercises any Warrants, it will
be an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(5), (a)(6), (a)(7) or
(a)(8) under the 1933 Act.
(c) Reliance on Exemptions. Such Buyer understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying upon the truth and
accuracy of, and such Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of such Buyer to acquire the Securities.
(d) Information. Such Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities that have been requested by such Buyer. Such Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if
any, or its representatives shall modify, amend or affect such Buyer’s right to rely on the
Company’s representations and warranties contained herein. Such Buyer understands that its
investment in the Securities involves a high degree of risk and is able to afford a complete loss
of such investment. Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its acquisition of the
Securities. Such Buyer has not relied on any information or advice furnished by or on behalf of
the Agent (as defined below) or by counsel to the Company in connection with the transactions
contemplated hereby.
(e) No Governmental Review. Such Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities or the fairness or suitability of the investment in
the Securities nor have such authorities passed upon or endorsed the merits of the offering of the
Securities.
(f) Transfer or Resale. Such Buyer understands that except as provided in the
Registration Rights Agreement: (i) the Securities have not been and are not being registered under
the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to
the Company an opinion of counsel, in form, scope and substance reasonably acceptable to the
Company, to the effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or (C) such Buyer provides
the Company with reasonable assurance that such Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended, (or a successor rule
thereto) (collectively, “Rule 144”); (ii) any sale of the Securities made in
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reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if
Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller
(or the Person (as defined in Section 3(q)) through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither
the Company nor any other Person is under any obligation to register the Securities under the 1933
Act or any state securities laws or to comply with the terms and conditions of any exemption
thereunder. The Securities may be pledged in connection with a bona fide margin account or other
loan or financing arrangement secured by the Securities and such pledge of Securities shall not be
deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer effecting a
pledge of Securities shall be required to provide the Company with any notice thereof or otherwise
make any delivery to the Company pursuant to this Agreement or any other Transaction Document (as
defined in Section 3(b)), including, without limitation, this Section 2(f).
(g) Legends. Such Buyer understands that the certificates or other instruments
representing the Common Shares and the Warrants and, until such time as the resale of the Common
Shares and the Warrant Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the stock certificates representing the Warrant Shares, except as
set forth below, shall bear any legend as required by the “blue sky” laws of any state and a
restrictive legend in substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN][THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO
THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a certificate without such
legend to the holder of the Securities, if, unless otherwise required by state securities laws, (i)
such Securities are registered for resale under the 1933 Act, (ii) in connection with a sale,
assignment or other transfer, such holder provides the Company with an opinion of a law firm
reasonably acceptable to the Company, in form, scope and substance reasonably acceptable to the
Company, to the effect that such sale, assignment or transfer of the Securities may be made
-4-
without registration under the applicable requirements of the 1933 Act, or (iii) such holder
provides the Company with reasonable assurance that the Securities can be sold, assigned or
transferred pursuant to Rule 144 or Rule 144A.
(h) Validity; Enforcement. Each Buyer is duly organized, validly existing and in good
standing under the laws of its jurisdiction of formation, and has all requisite power and authority
to enter into this Agreement and consummate the transactions contemplated hereby. This Agreement
and the Registration Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of such Buyer and shall constitute the legal, valid and binding obligations of such Buyer
enforceable against such Buyer in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and remedies.
(i) No Conflicts. The execution, delivery and performance by such Buyer of this
Agreement and the Registration Rights Agreement and the consummation by such Buyer of the
transactions contemplated hereby and thereby will not (i) result in a violation of the
organizational documents of such Buyer or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which such Buyer is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities laws) applicable to
such Buyer, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults,
rights or violations which would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on the ability of such Buyer to perform its obligations hereunder.
(j) Residency. Such Buyer is a resident of that jurisdiction specified below its
address on the Schedule of Buyers.
(k) General Solicitation. Such Buyer is not purchasing the Securities as a result of
any advertisement, article, notice or other communication regarding the Securities published un any
newspaper, magazine or similar media or broadcast over television or radio or presented at any
seminar or any general advertisement.
(l) Experience of Such Buyer. Such Buyer, either alone or together with its
representatives, has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment. Such Buyer is able to
bear the economic risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(m) Brokers and Finders. No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim against or upon the
Company or an Investor for any commission, fee or other compensation pursuant to any agreement,
arrangement or understanding with a placement agent entered into by or on behalf of such Buyer.
-5-
(n) Prohibited Transactions. Since the time when such Buyer was first contacted by the
Company or the Agent regarding the transactions contemplated hereby, neither such Buyer nor any
Affiliate of such Buyer nor any Person acting on behalf of or pursuant to any understanding with
such Buyer (collectively, “Trading Affiliates”) has, directly or indirectly, effected or agreed to
effect any short sale, whether or not against the box, established any “put equivalent position”
(as defined in Rule 16a-1(h) under the 1934 Act) with respect to the Common Stock, granted any
other right (including without limitation, any put or call option) with respect to the Common Stock
or with respect to any security that includes, relates to or derived any significant part of its
value from the Common Stock or otherwise sought to hedge its position in the Securities (each, a
“Prohibited Transaction”), and neither such Buyer nor its Trading Affiliates will enter into a
Prohibited Transaction after the date hereof until the transactions contemplated hereby are
announced pursuant to the 8-K Filing set forth in Section 4(i) hereof.
(o) Acknowledgement. Such Buyer acknowledges and agrees that the foregoing
representations, warranties, covenants and acknowledgments are made by it with the intention that
they may be relied upon by the Company and its agents and legal counsel in determining its
eligibility or (if applicable) the eligibility of others on whose behalf it is contracting
hereunder to purchase the Securities under the applicable securities legislation. Such Buyer
further agrees that by accepting delivery of the Securities at the Closing Date, it shall be
representing and warranting that the foregoing representations and warranties are true and correct
as at the Closing Date with the same force and effect as if they had been made by such Buyer at the
Closing Date and that they shall survive the purchase by such Buyer of the Securities and still
continue in full force and effect notwithstanding any subsequent disposition by such Buyer of the
Securities. The Company and its counsel shall be entitled to rely on the representations and
warranties of such Buyer contained in this paragraph.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that, except as set forth in its SEC
Documents:
(a) Organization and Qualification. The Company is a corporation duly organized and
validly existing in good standing under the laws of the jurisdiction in which it is incorporated,
and has the requisite corporate power and authorization to own its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary, except to the extent
that the failure to be so qualified or be in good standing would not reasonably be expected to have
a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means any material
adverse effect on the business, properties, assets, operations, results of operations, condition
(financial or otherwise) or prospects of the Company, taken as a whole, or on the transactions
contemplated hereby and the other Transaction Documents or by the agreements and instruments to be
entered into in connection herewith or therewith, or on the authority or ability of the Company to
perform its obligations under the Transaction Documents (as defined below). The Company has no
subsidiaries (which for purposes of this Agreement
-6-
means any entity (i) in which the Company, directly or indirectly, owns capital stock or holds
an equity or similar interest and (ii) which has operations and material assets).
(b) Authorization; Enforcement; Validity. The Company has the requisite corporate
power and authority to enter into and perform its obligations under this Agreement, the Other
Securities Purchase Agreements, the Registration Rights Agreement, the Irrevocable Transfer Agent
Instructions (as defined in Section 5), the Warrants and each of the other agreements entered into
by the parties hereto in connection with the transactions contemplated by this Agreement and the
Other Securities Purchase Agreements (collectively, the “Transaction Documents”) and to issue the
Securities in accordance with the terms hereof and thereof. The execution and delivery of the
Transaction Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of the Common Shares
and the Warrants and the reservation for issuance and the issuance of the Warrant Shares issuable
upon exercise of the Warrant have been duly authorized by the Company’s Board of Directors and no
further filing, consent or authorization is required by the Company, its Board of Directors or its
stockholders. This Agreement and the other Transaction Documents have been duly executed and
delivered by the Company, and constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.
(c) Issuance of Securities. The Common Shares and the Warrants are duly authorized
and, when issued and paid for in accordance with the terms hereof, shall be validly issued and free
from all preemptive or similar rights, taxes, liens and charges with respect to the issue thereof
and the Common Shares shall be fully paid and nonassessable with the holders being entitled to all
rights accorded to a holder of Common Stock. As of the Closing, a number of shares of Common Stock
shall have been duly authorized and reserved for issuance which equals or exceeds 100% of the
aggregate of the maximum number of shares of Common Stock issuable upon exercise of the Warrants.
Upon exercise in accordance with the Warrants, the Warrant Shares will be validly issued, fully
paid and nonassessable and free from all preemptive or similar rights, taxes, liens and charges
with respect to the issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. Assuming the accuracy of each of the representations and warranties set
forth in Section 2 of this Agreement, the offer and issuance by the Company of the Securities is
exempt from registration under the 1933 Act.
(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the Common Shares and Warrants
and reservation for issuance and issuance of the Warrant Shares) will not (i) result in a violation
of the certificate of incorporation, or bylaws of the Company or (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a default) in any
respect under, or give to others any rights of termination, amendment, acceleration or cancellation
of, any agreement, indenture or instrument to which the Company is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including foreign, federal and
state securities laws and regulations and the rules and regulations
-7-
of The NASDAQ Capital Market (the “Principal Market”) applicable to the Company or by which
any property or asset of the Company is bound or affected, except for any such violation set forth
in clauses (ii) or (iii) above as could not reasonably be expected to result in Material Adverse
Effect.
(e) Consents. The Company is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court, governmental agency or any regulatory
or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of
its obligations under or contemplated by the Transaction Documents, in each case in accordance with
the terms hereof or thereof other than such as have been made or obtained, and except for the
registration of the Securities under the 1933 Act pursuant to the Registration Rights Agreement,
the filing of Form D, any filings required to be made under state securities laws, and any required
filings or notifications regarding the issuance or listing of additional securities with the
Principal Market. The Company has no knowledge of any facts or circumstances that might prevent
the Company from obtaining or effecting any of the registration, application or filings pursuant to
the preceding sentence. The Company is not in violation of the listing requirements of the
Principal Market and has no knowledge of any facts that would reasonably lead to delisting or
suspension of the Common Stock in the foreseeable future. As used herein, “knowledge” shall mean
actual knowledge of the executive officers (as defined in Rule 405 under the 1933 Act) of the
Company after due inquiry.
(f) Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges
and agrees that each Buyer is acting solely in the capacity of an arm’s length purchaser with
respect to the Transaction Documents and the transactions contemplated hereby and thereby and that
no Buyer is acting as a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to the Transaction Documents and the transactions contemplated hereby and thereby, and
any advice given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to
such Buyer’s purchase of the Securities. The Company further represents to each Buyer that the
Company’s decision to enter into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.
(g) No General Solicitation; Placement Agent’s Fees. Neither the Company, nor any of
its affiliates, nor any Person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D) in connection with the
offer or sale of the Securities. The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, or brokers’ commissions (other than for persons engaged by
any Buyer or its investment advisor) relating to or arising out of the transactions contemplated
hereby. The Company acknowledges that it has engaged Jefferies & Company, Inc. as placement agent
(the “Agent”) in connection with the sale of the Securities. Other than the Agent, the Company has
not engaged any placement agent or other agent in connection with the sale of the Securities.
(h) No Integrated Offering. Assuming the accuracy of the Buyers’ representations and
warranties set forth in Section 2 hereof, none of the Company, any of their affiliates, and any
Person acting on their behalf has, directly or indirectly, made any offers or
-8-
sales of any security or solicited any offers to buy any security, under circumstances that
would require registration of the issuance of any of the Securities under the 1933 Act, whether
through integration with prior offerings or otherwise, or cause this offering of the Securities to
require approval of stockholders of the Company for purposes of any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of any exchange or
automated quotation system on which any of the securities of the Company are listed or designated.
None of the Company, their affiliates and any Person acting on their behalf will take any action or
steps referred to in the preceding sentence that would require registration of the issuance of any
of the Securities under the 1933 Act or cause the offering of the Securities to be integrated with
other offerings for purposes of any such applicable stockholder approval provisions.
(i) Application of Takeover Protections; Rights Agreement. The Company and its board
of directors have taken all necessary action, if any, in order to render inapplicable any control
share acquisition, business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Certificate of Incorporation (as
defined in Section 3(p)) or the laws of the State of Delaware which is or could become applicable
to any Buyer as a result of the transactions contemplated by this Agreement, including, without
limitation, the Company’s issuance of the Securities and any Buyer’s ownership of the Securities.
The Company and its board of directors have taken all necessary action, if any, in order to render
inapplicable any stockholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
(j) SEC Documents; Financial Statements. Since October 28, 2005 (the “Reporting
Period”), the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting requirements of the
1934 Act (all of the foregoing filed during the Reporting Period or prior to the date of the
Closing and all exhibits included therein and financial statements, notes and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”).
The Company has delivered to the Buyers or their respective representatives true, correct and
complete copies of the SEC Documents not available on the EDGAR system, if any. As of their
respective filing dates, the SEC Documents complied in all material respects with the requirements
of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the
SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained
any untrue statement of a material fact or omitted 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
under which they were made, not misleading. As of their respective filing dates, the financial
statements of the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and regulations of the SEC
with respect thereto. Such financial statements have been prepared in accordance with generally
accepted accounting principles, consistently applied, during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case
of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal
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year-end audit adjustments). No other information provided by or on behalf of the Company to
the Buyers which is not included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement or in any disclosure schedules, 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 circumstance under which they are or were made not
misleading.
(k) Absence of Certain Changes. Since June 30, 2006, there has been no material
adverse change and no material adverse development in the business, properties, operations,
condition (financial or otherwise), or results of operations or prospects of the Company. Since
June 30, 2006, the Company has not declared or paid any dividends. The Company has not taken any
steps to seek protection pursuant to any bankruptcy law nor does the Company have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact that would reasonably lead a creditor to do so. The Company is not as
of the date hereof, and after giving effect to the transactions contemplated hereby to occur at the
Closing, will not be Insolvent (as defined below). For purposes of this Section 3(k), “Insolvent”
means, with respect to any Person (as defined in Section 3(q)), (i) the present fair saleable value
of such Person’s assets is less than the amount required to pay such Person’s total Indebtedness
(as defined in Section 3(q)), (ii) such Person is unable to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured,
(iii) such Person intends to incur or believes that it will incur debts that would be beyond its
ability to pay as such debts mature or (iv) such Person has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted and is currently
proposed to be conducted.
(l) Conduct of Business; Regulatory Permits. The Company is not in violation of any
term of or in default under its Certificate of Incorporation, any certificate of designations of
any outstanding series of preferred stock of the Company or the Bylaws. The Company is not in
violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable
to the Company, and the Company will not conduct its business in violation of any of the foregoing,
except for possible violations which could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Without limiting the generality of the foregoing, the
Company is not in violation of any of the rules, regulations or requirements of the Principal
Market and has no knowledge of any facts or circumstances that would reasonably lead to delisting
or suspension of the Common Stock by the Principal Market in the foreseeable future. Since October
28, 2005, (i) the Common Stock has been designated for quotation or included for listing on the
Principal Market, (ii) trading in the Common Stock has not been suspended by the SEC or the
Principal Market and (iii) the Company has received no communication, written or oral, from the SEC
or the Principal Market regarding the suspension or delisting of the Common Stock from the
Principal Market. The Company possess all certificates, authorizations and permits issued by the
appropriate regulatory authorities necessary to its business, except where the failure to possess
such certificates, authorizations or permits could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, and the Company has not received any
notice of proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
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(m) Foreign Corrupt Practices. Neither the Company nor any director, officer, agent,
employee or other Person acting on behalf of the Company has, in the course of its actions for, or
on behalf of, the Company (i) used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or employee from corporate
funds; (iii) violated or is in violation in any material respect of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic government
official or employee.
(n) Sarbanes-Oxley Act. The Company is in material compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof,
and any and all applicable rules and regulations promulgated by the SEC thereunder that are
effective as of the date hereof.
(o) Transactions With Affiliates. Except as set forth in the SEC Documents and as set
forth in Schedule 3(o) hereof, none of the officers, or directors, and to the knowledge of
the Company , none of the employees of the Company is presently a party to any transaction with the
Company (other than for ordinary course services as employees, consultants, officers or directors),
including any contract, agreement or other arrangement providing for the furnishing of services to
or by, providing for rental of real or personal property to or from, or otherwise requiring
payments to or from any such officer, director or employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any such officer, director, or employee
has a substantial interest or is an officer, director, trustee or partner.
(p) Equity Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of (x) 30,000,000 shares of Common Stock, of which as of the date hereof,
10,964,602 shares are issued and outstanding, 2,529,378 shares are reserved for issuance pursuant
to the Company’s employee incentive plan and other options and warrants outstanding and no shares
are reserved for issuance pursuant to securities (other than the Warrants) exercisable or
exchangeable for, or convertible into, shares of Common Stock, and (y) 10,000,000 shares of
preferred stock, of which as of the date hereof, none are issued and outstanding. All of such
outstanding shares have been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as set forth above in this Section 3(p): (i) none of the Company’s capital
stock is subject to preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; and (ii) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities
or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company,
or contracts, commitments, understandings or arrangements by which the Company is or may become
bound to issue additional capital stock of the Company or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of the Company; (iii) there
are no outstanding debt securities, notes, credit agreements, credit facilities or other
agreements, documents or instruments evidencing Indebtedness of the Company or by which the Company
is or may become bound; (iv) there are no financing statements securing obligations in any material
amounts, either singly or in the aggregate, filed in connection with the Company; (v) there are no
agreements or arrangements under which the
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Company is obligated to register the sale of any of its securities under the 1933 Act (except
pursuant to the Registration Rights Agreement); (vi) there are no outstanding securities or
instruments of the Company which contain any redemption or similar provisions, and there are no
contracts, commitments, understandings or arrangements by which the Company is or may become bound
to redeem a security of the Company; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of the Securities;
(viii) the Company does not have any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement; and (ix) the Company has no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC Documents, other than
those incurred in the ordinary course of the Company’s business and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect. The Company has furnished or made
available to the Buyers true, correct and complete copies of the Company’s Certificate of
Incorporation, as amended and as in effect on the date hereof (the “Certificate of Incorporation”),
and the Company’s Bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and the
terms of all securities convertible into, or exercisable or exchangeable for, shares of Common
Stock and the material rights of the holders thereof in respect thereto.
(q) Indebtedness and Other Contracts. The Company (i) does not have any outstanding
Indebtedness (as defined below), (ii) is not a party to any contract, agreement or instrument, the
violation of which, or default under which, by the other party(ies) to such contract, agreement or
instrument could reasonably be expected to result in a Material Adverse Effect, (iii) is not in
violation of any term of or in default under any contract, agreement or instrument relating to any
Indebtedness, except where such violations and defaults would not result, individually or in the
aggregate, in a Material Adverse Effect, or (iv) is not a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s
officers, has or is expected to have a Material Adverse Effect. For purposes of this Agreement:
(x) “Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed
money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property
or services, including (without limitation) “capital leases” in accordance with generally accepted
accounting principles (other than trade payables entered into in the ordinary course of business),
(C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and
other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses, (E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case with respect to any
property or assets acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles, consistently
applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness
referred to in clauses (A) through (F) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which owns such assets or
property has not assumed or become liable for the payment of such indebtedness, and (H) all
Contingent Obligations in respect of indebtedness or obligations of
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others of the kinds referred to in clauses (A) through (G) above; (y) “Contingent Obligation”
means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person
with respect to any indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is
to provide assurance to the obligee of such liability that such liability will be paid or
discharged, or that any agreements relating thereto will be complied with, or that the holders of
such liability will be protected (in whole or in part) against loss with respect thereto; and (z)
“Person” means an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any department or agency
thereof.
(r) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company, the Common Stock or any of the Company’s officers or directors,
whether of a civil or criminal nature or otherwise that if adversely determined would reasonably be
expected to have a Material Adverse Effect.
(s) Insurance. The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the Company is engaged. The
Company has not been refused any insurance coverage sought or applied for and the Company does not
have 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.
(t) Employee Relations.
(i) The Company is not a party to any collective bargaining agreement or employs any member of
a union. No executive officer of the Company has notified the Company that such officer intends to
leave the Company or otherwise terminate such officer’s employment with the Company. No executive
officer of the Company is in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any
other contract or agreement or any restrictive covenant, and the continued employment of each such
executive officer does not subject the Company to any liability with respect to any of the
foregoing matters.
(ii) The Company, to its knowledge, is in compliance with all federal, state, local and
foreign laws and regulations respecting labor, employment and employment practices and benefits,
terms and conditions of employment and wages and hours, except where failure to be in compliance
would not, either individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.
(u) Title. The Company has good and marketable title in fee simple to all real
property and good and marketable title to all personal property owned by them which is material to
the business of the Company, in each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not interfere
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with the use made and proposed to be made of such property by the Company. Any real property
and facilities held under lease by the Company are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company.
(v) Intellectual Property Rights. The Company owns or possesses adequate rights or
licenses to use all trademarks, service marks and all applications and registrations therefor,
trade names, patents, patent rights, copyrights, original works of authorship, inventions, trade
secrets and other intellectual property rights (“Intellectual Property Rights”) necessary to
conduct its business as conducted on the date of this Agreement, except for such Intellectual
Property Rights, the inability to use would not have a Material Adverse Effect. To the knowledge
of the Company, no product or service of the Company infringes the Intellectual Property Rights of
others which could reasonably be expected to result in a Material Adverse Effect. There is no
claim, action or proceeding being made or brought, or to the knowledge of the Company, being
threatened, against the Company regarding (i) its Intellectual Property Rights, or (ii) that the
products or services of the Company infringe the Intellectual Property Rights of others. The
Company has taken reasonable security measures to protect the secrecy, confidentiality and value of
all of its Intellectual Property Rights.
(w) Environmental Laws. The Company (i) is in compliance with any and all
Environmental Laws (as hereinafter defined), (ii) has received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct its business and (iii) is
in compliance with all terms and conditions of any such permit, license or approval where, in each
of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected
to have, individually or in the aggregate, a Material Adverse Effect. The term “Environmental
Laws” means all federal, state, local or foreign laws relating to pollution or protection of human
health or the environment (including, without limitation, ambient air, surface water, groundwater,
land surface or subsurface strata), including, without limitation, laws relating to emissions,
discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or
otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees,
demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders,
permits, plans or regulations issued, entered, promulgated or approved thereunder.
(x) Tax Status. Except for matters that would not, individually or in the aggregate,
have or reasonably be expected to have a Material Adverse Effect, the Company (i) has made or filed
all foreign, federal and state income and all other tax returns, reports and declarations required
by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and (iii) has set aside on its
books provision reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of
the Company know of no basis for any such claim.
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(y) Internal Accounting and Disclosure Controls. Except as described in the SEC
Documents, the Company maintains a system of internal accounting controls sufficient to provide
reasonable assurance 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 generally accepted accounting principles and to maintain
asset and liability accountability, (iii) access to assets or incurrence of liabilities is
permitted only in accordance with management’s general or specific authorization and (iv) the
recorded accountability for assets and liabilities is compared with the existing assets and
liabilities at reasonable intervals and appropriate action is taken with respect to any difference.
Except as disclosed in the SEC Documents, the Company maintains disclosure controls and procedures
(as such term is defined in Rule 13a-14 under the 1934 Act) that are effective in ensuring that are
designed to ensure that information required to be disclosed by the Company in the reports that it
files or submits under the 1934 Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC including, without limitation, controls
and procedures designed in to ensure that information required to be disclosed by the Company in
the reports that it files or submits under the 1934 Act is accumulated and communicated to the
Company’s management, including its principal executive officer or officers and its principal
financial officer or officers, as appropriate, to allow timely decisions regarding required
disclosure.
(z) Off Balance Sheet Arrangements. There is no transaction, arrangement, or other
relationship between the Company and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that
otherwise would be reasonably likely to have a Material Adverse Effect.
(aa) Investment Company Status. The Company is not, and upon consummation of the sale
of the Securities will not be, an “investment company,” a company controlled by an “investment
company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment
company” as such terms are defined in the Investment Company Act of 1940, as amended.
(bb) Form S-3 Eligibility. The Company is eligible to register the Common Shares and
the Warrant Shares for resale by the Buyers using Form S-3 promulgated under the 1933 Act.
(cc) Manipulation of Price. The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in
the stabilization or manipulation of the price of any security of the Company to facilitate the
sale or resale of any of the Securities, (ii) other than the Agent, sold, bid for, purchased, or
paid any compensation for soliciting purchases of, any of the Securities, or (iii) other than the
Agent, paid or agreed to pay to any person any compensation for soliciting another to purchase any
other securities of the Company.
(dd) Disclosure. The Company confirms that neither it nor any other Person acting on
its behalf has provided any of the Buyers (other than Dan W. Lufkin) or their agents or counsel
with any information that constitutes or could reasonably be expected to constitute material,
nonpublic information other than the terms of, and the existence of, the transactions
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contemplated hereby. The Company understands and confirms that each of the Buyers (other than
Dan W. Lufkin) will rely on the foregoing representations in effecting transactions in securities
of the Company. All disclosure provided to the Buyers regarding the Company, its business and the
transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on
behalf of the Company is true and correct and does not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading. No event or
circumstance has occurred or information exists with respect to the Company or its business,
properties, prospects, operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed.
(ee) U.S. Real Property Holding Corporation. The Company is not, nor has it ever
been, a U.S. real property holding corporation within the meaning of Section 897 of the Internal
Revenue Code of 1986, as amended, and the Company shall so certify upon any Buyer’s request.
4. COVENANTS.
(a) Best Efforts. Each party shall use its reasonable best efforts timely to satisfy
each of the covenants and conditions to be satisfied by it as provided in Sections 6 and 7 of this
Agreement.
(b) Form D and Blue Sky. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly
after such filing. The Company, on or before the Closing Date, shall take such action as the
Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify
the Securities for sale to the Buyers at the Closing pursuant to this Agreement under applicable
securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption from
such qualification), and shall provide evidence of any such action so taken to the Buyers on or
prior to the Closing Date. The Company shall make all filings and reports relating to the offer
and sale of the Securities required under applicable securities or “Blue Sky” laws of the states of
the United States following the Closing Date.
(c) Reporting Status. Until the date on which the Investors (as defined in the
Registration Rights Agreement) shall have sold all the Common Shares and Warrant Shares and none of
the Warrants is outstanding (the “Reporting Period”), the Company shall timely file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale of the
Securities for general corporate purposes, and not for (A) the repayment of any outstanding
Indebtedness of the Company or (B) redemption or repurchase of any of its equity securities.
(e) Financial Information. The Company agrees to send the following to each Investor
(as defined in the Registration Rights Agreement) during the Reporting Period (i) unless
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the following are filed with the SEC through EDGAR and are available to the public through the
EDGAR system, within one (1) Business Day after the filing thereof with the SEC, a copy of its
Annual Reports and Quarterly Reports on Form 10-K, 10-Q, any interim reports or any consolidated
balance sheets, income statements, stockholders’ equity statements and/or cash flow statements for
any period other than annual, any Current Reports on Form 8-K and any registration statements
(other than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day as the
release thereof, facsimile or e-mailed copies of all press releases issued by the Company, and
(iii) copies of any notices and other information made available or given to the stockholders of
the Company generally, contemporaneously with the making available or giving thereof to the
stockholders. As used herein, “Business Day” means any day other than Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or required by law to remain
closed.
(f) Listing. The Company shall promptly secure the listing of all of the Registrable
Securities (as defined in the Registration Rights Agreement), once they have been issued, upon each
national securities exchange and automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents. The Company shall maintain the
Common Stock’s authorization for quotation on the Principal Market. The Company shall not take any
action which would be reasonably expected to result in the delisting or suspension of the Common
Stock on the Principal Market. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(f).
(g) Fees. The Company shall be responsible for the payment of any placement agent’s
fees, financial advisory fees, or broker’s commissions (other than for Persons engaged by any
Buyer) relating to or arising out of the transactions contemplated hereby, including, without
limitation, any fees or commissions payable to the Agents. Except as otherwise set forth in the
Transaction Documents, each party to this Agreement shall bear its own expenses in connection with
the sale of the Securities to the Buyers.
(h) Pledge of Securities. The Company acknowledges and agrees that the Securities may
be pledged by an Investor (as defined in the Registration Rights Agreement) in connection with a
bona fide margin agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale or assignment of
the Securities hereunder, and no Investor effecting a pledge of Securities shall be required to
provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant
to this Agreement or any other Transaction Document, including, without limitation, Section 2(f) of
this Agreement; provided that an Investor and its pledgee shall be required to comply with the
provisions of Section 2(f) of this Agreement in order to effect a sale, transfer or assignment of
Securities to such pledgee. The Company hereby agrees to execute and deliver such documentation as
a pledgee of the Securities may reasonably request in connection with a pledge of the Securities to
such pledgee by an Investor.
(i) Disclosure of Transactions and Other Material Information. On or before 8:30
a.m., New York City time, on the first Business Day following the date of this Agreement, the
Company shall issue a press release and file a Current Report on Form 8-K describing the
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terms of the transactions contemplated by the Transaction Documents in the form required by
the 1934 Act and attaching the material Transaction Documents (including, without limitation, this
Agreement, the form of Warrant and the form of the Registration Rights Agreement) as exhibits to
such filing (including all attachments, the “8-K Filing”). From and after the filing of the 8-K
Filing with the SEC, no Buyer shall be in possession of any material, nonpublic information
received from the Company or any of its officers, directors, employees or agents, that is not
disclosed in the 8-K Filing. The Company shall not, and shall cause its officers, directors,
employees and agents, not to, provide any Buyer with any material, nonpublic information regarding
the Company from and after the filing of the 8-K Filing with the SEC without the express written
consent of such Buyer. If a Buyer has, or believes it has, received any such material, nonpublic
information regarding the Company, it shall provide the Company with written notice thereof. The
Company shall, within five (5) Trading Days (as defined in the Warrants) of receipt of such notice,
make public disclosure of such material, nonpublic information. Neither the Company nor any Buyer
shall issue any press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure with respect to such
transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and
(ii) as is required by applicable law and regulations (provided that in the case of clause (i) each
Buyer shall be consulted by the Company in connection with any such press release or other public
disclosure prior to its release). Without the prior written consent of any applicable Buyer,
neither the Company nor any affiliates shall disclose the name of such Buyer in any filing,
announcement, release or otherwise other than in connection with the Registration Statement, as
contemplated pursuant to the Registration Rights Agreement, unless such disclosure is required by
law, regulation or the Principal Market.
(j) Reservation of Shares. The Company shall take all action necessary to at all
times have authorized, and reserved for the purpose of issuance, no less than 100% of the number of
shares of Common Stock issuable upon exercise of the Warrants issued at the Closing (without taking
into account any limitations on exercise of the Warrants set forth in the Warrants).
(k) Conduct of Business. The business of the Company shall not be conducted in
violation of any law, ordinance or regulation of any governmental entity, except where such
violations would not result, either individually or in the aggregate, in a Material Adverse Effect.
5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
(a) Register. The Company shall maintain at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to each holder of Securities),
a register for the Warrants in which the Company shall record the name and address of the Person in
whose name the Warrants have been issued (including the name and address of each transferee) and
the number of Warrant Shares issuable upon exercise of the Warrants held by such Person. The
Company shall keep the register open and available at all times during business hours for
inspection of any Buyer or its legal representatives.
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(b) Transfer Agent Instructions. The Company shall issue irrevocable instructions to
its transfer agent, and any subsequent transfer agent, to issue certificates or credit shares to
the applicable balance accounts at The Depository Trust Company (“DTC”), registered in the name of
each Buyer or its respective nominee(s), for the Warrant Shares in such amounts as specified from
time to time by each Buyer to the Company upon exercise of the Warrants in the form of Exhibit
C attached hereto (the “Irrevocable Transfer Agent Instructions”). The Company represents and
warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in
this Section 5, and stop transfer instructions to give effect to Section 2(f) hereof, will be given
by the Company to its transfer agent with respect to the Securities, and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the other Transaction Documents. If a Buyer effects a sale,
assignment or transfer of the Securities in accordance with Section 2(f), the Company shall permit
the transfer and shall promptly instruct its transfer agent to issue one or more certificates or
credit shares to the applicable balance accounts at DTC in such name and in such denominations as
specified by such Buyer to effect such sale, transfer or assignment. In the event that such sale,
assignment or transfer involves Warrant Shares sold, assigned or transferred pursuant to an
effective registration statement or pursuant to Rule 144, the transfer agent shall issue such
Securities to the Buyer, assignee or transferee, as the case may be, without any restrictive
legend.
(c) Breach. The Company acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to a Buyer. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 5 will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of this Section 5, that a
Buyer shall be entitled, in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
(d) Additional Relief. If the Company shall fail for any reason or for no reason to
issue to such holder unlegended certificates within three (3) Business Days of (x) receipt of
documents necessary for the removal of legend set forth above or (y) the date of its obligation to
deliver the shares of Common Stock as contemplated pursuant to clause (ii) below (the “Deadline
Date”), then, in addition to all other remedies available to the holder, if on or after the Trading
Day (as defined in the Warrants) immediately following such three Business Day period, the holder
purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the holder of shares of Common Stock that the holder anticipated
receiving from the Company (a “Buy-In”), then the Company shall, within three Business Days after
the holder’s request and in the holder’s discretion, either (i) pay cash to the holder in an amount
equal to the holder’s total purchase price (including brokerage commissions, if any) for the shares
of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to
deliver such certificate (and to issue such shares of Common Stock) shall terminate, or (ii)
promptly honor its obligation to deliver to the holder a certificate or certificates representing
such shares of Common Stock and pay cash to the holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the
Closing Bid Price on the Deadline Date. “Closing Bid Price” means, for any security as of any
date, the last closing price for such security on The NASDAQ Capital Market (the “Principal
Market”), as reported by Bloomberg, or, if the Principal Market
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begins to operate on an extended hours basis and does not designate the closing bid price then
the last bid price of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading market for such
security, the last closing price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing price of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid price is reported
for such security by Bloomberg, the average of the bid prices of any market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation
Bureau, Inc.). If the Closing Bid Price cannot be calculated for a security on a particular date
on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the
fair market value as mutually determined by the Company and the holder. If the Company and the
holder are unable to agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 13 of the Warrants. All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar transaction during
the applicable calculation period.
6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Common Shares and the related
Warrants to each Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are for the Company’s
sole benefit and may be waived by the Company at any time in its sole discretion by providing each
Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction Documents to which it is a party
and delivered the same to the Company.
(ii) Such Buyer shall have delivered to the Company the Purchase Price for the Common Shares
and the related Warrants being purchased by such Buyer and each other Buyer at the Closing by wire
transfer of immediately available funds pursuant to the wire instructions provided by the Company.
(iii) The representations and warranties of such Buyer shall be true and correct in all
material respects (except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all respects) as of the
date when made and as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which shall be true and correct as of such
specified date), and such Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Buyer at or prior to the Closing Date.
(iv) Absence of Litigation. No proceeding challenging this Agreement or the
transactions contemplated hereby, or seeking to prohibit, alter, prevent or materially delay the
Closing, shall have been instituted or be pending before any court, arbitrator, governmental body,
agency or official.
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(v) No Governmental Prohibition. The sale of the Securities by the Company shall not
be prohibited by any law or governmental order or regulation.
7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Common Shares and the related Warrants
at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for each Buyer’s sole benefit and may be
waived by such Buyer at any time in its sole discretion by providing the Company with prior written
notice thereof:
(i) The Company shall have duly executed and delivered to such Buyer (i) each of the
Transaction Documents and (ii) the Common Shares (in such amounts as such Buyer shall request) and
the related Warrants (in such amounts as such Buyer shall request) being purchased by such Buyer at
the Closing pursuant to this Agreement.
(ii) Such Buyer shall have received the opinion of Dreier LLP, counsel for the Company
(“Company Counsel”), dated as of the Closing Date, in substantially the form of Exhibit D
attached hereto.
(iii) The Company shall have delivered to such Buyer a copy of the Irrevocable Transfer Agent
Instructions, in the form of Exhibit C attached hereto, which instructions shall have been
delivered to and acknowledged in writing by the Company’s transfer agent.
(iv) The Company shall have delivered to such Buyer a certificate evidencing the incorporation
and good standing of the Company in the Company’s state of incorporation issued by the Secretary of
State as of a date within 10 days of the Closing Date.
(v) The Common Stock (I) shall be listed on the Principal Market and (II) shall not have been
suspended, as of the Closing Date, by the SEC or the Principal Market from trading on the Principal
Market nor shall suspension by the SEC or the Principal Market have been threatened, as of the
Closing Date, either (A) in writing by the SEC or the Principal Market or (B) by falling below the
minimum listing maintenance requirements of the Principal Market.
(vi) The Company shall have delivered to such Buyer a certificate, executed by the Secretary
of the Company and dated as of the Closing Date, as to (i) the resolutions consistent with Section
3(b) as adopted by the Company’s Board of Directors in a form reasonably acceptable to such Buyer,
(ii) the Certificate of Incorporation and (iii) the Bylaws, each as in effect at the Closing, in
the form attached hereto as Exhibit E.
(vii) The representations and warranties of the Company shall be true and correct in all
material respects (except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all respects) as of the
date when made and as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which shall be true and correct as of such
specified date) and the Company shall have performed, satisfied and complied
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in all material respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the
Closing Date. Such Buyer shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer in the form attached hereto as Exhibit
F.
(viii) The Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Common Shares and the Warrants.
(ix) The Company shall have delivered to such Buyer such other documents relating to the
transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request.
8. TERMINATION. In the event that the Closing shall not have occurred with respect to
a Buyer on or before five (5) Business Days from the date hereof due to the Company’s or such
Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above (and the nonbreaching
party’s failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the
option to terminate this Agreement with respect to such breaching party at the close of business on
such date without liability of any party to any other party.
9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of New York. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts
sitting in The City of New York, Borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding
is improper. Each party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy thereof to such party
at the address for such notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL
FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and shall become
-22-
effective when counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an original, not a
facsimile signature.
(c) Headings. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity
or enforceability of any provision of this Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement and the other Transaction Documents
supersede all other prior oral or written agreements between the Buyers, the Company, their
affiliates and Persons acting on their behalf with respect to the matters discussed herein, and
this Agreement, the other Transaction Documents and the instruments referenced herein and therein
contain the entire understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer
makes any representation, warranty, covenant or undertaking with respect to such matters. No
provision of this Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of Common Shares representing at least a majority of the amount of the
Common Shares, or, if prior to the Closing Date, the Buyers listed on the Schedule of Buyers as
being obligated to purchase at least a majority of the amount of the Common Shares. No provision
hereof may be waived other than by an instrument in writing signed by the party against whom
enforcement is sought. No such amendment shall be effective to the extent that it applies to less
than all of the holders of the Common Shares then outstanding. No consideration shall be offered
or paid to any Person to amend or consent to a waiver or modification of any provision of any of
the Transaction Documents unless the same consideration also is offered to all of the parties to
the Transaction Documents, holders of Common Shares or holders of the Warrants, as the case may be.
The Company has not, directly or indirectly, made any agreements with any Buyers relating to the
terms or conditions of the transactions contemplated by the Transaction Documents except as set
forth in the Transaction Documents. Without limiting the foregoing, the Company confirms that,
except as set forth in this Agreement, no Buyer has made any commitment or promise or has any other
obligation to provide any financing to the Company or otherwise.
(f) Notices. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and will be deemed to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with an overnight
courier service, in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
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If to the Company:
Electro-Optical Sciences, Inc.
3 West Main Street, Suite 201
Irvington, New York 10533
Telephone: (914) 591-3783
Facsimile: (914) 591-3701
Attention: Chief Financial Officer
3 West Main Street, Suite 201
Irvington, New York 10533
Telephone: (914) 591-3783
Facsimile: (914) 591-3701
Attention: Chief Financial Officer
with a copy (for informational purposes only) to:
Dreier LLP
499 Park Avenue
New York, NY 10022
Telephone: (212) 328-6100
Facsimile: (212) 328-6101
Attention: Valerie Price
499 Park Avenue
New York, NY 10022
Telephone: (212) 328-6100
Facsimile: (212) 328-6101
Attention: Valerie Price
If to the Transfer Agent:
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
Telephone: (718) 921-8206
Facsimile: (718) 921-8336
Attention: Geraldine Lippman
59 Maiden Lane
New York, NY 10038
Telephone: (718) 921-8206
Facsimile: (718) 921-8336
Attention: Geraldine Lippman
If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers, with copies
to such Buyer’s representatives as set forth on the Schedule of Buyers, or to such other address
and/or facsimile number and/or to the attention of such other Person as the recipient party has
specified by written notice given to each other party five (5) days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by the sender’s
facsimile machine containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight courier service in
accordance with clause (i), (ii) or (iii) above, respectively.
With a copy (for informational purposes only; provided that failure to deliver notice to the
following will not result in a breach by any party hereto) to:
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
Attention: Eleazer N. Klein, Esq.
919 Third Avenue
New York, New York 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
Attention: Eleazer N. Klein, Esq.
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(g) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including any purchasers of the
Common Shares or the Warrants. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the holders of at least a majority of
the aggregate number of Registrable Securities issued and issuable hereunder, including by way of a
Fundamental Transaction. A Buyer may assign some or all of its rights hereunder without the
consent of the Company, in which event such assignee shall be deemed to be a Buyer hereunder with
respect to such assigned rights. A merger or sale of the Company shall not be deemed to be an
assignment for the purposes of this section.
(h) No Third Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person, except that the Agent may rely
upon the representations and warranties contained in Section 2 hereof.
(i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers in Sections 2 and 3 shall survive the
Closing until the eighteen-month anniversary of the Closing Date (except for the representations
and warranties of the Company made pursuant to Section 3(c), which shall survive indefinitely), and
the agreements and covenants set forth in Sections 4, 5 and 9 shall survive the Closing until the
expiration of the applicable statute of limitations. Each Buyer shall be responsible
only for its own representations, warranties, agreements and covenants hereunder.
(j) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as any other party may reasonably request in
order to carry out the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
(k) Indemnification. In consideration of each Buyer’s execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to all of the
Company’s other obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless each Buyer and each other holder of the Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or indirect investors
and any of the foregoing Persons’ agents or other representatives (including, without limitation,
those retained in connection with the transactions contemplated by this Agreement) (collectively,
the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective
of whether any such Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified
Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the Company in the
Transaction Documents or any other certificate, instrument or document contemplated hereby or
thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the
Transaction Documents or any other certificate, instrument or
-25-
document contemplated hereby or thereby or (c) any cause of action, suit or claim brought or
made against such Indemnitee by a third party (including for these purposes a derivative action
brought on behalf of the Company) and arising out of or resulting from (i) the execution, delivery,
performance or enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (ii) any transaction financed or to be financed in whole
or in part, directly or indirectly, with the proceeds of the issuance of the Securities, or (iii)
the status of such Buyer or holder of the Securities as an investor in the Company. To the extent
that the foregoing undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set forth herein, the
mechanics and procedures with respect to the rights and obligations under this Section 9(k) shall
be the same as those set forth in Section 6 of the Registration Rights Agreement.
(l) No Strict Construction. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.
(m) Remedies. Each Buyer and each holder of the Securities shall have all rights and
remedies set forth in the Transaction Documents and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the rights which such
holders have under any law. Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or other security),
to recover damages by reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. Furthermore, the Company recognizes that in the event that it fails
to perform, observe, or discharge any or all of its obligations under the Transaction Documents,
any remedy at law may prove to be inadequate relief to the Buyers. The Company therefore agrees
that the Buyers shall be entitled to seek temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages and without posting a bond or other security.
(n) Payment Set Aside. To the extent that the Company makes a payment or payments to
the Buyers hereunder or pursuant to any of the other Transaction Documents or the Buyers enforce or
exercise their rights hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent
or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, foreign, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such enforcement or setoff had not occurred.
(o) Independent Nature of Buyers’ Obligations and Rights. The obligations of each
Buyer under any Transaction Document are several and not joint with the obligations of any other
Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any
other Buyer under any Transaction Document. Nothing contained herein or in any other
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Transaction Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as, a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Buyers are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated by the Transaction
Documents. Each Buyer shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any other Buyer to be joined as an
additional party in any proceeding for such purpose.
[Signature Page Follows]
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IN WITNESS WHEREOF, each Buyer and the Company have caused its respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.
| COMPANY: | ||||
| ELECTRO-OPTICAL SCIENCES, INC. | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.
| BUYERS: | ||||
| [BUYERS] | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| Name, as it should appear on the Securities | ||||
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.
| [OTHER BUYERS] | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| Name, as it should appear on the Securities | ||||
EXHIBITS
Exhibit A
|
Form of Warrant | |
Exhibit B
|
Form of Registration Rights Agreement | |
Exhibit C
|
Form of Irrevocable Transfer Agent Instructions | |
Exhibit D
|
Form of Company Counsel Opinion | |
Exhibit E
|
Form of Secretary’s Certificate | |
Exhibit F
|
Form of Officer’s Certificate |
Exhibit 10.3
FORM OF
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of October 31, 2006, by and among
Electro-Optical Sciences, Inc., a corporation organized under the laws of Delaware, with its
principal offices at 3 West Main Street, Suite 201, Irvington, New York 10533 (the “Company”), and
the undersigned buyers (each, a “Buyer”, and collectively, the “Buyers”).
WHEREAS:
A. In connection with the Securities Purchase Agreements by and among the parties hereto of
even date herewith (collectively, the “Securities Purchase Agreement”), the Company has agreed,
upon the terms and subject to the conditions of the Securities Purchase Agreement, to issue and
sell on the date hereof to each Buyer (i) shares (the “Common Shares”) of the Company’s common
stock, par value $0.001 per share (the “Common Stock”), and (ii) warrants (the “Warrants”), which
will be exercisable to purchase shares of Common Stock (as exercised collectively, the “Warrant
Shares”).
B. To induce the Buyers to execute and deliver the Securities Purchase Agreement, the Company
has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and
the rules and regulations thereunder, or any similar successor statute (collectively, the “1933
Act”), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and each of the Buyers hereby agree as follows:
1. Definitions.
Capitalized terms used herein and not otherwise defined herein shall have the respective
meanings set forth in the Securities Purchase Agreement. As used in this Agreement, the following
terms shall have the following meanings:
a. “Business Day” means any day other than Saturday, Sunday or any other day on which
commercial banks in the City of New York are authorized or required by law to remain closed.
b. “Closing Date” shall have the meaning set forth in the Securities Purchase Agreement.
c. “Effective Date” means the date the Registration Statement has been declared effective by
the SEC.
d. “Effectiveness Deadline” means the date that is 120 days after the Closing Date.
e. “Filing Deadline” means the date that is 30 days after the Closing Date.
f. “Investor” means a Buyer or any transferee or assignee thereof to whom a Buyer assigns its
rights under this Agreement and who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 and any transferee or assignee thereof to whom a transferee or assignee
assigns its rights under this Agreement and who agrees to become bound by the provisions of this
Agreement in accordance with Section 9.
g. “Person” means an individual, a limited liability company, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization and a government or any department or agency
thereof.
h. “register,” “registered,” and “registration” refer to a registration effected by preparing
and filing one or more Registration Statements (as defined below) in compliance with the 1933 Act
and pursuant to Rule 415 and the declaration or ordering of effectiveness of such Registration
Statement(s) by the SEC.
i. “Registrable Securities” means (i) the Common Shares, (ii) the Warrant Shares issued or
issuable upon exercise of the Warrants and (iii) any shares of capital stock issued or issuable
with respect to the Common Shares, the Warrant Shares or the Warrants as a result of any stock
split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to
any limitations on exercise of the Warrants.
j. “Registration Statement” means a registration statement or registration statements of the
Company filed under the 1933 Act covering the Registrable Securities.
k. “Required Holders” means the holders of at least a majority of the Registrable Securities.
l. “Required Registration Amount” for the Registration Statement means 100% of the sum of (i)
the number of Common Shares issued pursuant to the Securities Purchase Agreement and (ii) the
number of Warrant Shares issued and issuable pursuant to the Warrants as of the trading day
immediately preceding the applicable date of determination, all subject to adjustment as provided
in Section 2(e) (without regard to any limitations on exercise of the Warrants).
m. “Rule 415” means Rule 415 promulgated under the 1933 Act or any successor rule providing
for offering securities on a continuous or delayed basis.
n. “SEC” means the United States Securities and Exchange Commission.
2. Registration.
a. Mandatory Registration. The Company shall prepare, and, as soon as practicable but
in no event later than the Filing Deadline, use its commercially reasonable
2
efforts to file with the SEC the Registration Statement on Form S-3 covering the resale of at
least the number of shares of Common Stock equal to the Required Registration Amount determined as
of date the Registration Statement is initially filed with the SEC. In the event that Form S-3 is
unavailable for such a registration, the Company shall use such other form as is available for such
a registration on another appropriate form reasonably acceptable to the Required Holders, subject
to the provisions of Section 2(d). The Registration Statement shall contain (except if otherwise
directed by the Required Holders) the “Selling Stockholders” and “Plan of
Distribution” sections in substantially the form attached hereto as Exhibit B. The
Company shall use its commercially reasonable efforts to have the Registration Statement declared
effective by the SEC as soon as practicable, but in no event later than the Effectiveness Deadline.
By 9:30 am on the Business Day following the Effective Date, the Company shall file with the SEC
in accordance with Rule 424 under the 1933 Act the final prospectus to be used in connection with
sales pursuant to such Registration Statement.
b. Legal Counsel. Subject to Section 5 hereof, the Required Holders shall have the
right to select one legal counsel to review and oversee any registration pursuant to this Section 2
(“Legal Counsel”), which shall be counsel designated by the Required Holders. The Company and
Legal Counsel shall reasonably cooperate with each other in performing the Company’s obligations
under this Agreement.
c. Ineligibility for Form S-3. In the event that Form S-3 is not available for the
registration of the resale of Registrable Securities hereunder, the Company shall (i) register the
resale of the Registrable Securities on another appropriate form reasonably acceptable to the
Required Holders and (ii) undertake to register the Registrable Securities on Form S-3 as soon as
such form is available, provided that the Company shall maintain the effectiveness of the
Registration Statement then in effect until such time as a Registration Statement on Form S-3
covering the Registrable Securities has been declared effective by the SEC.
d. Sufficient Number of Shares Registered. In the event the number of shares
available under a Registration Statement filed pursuant to Section 2(a) is insufficient to cover
all of the Registrable Securities required to be covered by such Registration Statement or an
Investor’s allocated portion of the Registrable Securities pursuant to Section 2(b), the Company
shall amend the applicable Registration Statement, or file a new Registration Statement (on the
short form available therefor, if applicable), or both, so as to cover at least the Required
Registration Amount as of the trading day immediately preceding the date of the filing of such
amendment or new Registration Statement, in each case, as soon as practicable, but in any event not
later than fifteen (15) days after the necessity therefor arises. The Company shall use its
reasonable best efforts to cause such amendment and/or new Registration Statement to become
effective as soon as reasonably practicable following the filing thereof. For purposes of the
foregoing provision, the number of shares available under a Registration Statement shall be deemed
“insufficient to cover all of the Registrable Securities” if at any time the number of shares of
Common Stock available for resale under the Registration Statement is less than the product
determined by multiplying (i) the Required Registration Amount as of such time by (ii) 0.90. The
calculation set forth in the foregoing sentence shall be made without regard to any limitations on
the exercise of the Warrants and such calculation shall assume that the Warrants
3
are then exercisable for shares of Common Stock at the then prevailing Exercise Price (as
defined in the Warrants).
e. Effect of Failure to File and Obtain and Maintain Effectiveness of Registration
Statement. If (i) a Registration Statement covering all of the Registrable Securities required
to be covered thereby and required to be filed by the Company pursuant to this Agreement is (A) not
filed with the SEC on or before the Filing Deadline (a “Filing Failure”) or (B) not declared
effective by the SEC on or before the Effectiveness Deadline (an “Effectiveness Failure”) or (ii)
on any day after the Effective Date sales of all of the Registrable Securities required to be
included on such Registration Statement cannot be made (other than during an Allowable Grace Period
(as defined in Section 3(r)) pursuant to such Registration Statement (including, without
limitation, because of a failure to keep such Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to such Registration Statement or to
register a sufficient number of shares of Common Stock) (a “Maintenance Failure”) then, as partial
relief for the damages to any holder by reason of any such delay in or reduction of its ability to
sell the underlying shares of Common Stock (which remedy shall not be exclusive of any other
remedies available at law or in equity), subject to Section 2(g) hereof, the Company shall pay to
each holder of Registrable Securities relating to such Registration Statement an amount in cash
equal to one percent (1.0%) of the aggregate Purchase Price (as such term is defined in the
Securities Purchase Agreement) of such Investor’s Registrable Securities included in such
Registration Statement on each of the following dates: (i) the day of a Filing Failure and on every
thirtieth day (pro rated for periods totaling less than thirty (30) days) thereafter until such
Filing Failure is cured; (ii) the day of an Effectiveness Failure and on every thirtieth day (pro
rated for periods totaling less than thirty (30) days) thereafter until such Effectiveness Failure
is cured; and (iii) the initial day of a Maintenance Failure and on every thirtieth day (pro rated
for periods totaling less than thirty (30) days) thereafter until such Maintenance Failure is
cured. The payments to which a holder shall be entitled pursuant to this Section 2(f) are referred
to herein as “Registration Delay Payments.” Registration Delay Payments shall be paid on the
earlier of (I) the last day of the calendar month during which such Registration Delay Payments are
incurred and (II) the third Business Day after the event or failure giving rise to the Registration
Delay Payments is cured. In the event the Company fails to make Registration Delay Payments in a
timely manner, such Registration Delay Payments shall bear interest at the rate of one percent
(1.0%) per month (prorated for partial months) until paid in full. Notwithstanding anything herein
or in the Securities Purchase Agreement to the contrary, in no event shall the aggregate amount of
Registration Delay Payments (other than Registration Delay Payments payable pursuant to events that
are within the control of the Company) exceed, in the aggregate, 10% of the aggregate Purchase
Price of the Common Shares.
f. Selling Investor Questionnaire. Each Investor agrees to furnish to the Company a
completed Questionnaire in the form attached to this Agreement as Annex A or in such other
form that provides substantially similar information (a “Selling Investor Questionnaire”). The
Company shall not be required to include the Registrable Securities of an Investor in a
Registration Statement and shall not be required to pay any Registration Delay Payments under
Section 2(f) hereof to any Investor who fails to furnish the Company a fully completed Selling
Holder Questionnaire at least three Trading Days prior to the Filing Deadline or fails to comply
with its obligations pursuant to Section 4 hereof.
4
3. Related Obligations.
At such time as the Company is obligated to file a Registration Statement with the SEC
pursuant to Section 2(a), 2(c) or 2(d), the Company will use its reasonable best efforts to effect
the registration of the Registrable Securities in accordance with the intended method of
disposition thereof and, pursuant thereto, the Company shall have the following obligations:
a. The Company shall submit to the SEC, within five (5) Business Days after the Company learns
that no review of a particular Registration Statement will be made by the staff of the SEC or that
the staff has no further comments on a particular Registration Statement, as the case may be, a
request for acceleration of effectiveness of such Registration Statement to a time and date not
later than 48 hours after the submission of such request. The Company shall keep each Registration
Statement effective pursuant to Rule 415 at all times until the earlier of (i) the date as of which
the Investors may sell all of the Registrable Securities covered by such Registration Statement
without restriction pursuant to Rule 144(k) (or any successor thereto) promulgated under the 1933
Act or (ii) the date on which the Investors shall have sold all of the Registrable Securities
covered by such Registration Statement (the “Registration Period”). The Company shall ensure that
each Registration Statement (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein, or necessary to make the statements therein (in the
case of prospectuses, in the light of the circumstances in which they were made) not misleading.
b. The Company shall prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and the prospectus used in connection with
such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under
the 1933 Act, as may be necessary to keep such Registration Statement effective at all times during
the Registration Period, and, during such period, comply with the provisions of the 1933 Act with
respect to the disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities shall have been
disposed of in accordance with the intended methods of disposition by the seller or sellers thereof
as set forth in such Registration Statement. In the case of amendments and supplements to a
Registration Statement which are required to be filed pursuant to this Agreement (including
pursuant to this Section 3(b)) by reason of the Company filing a report on Form 10-Q, Form 10-QSB,
Form 10-K, Form 10-KSB or any analogous report under the Securities Exchange Act of 1934, as
amended (the “1934 Act”), the Company shall have incorporated such report by reference into such
Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on
the same day on which the 1934 Act report is filed which created the requirement for the Company to
amend or supplement such Registration Statement.
c. The Company shall (A) permit Legal Counsel to review and comment upon (i) a Registration
Statement at least five (5) Business Days prior to its filing with the SEC and (ii) all amendments
and supplements to all Registration Statements (except for Annual Reports on Form 10-K and Form
10-KSB, and Reports on Form 10-Q and Form 10-QSB and any similar or successor reports) within a
reasonable number of days prior to their filing with the SEC, and (B) not file any Registration
Statement or amendment or supplement thereto in a
5
form to which Legal Counsel reasonably objects. The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment or supplement
thereto without the prior approval of Legal Counsel, which consent shall not be unreasonably
withheld. The Company shall furnish to Legal Counsel, without charge, (i) copies of any
correspondence from the SEC or the staff of the SEC to the Company or its representatives relating
to any Registration Statement, (ii) promptly after the same is prepared and filed with the SEC, one
copy of any Registration Statement and any amendment(s) thereto, including financial statements and
schedules, all documents incorporated therein by reference, if requested by an Investor, and all
exhibits and (iii) upon the effectiveness of any Registration Statement, one copy of the prospectus
included in such Registration Statement and all amendments and supplements thereto. The Company
shall reasonably cooperate with Legal Counsel in performing the Company’s obligations pursuant to
this Section 3.
d. The Company shall furnish to each Investor whose Registrable Securities are included in any
Registration Statement, without charge, (i) promptly after the same is prepared and filed with the
SEC, at least one copy of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by reference, if requested
by an Investor, all exhibits and each preliminary prospectus, (ii) upon the effectiveness of any
Registration Statement, ten (10) copies of the prospectus included in such Registration Statement
and all amendments and supplements thereto (or such other number of copies as such Investor may
reasonably request) and (iii) such other documents, including copies of any preliminary or final
prospectus, as such Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities owned by such Investor.
e. The Company shall use its reasonable best efforts to (i) register and qualify, unless an
exemption from registration and qualification applies, the resale by Investors of the Registrable
Securities covered by a Registration Statement under such other securities or “blue sky” laws of
all applicable jurisdictions in the United States, (ii) prepare and file in those jurisdictions,
such amendments (including post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during the Registration
Period, (iii) take such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to service of process
in any such jurisdiction. The Company shall reasonably promptly notify Legal Counsel and each
Investor who holds Registrable Securities of the receipt by the Company of any notification with
respect to the suspension of the registration or qualification of any of the Registrable Securities
for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its
receipt of notice of the initiation or threatening of any proceeding for such purpose.
f. The Company shall notify Legal Counsel and each Investor in writing of the happening of any
event, as reasonably promptly as practicable after becoming
6
aware of such event, as a result of which the prospectus included in a Registration Statement,
as then in effect, includes an untrue statement of a material fact or omission 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 that in no event shall such
notice contain any material, nonpublic information), and, subject to Section 3(r), promptly prepare
a supplement or amendment to such Registration Statement to correct such untrue statement or
omission, and deliver ten (10) copies of such supplement or amendment to Legal Counsel and each
Investor (or such other number of copies as Legal Counsel or such Investor may reasonably request).
The Company shall also reasonably promptly notify Legal Counsel and each Investor in writing (i)
when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when
a Registration Statement or any post-effective amendment has become effective (notification of such
effectiveness shall be delivered to Legal Counsel and each Investor by facsimile on the same day of
such effectiveness and by overnight mail), (ii) of any request by the SEC for amendments or
supplements to a Registration Statement or related prospectus or related information, and (iii) of
the Company’s reasonable determination that a post-effective amendment to a Registration Statement
would be appropriate.
g. The Company shall use its reasonable best efforts to prevent the issuance of any stop order
or other suspension of effectiveness of a Registration Statement, or the suspension of the
qualification of any of the Registrable Securities for sale in any jurisdiction and, if such an
order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest
possible moment and to notify Legal Counsel and each Investor who holds Registrable Securities
being sold of the issuance of such order and the resolution thereof or its receipt of notice of the
initiation or threat of any proceeding for such purpose.
h. If any Investor is required under applicable securities law to be described in the
Registration Statement as an underwriter, at the reasonable request of such Investor, the Company
shall furnish to such Investor, on the date of the effectiveness of the Registration Statement and
thereafter from time to time on such dates as an Investor may reasonably request (i) a letter,
dated such date, from the Company’s independent certified public accountants in form and substance
as is customarily given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the Investors, and (ii) an opinion, dated as of such
date, of counsel representing the Company for purposes of such Registration Statement, in form,
scope and substance as is customarily given in an underwritten public offering, addressed to the
Investors.
i. Upon the written request of any Investor in connection with any Investor’s due diligence
requirements, if any, the Company shall make available for inspection by (i) any Investor, (ii)
Legal Counsel and (iii) one firm of accountants or other agents retained by the Investors
(collectively, the “Inspectors”), all pertinent financial and other records, and pertinent
corporate documents and properties of the Company (collectively, the “Records”), as shall be
reasonably deemed necessary by each Inspector, and cause the Company’s officers, directors and
employees to supply all information which any Inspector may reasonably request; provided, however,
that each Inspector shall agree to hold in strict confidence and shall not make any disclosure
(except to an Investor) or use of any Record or other information which the Company determines in
good faith to be confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
7
misstatement or omission in any Registration Statement or is otherwise required under the 1933
Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena or
order from a court or government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure in violation of
this or any other Transaction Document. Each Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow the Company, at
its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential. Nothing herein (or in any other confidentiality
agreement between the Company and any Investor) shall be deemed to limit the Investors’ ability to
sell Registrable Securities in a manner which is otherwise consistent with applicable laws and
regulations.
j. The Company shall hold in confidence and not make any disclosure of information concerning
an Investor provided to the Company unless (i) disclosure of such information is necessary to
comply with federal or state securities laws, (ii) the disclosure of such information is necessary
to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final, non-appealable order from a
court or governmental body of competent jurisdiction or (iv) such information has been made
generally available to the public other than by disclosure in violation of this Agreement or any
other agreement. The Company agrees that it shall, upon learning that disclosure of such
information concerning an Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt written notice to such Investor and allow such
Investor, at the Investor’s expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, such information.
k. The Company shall use its reasonable best efforts either to (i) cause all of the
Registrable Securities covered by a Registration Statement to be listed on each securities exchange
on which securities of the same class or series issued by the Company are then listed, if any, if
the listing of such Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all of the Registrable Securities covered by a
Registration Statement on The NASDAQ Capital Market or (iii) if, despite the Company’s best efforts
to satisfy, the preceding clauses (i) and (ii) the Company is unsuccessful in satisfying the
preceding clauses (i) and (ii), to secure the inclusion for quotation on the The New York Stock
Exchange, The NASDAQ Global Market, The NASDAQ Global Select Market or the American Stock Exchange
for such Registrable Securities and, without limiting the generality of the foregoing, to use its
reasonable best efforts to arrange for at least two market makers to register with the National
Association of Securities Dealers, Inc. (“NASD”) as such with respect to such Registrable
Securities. The Company shall pay all fees and expenses in connection with satisfying its
obligation under this Section 3(k).
l. The Company shall cooperate in all reasonable respects with the Investors who hold
Registrable Securities being offered and, to the extent applicable, facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the Investors may
reasonably request and registered in such names as the Investors may request.
8
m. If requested by an Investor, the Company shall (i) as soon as reasonably practicable
incorporate in a prospectus supplement or post-effective amendment such information as an Investor
reasonably requests to be included therein relating to the sale and distribution of Registrable
Securities, including, without limitation, information with respect to the number of Registrable
Securities being offered or sold, the purchase price being paid therefor and any other terms of the
offering of the Registrable Securities to be sold in such offering; (ii) as soon as reasonably
practicable make all required filings of such prospectus supplement or post-effective amendment
after being notified of the matters to be incorporated in such prospectus supplement or
post-effective amendment; and (iii) as soon as reasonably practicable, supplement or make
amendments to any Registration Statement if reasonably requested by an Investor holding any
Registrable Securities.
n. The Company shall use its reasonable best efforts to cause the Registrable Securities
covered by a Registration Statement to be registered with or approved by such other governmental
agencies or authorities as may be necessary to consummate the disposition of such Registrable
Securities.
o. The Company shall make generally available to its security holders as soon as practical,
but not later than ninety (90) days after the close of the period covered thereby, an earnings
statement (in form complying with, and in the manner provided by, the provisions of Rule 158 under
the 1933 Act) covering a twelve-month period beginning not later than the first day of the
Company’s fiscal quarter next following the effective date of a Registration Statement.
p. The Company shall otherwise use its reasonable best efforts to comply with all applicable
rules and regulations of the SEC in connection with any registration hereunder.
q. Within two (2) Business Days after a Registration Statement which covers Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal
counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with
copies to the Investors whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the SEC in the form
attached hereto as Exhibit A.
r. Notwithstanding anything to the contrary herein, at any time after the Effective Date, the
Company may delay the disclosure of material, non-public information concerning the Company the
disclosure of which at the time is not, in the good faith opinion of the Board of Directors of the
Company and its counsel, in the best interest of the Company and, in the opinion of counsel to the
Company, otherwise required (a “Grace Period”); provided, that the Company shall reasonably
promptly (i) notify the Investors in writing of the existence of material, non-public information
giving rise to a Grace Period (provided that in each notice the Company will not disclose the
content of such material, non-public information to the Investors) and the date on which the Grace
Period will begin, and (ii) notify the Investors in writing of the date on which the Grace Period
ends; and, provided further, that no Grace Period shall exceed five (5) consecutive days and during
any three hundred sixty five (365) day period such Grace Periods shall not exceed an aggregate of
twenty (20) days and the first day of any Grace Period
9
must be at least five (5) trading days after the last day of any prior Grace Period (each, an
“Allowable Grace Period”). For purposes of determining the length of a Grace Period above, the
Grace Period shall begin on and include the date the Investors receive the notice referred to in
clause (i) and shall end on and include the later of the date the Investors receive the notice
referred to in clause (ii) and the date referred to in such notice. The provisions of Section 3(g)
hereof shall not be applicable during the period of any Allowable Grace Period. Upon expiration of
the Grace Period, the Company shall again be bound by the first sentence of Section 3(f) with
respect to the information giving rise thereto unless such material, non-public information is no
longer applicable. Notwithstanding anything to the contrary, the Company shall cause its transfer
agent to deliver unlegended shares of Common Stock to a transferee of an Investor in accordance
with the terms of the Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which an Investor has entered into a contract for sale, and delivered a
copy of the prospectus included as part of the applicable Registration Statement (unless an
exemption from such prospectus delivery requirement exists), prior to the Investor’s receipt of the
notice of a Grace Period and for which the Investor has not yet settled.
s. All information disclosed in the notices contemplated in this Section 3 shall be kept
confidential by the recipient thereof until such information is publicly disclosed by the Company
unless disclosure by the recipient is required by law or legal process.
4. Obligations of the Investors.
a. At least five (5) Business Days prior to the first anticipated filing date of a
Registration Statement, the Company shall notify each Investor in writing of the information in
addition to the information required pursuant to the Selling Investor Questionnaire, the Company
requires from each such Investor if such Investor elects to have any of such Investor’s Registrable
Securities included in such Registration Statement. It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall furnish to the Company
such information regarding itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably required to effect the
effectiveness of the registration of such Registrable Securities and shall execute such documents
in connection with such registration as the Company may reasonably request.
b. Each Investor, by such Investor’s acceptance of the Registrable Securities, agrees to
cooperate with the Company as reasonably requested by the Company in connection with the
preparation and filing of any Registration Statement hereunder, unless such Investor has notified
the Company in writing of such Investor’s election to exclude all of such Investor’s Registrable
Securities from such Registration Statement.
c. Each Investor agrees that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 3(g) or the first sentence of 3(f), such Investor will
immediately discontinue disposition of Registrable Securities pursuant to any Registration
Statement(s) covering such Registrable Securities until such Investor’s receipt of the copies of
the supplemented or amended prospectus contemplated by Section 3(g) or the first sentence of 3(f)
or receipt of notice that no supplement or amendment is
10
required. Notwithstanding anything to the contrary, the Company shall use its reasonable best
efforts to cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement in connection with
any sale of Registrable Securities with respect to which an Investor has entered into a contract
for sale prior to the Investor’s receipt of a notice from the Company of the happening of any event
of the kind described in Section 3(g) or the first sentence of 3(f) and for which the Investor has
not yet settled.
d. Each Investor covenants and agrees that it will comply with the prospectus delivery
requirements of the 1933 Act as applicable to it or an exemption therefrom in connection with sales
of Registrable Securities pursuant to the Registration Statement.
e. Each Investor agrees not to take any action with respect to any distribution deemed to be
made pursuant to such Registration Statement which would constitute a violation of Regulation M
under the Exchange Act or any other applicable rule, regulation or law.
5. Expenses of Registration.
All reasonable expenses, other than underwriting discounts and commissions incurred in
connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including,
without limitation, all registration, listing and qualifications fees, printers and accounting
fees, and fees and disbursements of counsel for the Company, shall be paid by the Company;
provided, however, that all selling commissions applicable to the sale of Registrable Securities
and all fees and expenses of legal counsel for any Investor shall be borne by such Investor.
6. Indemnification.
In the event any Registrable Securities are included in a Registration Statement under this
Agreement:
a. To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold
harmless and defend each Investor, the directors, officers, members, partners, employees, agents,
representatives of, and each Person, if any, who controls any Investor within the meaning of the
1933 Act or the 1934 Act (each, an “Indemnified Person”), against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys’ fees, amounts paid
in settlement or expenses, joint or several, (collectively, “Claims”) (it being understood and
agreed that Claims shall not include any Claims for loss of market value of the Registrable
Securities) incurred in investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any court or
governmental, administrative or other regulatory agency, body or the SEC, whether pending or
threatened, whether or not an indemnified party is or may be a party thereto (“Indemnified
Damages”), to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement
or any post-effective amendment thereto or in any filing made in
11
connection with the qualification of the offering under the securities or other “blue sky”
laws of any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the
omission or alleged omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus if used prior to the effective date of
such Registration Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or the omission or
alleged omission to state therein any material fact necessary to make the statements made therein,
in the light of the circumstances under which the statements therein were made, not misleading,
(iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other
law, including, without limitation, any state securities law, or any rule or regulation thereunder
relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement or
(iv) any violation of this Agreement by the Company (the matters in the foregoing clauses (i)
through (iv) being, collectively, “Violations”). Subject to Section 6(c), the Company shall
reimburse the Indemnified Persons, promptly as such expenses are incurred and are due and payable,
for any reasonable legal fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a
Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance
upon and in conformity with information furnished in writing to the Company by such Indemnified
Person for such Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was
timely made available by the Company pursuant to Section 3(d) and (ii) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior written consent of
the Company, which consent shall not be unreasonably withheld or delayed. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
b. In connection with any Registration Statement in which an Investor is participating, each
such Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same
extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors,
each of its officers, agents and employees and each Person, if any, who controls the Company within
the meaning of the 1933 Act or the 1934 Act and their directors, officers, agents and their
employees (each, an “Indemnified Party”), against any Claim or Indemnified Damages to which any of
them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and
only to the extent, that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in connection with such
Registration Statement; and, subject to Section 6(c), such Investor will reimburse any legal or
other expenses reasonably incurred by an Indemnified Party in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement contained in this Section
6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without the prior written
consent of such Investor, which consent shall not be unreasonably withheld or delayed; provided,
further, however, that the Investor shall be liable under this Section 6(b) for only that amount of
a Claim or Indemnified
12
Damages as does not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of such Indemnified
Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9.
c. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6
of notice of the commencement of any action or proceeding (including any governmental action or
proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the defense thereof with
counsel reasonbly satisfactory to the indemnifying party and the Indemnified Person or the
Indemnified Party, as the case may be; provided, however, that an Indemnified
Person or Indemnified Party shall have the right to retain its own counsel with the fees and
expenses of not more than one counsel for such Indemnified Person or Indemnified Party to be paid
by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or Indemnified Party and the
indemnifying party would be inappropriate due to actual or potential differing interests between
such Indemnified Person or Indemnified Party and any other party represented by such counsel in
such proceeding. In the case of an Indemnified Person, legal counsel referred to in the
immediately preceding sentence shall be selected by the Investors holding at least a majority in
interest of the Registrable Securities included in the Registration Statement to which the Claim
relates. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or Claim by the indemnifying
party and shall furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or Claim. The indemnifying
party shall keep the Indemnified Party or Indemnified Person reasonably apprised at all times as to
the status of the defense or any settlement negotiations with respect thereto. No indemnifying
party shall be liable for any settlement of any action, claim or proceeding effected without its
prior written consent; provided, however, that the indemnifying party shall not
unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the
prior written consent of the Indemnified Party or Indemnified Person, consent to entry of any
judgment or enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or
Indemnified Person of a release from all liability in respect to such Claim or litigation, and such
settlement shall not include any admission as to fault on the part of the Indemnified Party.
Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to
all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made. The failure to
deliver written notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any liability to the Indemnified
Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party
is prejudiced in its ability to defend such action.
13
d. The indemnification required by this Section 6 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as and when bills are received or
Indemnified Damages are incurred and bills therefor are received.
e. The indemnity agreements contained herein shall be in addition to (i) any cause of action
or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or
others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.
7. Contribution.
To the extent any indemnification by an indemnifying party is prohibited or limited by law,
the indemnifying party agrees to make the maximum contribution with respect to any amounts for
which it would otherwise be liable under Section 6 to the fullest extent permitted by law;
provided, however, that: (i) no Person involved in the sale of Registrable
Securities, which Person is guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) in connection with such sale, shall be entitled to contribution from any
Person involved in such sale of Registrable Securities who was not guilty of fraudulent
misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited
in amount to the net amount of proceeds received by such seller from the sale of such Registrable
Securities pursuant to such Registration Statement.
8. Reports Under the 1934 Act.
With a view to making available to the Investors the benefits of Rule 144 promulgated under
the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration (“Rule 144”), the
Company agrees to:
a. make and keep public information available, as those terms are understood and defined in
Rule 144;
b. file with the SEC in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such
requirements and the filing of such reports and other documents is required for the applicable
provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns Registrable Securities, reasonably
promptly upon request, (i) a written statement by the Company, if true, that it has complied with
the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to permit the Investors
to sell such securities pursuant to Rule 144 without registration.
9. Assignment of Registration Rights.
The rights under this Agreement shall be automatically assignable by the Investors to any
transferee of all or any portion of such Investor’s Registrable Securities if: (i) the
14
Investor agrees in writing with the transferee or assignee to assign such rights and a copy of
such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the
Company is, within a reasonable time after such transfer or assignment, furnished with written
notice of (a) the name and address of such transferee or assignee and (b) the securities with
respect to which such registration rights are being transferred or assigned; (iii) immediately
following such transfer or assignment the further disposition of such securities by the transferee
or assignee is restricted under the 1933 Act or applicable state securities laws; (iv) at or before
the time the Company receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of the provisions
contained herein; and (v) such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement and applicable securities laws.
10. Amendment of Registration Rights.
Provisions of this Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Required Holders. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to less than all of the holders of the
Registrable Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this Agreement unless the same
consideration also is offered to all of the parties to this Agreement.
11. Miscellaneous.
a. A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is
deemed to own of record such Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or election received from
the such record owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications required or permitted to be given
under the terms of this Agreement must be in writing and will be deemed to have been delivered:
(i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
If to the Company:
If to the Company:
Electro-Optical Sciences, Inc.
3 West Main Street, Suite 201
3 West Main Street, Suite 201
15
Irvington, New York 10533
Telephone: (914) 541-3783
Facsimile: (914) 591-3701
Attention: Chief Financial Officer
Facsimile: (914) 591-3701
Attention: Chief Financial Officer
If to Legal Counsel:
Dreier LLP
499 Park Ave
499 Park Ave
New York, NY 10022
Telephone: (212) 328-6100
Facsimile: (212) 328-6101
Attention: Valerie Price
Telephone: (212) 328-6100
Facsimile: (212) 328-6101
Attention: Valerie Price
With a copy (for informational purposes) to:
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
Attention: Eleazer N. Klein, Esq.
919 Third Avenue
New York, New York 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
Attention: Eleazer N. Klein, Esq.
If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers attached
hereto, with copies to such Buyer’s representatives as set forth on the Schedule of Buyers, or to
such other address and/or facsimile number and/or to the attention of such other Person as the
recipient party has specified by written notice given to each other party five (5) days prior to
the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or electronically generated
by the sender’s facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii)
above, respectively.
c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or
delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.
d. All questions concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of New York or any
other jurisdictions) that would cause the application of the laws of any jurisdictions other than
the State of New York. Each party hereby irrevocably submits to the
16
exclusive jurisdiction of the state and federal courts sitting in The City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or
with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party
hereby irrevocably waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by law. If any provision of
this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the remainder of this Agreement
in that jurisdiction or the validity or enforceability of any provision of this Agreement in any
other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
e. This Agreement, the other Transaction Documents (as defined in the Securities Purchase
Agreement) and the instruments referenced herein and therein constitute the entire agreement among
the parties hereto with respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, the other Transaction Documents and the instruments referenced
herein and therein supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and
be binding upon the permitted successors and assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same agreement. This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and performed, all such further acts
and things, and shall execute and deliver all such other agreements, certificates, instruments and
documents, as any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the transactions contemplated
hereby.
17
j. All consents and other determinations required to be made by the Investors pursuant to this
Agreement shall be made, unless otherwise specified in this Agreement, by the Required Holders.
k. The language used in this Agreement will be deemed to be the language chosen by the parties
to express their mutual intent and no rules of strict construction will be applied against any
party.
l. This Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person.
m. The obligations of each Investor hereunder are several and not joint with the obligations
of any other Investor, and no provision of this Agreement is intended to confer any obligations on
any Investor vis-à-vis any other Investor. Nothing contained herein, and no action taken by any
Investor pursuant hereto, shall be deemed to constitute the Investors as a partnership, an
association, a joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such obligations or the
transactions contemplated herein.
* * * * * *
18
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Registration Rights Agreement to be duly executed as of the date first written above.
| COMPANY: | ||||
| ELECTRO-OPTICAL SCIENCES, INC. | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Registration Rights Agreement to be duly executed as of the date first written above.
| BUYERS: | ||||
| [BUYERS] | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
SCHEDULE OF BUYERS
| Buyer’s Address | Buyer's Representative’s Address | |||||
| Buyer | and Facsimile Number | and Facsimile Number | ||||
[Buyers]
|
[Address] | |||||
| Attention: | [ ] | |||||
| Facsimile: | ( ) - | |||||
| Telephone: | ( ) - | |||||
| ( ) - | ||||||
| Residence: | [ ] | |||||
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
OF REGISTRATION STATEMENT
[ ]
[ ]
[ ]
Attention: [ ]
[ ]
[ ]
Attention: [ ]
Re: Electro-Optical Sciences, Inc.
Ladies and Gentlemen:
[We are][I am] counsel to Electro-Optical Sciences, Inc., a corporation organized under the
laws of Delaware (the “Company”), and have represented the Company in connection with that certain
Securities Purchase Agreement (the “Securities Purchase Agreement”), entered into by and among the
Company and the buyers named therein (collectively, the “Holders”) pursuant to which the Company
issued to the Holders its shares of the Company’s Common Stock, par value $0.001 per share (the
"Common Stock”) and warrants exercisable for shares of Common Stock (the “Warrants”). Pursuant to
the Securities Purchase Agreement, the Company also has entered into a Registration Rights
Agreement with the Holders (the “Registration Rights Agreement”) pursuant to which the Company
agreed, among other things, to register the resale of the Registrable Securities (as defined in the
Registration Rights Agreement), including the shares of Common Stock issuable upon exercise of the
Warrants under the Securities Act of 1933, as amended (the “1933 Act”). In connection with the
Company’s obligations under the Registration Rights Agreement, on ___, 2006, the
Company filed a Registration Statement on Form S-3 (File No. 333- ) (the “Registration
Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the Registrable
Securities which names each of the Holders as a selling stockholder thereunder.
In connection with the foregoing, [we][I] advise you that a member of the SEC’s staff has
advised [us][me] by telephone that the SEC has entered an order declaring the Registration
Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF
EFFECTIVENESS] and [we][I] have no knowledge, after telephonic inquiry of a member of the SEC’s
staff, that any stop order suspending its effectiveness has been issued or that any proceedings for
that purpose are pending before, or threatened by, the SEC and the Registrable Securities are
available for resale under the 1933 Act pursuant to the Registration Statement.
This letter shall serve as our standing instruction to you that the shares of Common Stock are
freely transferable by the Holders pursuant to the Registration Statement. You need not require
further letters from us to effect any future legend-free issuance or reissuance of shares of Common
Stock to the Holders as contemplated by the Company’s Irrevocable Transfer Agent Instructions dated
October ___, 2006, provided at the time of such
1
reissuance, the Company has not otherwise notified you that the Registration Statement is
unavailable for the resale of the Registrable Securities.
| Very truly yours, | ||||
| [ISSUER’S COUNSEL] | ||||
| By: | ||||
CC: [LIST NAMES OF HOLDERS] |
||||
2
EXHIBIT B
SELLING STOCKHOLDERS
The shares of common stock being offered by the selling stockholders are those previously
issued to the Selling Stockholders and those issuable to the Selling Stockholders upon exercise of
the warrants. For additional information regarding the issuances of common stock and the warrants,
see “Private Placement of Common Shares and Warrants” above. We are registering the shares of
common stock in order to permit the selling stockholders to offer the shares for resale from time
to time. Except for the ownership of the shares of common stock and the warrants, the selling
stockholders have not had any material relationship with us within the past three years.
The table below lists the selling stockholders and other information regarding the beneficial
ownership of the shares of common stock by each of the selling stockholders. The second column
lists the number of shares of common stock beneficially owned by each selling shareholder, based on
its ownership of the shares of common stock and the warrants, as of ___, 2006, assuming
exercise of the warrants held by the selling stockholders on that date, without regard to any
limitations on exercise.
The third column lists the shares of common stock being offered by this prospectus by the
selling stockholders.
In accordance with the terms of registration rights agreements with the holders of the shares
of common stock and the warrants, this prospectus generally covers the resale of that number of
shares of common stock equal to the number of shares of common stock issued and the shares of
common stock issuable upon exercise of the related warrants, determined as if the outstanding
warrants were exercised, as applicable, in full, in each case, as of the trading day immediately
preceding the date this registration statement was initially filed with the SEC. The fourth column
assumes the sale of all of the shares offered by the selling stockholders pursuant to this
prospectus.
Under the terms of the warrants, a selling shareholder may not exercise the warrants, to the
extent such exercise would cause such selling shareholder, together with its affiliates, to
beneficially own a number of shares of common stock which would exceed [4.99]% of our then
outstanding shares of common stock following such exercise, excluding for purposes of such
determination shares of common stock issuable upon exercise of the warrants which have not been
exercised. The number of shares in the second column does not reflect this limitation. The
selling stockholders may sell all, some or none of their shares in this offering. See “Plan of
Distribution.”
1
| Maximum Number of Shares | ||||||||||||
| Number of Shares Owned | to be Sold Pursuant to this | Number of Shares Owned | ||||||||||
| Name of Selling Stockholder | Prior to Offering | Prospectus | After Offering | |||||||||
(1) [Buyers] |
0 | |||||||||||
(1) |
||||||||||||
2
PLAN OF DISTRIBUTION
We are registering the shares of common stock previously issued and the shares of common stock
issuable upon exercise of the warrants to permit the resale of these shares of common stock by the
holders of the common stock and warrants from time to time after the date of this prospectus. We
will not receive any of the proceeds from the sale by the selling stockholders of the shares of
common stock. We will bear all fees and expenses incident to our obligation to register the shares
of common stock.
The selling stockholders may sell all or a portion of the shares of Common Stock beneficially
owned by them and offered hereby from time to time directly or through one or more underwriters,
broker-dealers or agents. If the shares of Common Stock are sold through underwriters or
broker-dealers, the selling stockholders will be responsible for underwriting discounts or
commissions or agent’s commissions. The shares of Common Stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of the sale, at varying
prices determined at the time of sale, or at negotiated prices. These sales may be effected in
transactions, which may involve crosses or block transactions,
| • | on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale; | ||
| • | in the over-the-counter market; | ||
| • | in transactions otherwise than on these exchanges or systems or in the over-the-counter market; | ||
| • | through the writing of options, whether such options are listed on an options exchange or otherwise; | ||
| • | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; | ||
| • | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; | ||
| • | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | ||
| • | an exchange distribution in accordance with the rules of the applicable exchange; | ||
| • | privately negotiated transactions; | ||
| • | short sales; | ||
| • | sales pursuant to Rule 144; |
C-1
| • | broker-dealers may agree with the selling securityholders to sell a specified number of such shares at a stipulated price per share; | ||
| • | a combination of any such methods of sale; and | ||
| • | any other method permitted pursuant to applicable law. |
If the selling stockholders effect such transactions by selling shares of Common Stock to or
through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may
receive commissions in the form of discounts, concessions or commissions from the selling
stockholders or commissions from purchasers of the shares of Common Stock for whom they may act as
agent or to whom they may sell as principal (which discounts, concessions or commissions as to
particular underwriters, broker-dealers or agents may be in excess of those customary in the types
of transactions involved). In connection with sales of the shares of Common Stock or otherwise,
the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares of Common Stock in the course of hedging in positions they
assume. The selling stockholders may also sell shares of Common Stock short and deliver shares of
Common Stock covered by this prospectus to close out short positions and to return borrowed shares
in connection with such short sales. The selling stockholders may also loan or pledge shares of
Common Stock to broker-dealers that in turn may sell such shares.
The selling stockholders may pledge or grant a security interest in some or all of the
convertible notes, warrants or shares of Common Stock owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may offer and sell the
shares of Common Stock from time to time pursuant to this prospectus or any amendment to this
prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, as
amended, amending, if necessary, the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders under this prospectus. The
selling stockholders also may transfer and donate the shares of Common Stock in other circumstances
in which case the transferees, donees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
The selling stockholders and any broker-dealer participating in the distribution of the shares
of Common Stock may be deemed to be “underwriters” within the meaning of the Securities Act, and
any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be
deemed to be underwriting commissions or discounts under the Securities Act. At the time a
particular offering of the shares of Common Stock is made, a prospectus supplement, if required,
will be distributed which will set forth the aggregate amount of shares of Common Stock being
offered and the terms of the offering, including the name or names of any broker-dealers or agents,
any discounts, commissions and other terms constituting compensation from the selling stockholders
and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.
Under the securities laws of some states, the shares of Common Stock may be sold in such
states only through registered or licensed brokers or dealers. In addition, in some states the
shares of Common Stock may not be sold unless such shares have been registered or qualified
C-2
for sale in such state or an exemption from registration or qualification is available and is
complied with.
There can be no assurance that any selling stockholder will sell any or all of the shares of
Common Stock registered pursuant to the registration statement, of which this prospectus forms a
part.
The selling stockholders and any other person participating in such distribution will be
subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which
may limit the timing of purchases and sales of any of the shares of Common Stock by the selling
stockholders and any other participating person. Regulation M may also restrict the ability of any
person engaged in the distribution of the shares of Common Stock to engage in market-making
activities with respect to the shares of Common Stock. All of the foregoing may affect the
marketability of the shares of Common Stock and the ability of any person or entity to engage in
market-making activities with respect to the shares of Common Stock.
We will pay all expenses of the registration of the shares of Common Stock pursuant to the
registration rights agreement, estimated to be $[ ] in total, including, without limitation,
Securities and Exchange Commission filing fees and expenses of compliance with state securities or
“blue sky” laws; provided, however, that a selling stockholder will pay all underwriting discounts
and selling commissions, if any. We will indemnify the selling stockholders against liabilities,
including some liabilities under the Securities Act, in accordance with the registration rights
agreements, or the selling stockholders will be entitled to contribution. We may be indemnified by
the selling stockholders against civil liabilities, including liabilities under the Securities Act,
that may arise from any written information furnished to us by the selling stockholder specifically
for use in this prospectus, in accordance with the related registration rights agreement, or we may
be entitled to contribution.
Once sold under the registration statement, of which this prospectus forms a part, the shares
of Common Stock will be freely tradable in the hands of persons other than our affiliates.
C-3
Exhibit 10.4
ELECTRO-OPTICAL SCIENCES, INC.
2,312,384 Shares of Common Stock and 346,858 Related Warrants
PLACEMENT AGENCY AGREEMENT
October 31, 2006
JEFFERIES & COMPANY, INC.
520 Madison Avenue
New York, New York 10022
520 Madison Avenue
New York, New York 10022
Ladies and Gentlemen:
Introductory. Electro-Optical Sciences, Inc., a Delaware corporation (the “Company”), proposes
to issue and sell to certain purchasers (collectively, the “Purchasers”) 2,312,384 shares (the
“Shares”) of Common Stock, par value $0.001 per share (the “Common Stock”), of the Company and
related warrants to purchase 346,858 shares of Common Stock (“Warrants,” together with the Shares,
the “Securities”). The Securities will be offered and sold to the Purchasers in a private
placement (the “Placement”) without being registered under the Securities Act of 1933, as amended,
and the rules and regulations of the Securities and Exchange Commission (the “Commission”)
thereunder (collectively, the “Securities Act”), in reliance upon Section 4(2) (“Section 4(2)”)
thereof and/or Regulation D (“Regulation D”) thereunder. Jefferies & Company, Inc. (“Jefferies”)
has agreed to act as placement agent (the “Placement Agent”) in connection with the Placement,
subject to the terms, conditions and other provisions of this Agreement.
The Securities are to be sold to the Purchasers pursuant to a Securities Purchase Agreement
(the “Purchase Agreement”) to be entered into by the Company and the Purchasers. The Warrants are
to be issued pursuant to the Purchase Agreement and will be exerciseable into duly and validly
issued, fully paid and non-assessable shares (such shares, the “Warrant Shares”) of Common Stock on
the terms, and subject to the conditions, set forth in the Warrant.
Holders of the Securities will be entitled to the benefits of a Registration Rights Agreement
(the “Resale Registration Rights Agreement”) to be entered into between the Company and the
Purchasers pursuant to which the Company will agree, among other things, to file with the
Commission a shelf registration statement pursuant to Rule 415 under the Securities Act (the
“Resale Registration Statement”) covering the resale of the Shares and Warrant Shares, and to use
its reasonable best efforts to cause the Resale Registration Statement to be declared effective
within the time periods specified in the Resale Registration Rights Agreement.
This Agreement, the Purchase Agreement, the Warrant and the Resale Registration Rights
Agreement are referred to herein collectively as the “Transaction Documents,” and the transactions
contemplated hereby and thereby are referred to herein collectively as the “Transactions.”
The Company hereby confirms its agreement with the Placement Agent as follows:
Section 1. Representations, Warranties and Agreements of the Company and the Placement Agent.
A. Representations, Warranties and Agreements of the Company. In addition to the other
representations, warranties and agreements contained in the Agreement, the Company hereby
represents, warrants and agrees with, the Placement Agent as follows:
(a) Placement Materials. The Company has not distributed and will not distribute any
materials in connection with the Placement other than the drafts or definitive versions of the
Transaction Documents and the term sheet relating thereto.
(b) The Placement Agency Agreement. The Company has all necessary power and authority to execute
and deliver this Placement Agency Agreement and to perform its obligations hereunder; this
Placement Agency Agreement has been duly authorized by the Company and, when executed and delivered
by the Company, will constitute a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms subject to the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting creditors’ rights generally and to
general principles of equity and except as rights to indemnity or contribution hereunder may be
limited by federal or state securities laws.
(c) Independent Accountants Eisner, LLP, who have expressed their opinion with respect to the
financial statements (which term as used in this Agreement includes the related notes thereto)
included in the SEC Documents, are (i) independent public or certified public accountants as
required by the Exchange Act, (ii) in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X and (iii) a registered public
accounting firm as defined by the Public Company Accounting Oversight Board whose registration has
not been suspended or revoked and who has not requested such registration to be withdrawn.
(d) Stock Exchange Listing. The Company shall cause the Shares and Warrant Shares to be listed on
The NASDAQ Capital Market prior to the effectiveness of the Resale Registration Statement and shall
use its reasonable best efforts to maintain the continued listing of such Shares and Warrant
Shares.
(e) Non-Contravention of Existing Instruments; No Further Authorizations or Approvals Required.
The Company’s execution, delivery and performance of the Placement Agency Agreement and the
consummation of the transactions contemplated thereby (i) will not result in any violation of the
provisions of the charter or by laws of the Company, (ii) will not conflict with or constitute a
breach of, or default under, or result in the creation or imposition of any security interest,
mortgage, pledge, lien, charge, encumbrance or adverse claim upon any property or assets of the
Company pursuant to, or require the consent of any other party to any under any indenture,
mortgage, loan or credit agreement, note, contract, franchise, lease or other instrument to which
the Company is a party or by which it may be bound, or to which any of the property or assets of
the Company is subject and (iii) will not result in any violation of any law, administrative
regulation or administrative or court decree applicable to the Company for such
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conflicts, breaches, defaults or violations as would not, individually or in the aggregate, result
in a Material Adverse Effect. No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental or regulatory authority or agency, is
required for the Company’s execution, delivery and performance of the Placement Agency Agreement
and the consummation of the transactions contemplated thereby.
(f) QIBs and Accredited Investors. The Company will not offer or sell any of the Securities
to any person whom it reasonably believes is not (i) a “qualified institutional buyer” as defined
in Rule 144A (“QIBs”) or (ii) an “accredited investor” (as defined in clauses (1), (2), (3), (5),
(6) and (7) of Rule 501(a) of Regulation D).
(g) Purchasers; Compliance With Rule 502(d). Assuming the accuracy of the representations and
warranties of the Purchasers in the Purchase Agreement, the Company will exercise reasonable care
to assure that the Purchasers are not “underwriters” within the meaning of Section 2(a)(11) of the
Securities Act and, without limiting the foregoing, that such purchases will comply with Rule
502(d) under the Securities Act.
(h) The representations, warranties and agreements of the Company contained in Section 3 of
the Purchase Agreement are hereby incorporated by reference in this Agreement, as if made directly
by the Company to the Placement Agent on the date of this Agreement, with the understanding that:
(i) any defined terms used in such incorporated sections shall have the meanings given
to them in this Agreement or, if no definition is given to them in this Agreement, such
defined terms will have the meanings given to them in the incorporated sections;
(ii) in the event of a conflict in meaning or defined term between the incorporated
sections and this Agreement, this Agreement shall control; and
(iii) this agreement is included in the definition of Transaction Documents thereunder.
The Company acknowledges that the Placement Agent and, for purposes of the opinion to be
delivered pursuant to Section 4 hereof, counsel to the Company, will rely upon the accuracy and
truthfulness of the foregoing representations and hereby consents to such reliance.
B. Representations, Warranties and Agreements of the Placement Agent . The Placement Agent
hereby represents, warrants and covenants to, and agrees with, the Company as follows:
(a) No General Solicitation. The Placement Agent will not solicit offers for the Company for
the Shares and Warrants by means of any form of general solicitation or general advertising in
violation of the Securities Act (including, without limitation, Rule 502(c) of Regulation D
thereunder) in connection with the offering of the Shares and Warrants or in any manner involving a
public offering within the meaning of Section 4(2). The Placement Agent will conduct the Placement
in accordance with all federal and state securities laws applicable to the offering of the Shares
and Warrants, and the Placement Agent will not distribute any written
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information that has not been furnished to it, and approved in writing, by the Company;
provided that for the purposes hereof, the Transaction Documents and the term sheets relating
thereto will be deemed furnished by the Company.
(b) Limitation on Offerees. The Placement Agent will solicit offers for the Company for the
Shares and Warrants only from persons whom it reasonably believes to be (i) a QIB or (ii) an
“accredited investor.”
(c) This Agreement has been duly authorized, executed and delivered by the Placement Agent and
constitutes a valid and binding obligation of the Placement Agent, enforceable against the
Placement Agent in accordance with its terms, subject to the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting creditors’ rights generally and to
general principles of equity and except as rights to indemnity or contribution hereunder may be
limited by federal or state securities laws.
(d) The Placement Agent shall not deliver to any offeree, without the written consent of the
Company, any information concerning the Placement other than the Transaction Documents and the term
sheet relating thereto. The Placement Agent shall deliver, or cause to be delivered, the
Transaction Documents to each offeree prior to the sale of any Shares and Warrants to such offeree.
(e) The Placement Agent is a registered broker dealer in good standing in every state in which
offers and sales of the Shares and Warrants will be made.
(f) The Placement Agent acknowledges that the Company has the right, in its sole discretion,
to reject any Purchaser.
Section 2. Engagement of Placement Agent; Fees; Expenses.
(a) Engagement of Jefferies. The Company hereby engages Jefferies as the Placement Agent, and the
Company hereby authorizes Jefferies to act as such in connection with the Placement. On the basis
of the representations, warranties and agreements of the Company contained in this Agreement and
subject to, and in accordance with, the terms, conditions and other provisions hereof, Jefferies
agrees to act as Placement Agent to place the Shares and Warrants as contemplated by this
Agreement. The Company acknowledges that the Placement Agent’s engagement hereunder is on a “best
efforts” basis and does not constitute any firm commitment or undertaking, express or implied, on
the part of the Placement Agent to purchase or place any of the Shares and Warrants and does not
constitute any representation, warranty or agreement that any financing will be available to the
Company.
(b) Placement Agent’s Fee and Expenses. As compensation for the Placement Agent’s services
hereunder, the Company hereby agrees to pay the Placement Agent on the closing date of the
Placement (the “Closing Date”) a placement fee equal to $500,000 (the “Placement Fee”). in cash
payable by wire transfer in same-day funds on the Closing Date to the account or accounts
designated to the Company in writing by the Placement Agent. The Company shall not be responsible
for reimbursing the Placement Agent for any of its expenses in connection with its engagement
hereunder except that the Company agrees to reimburse the Placement Agent for (i) for the
reasonable fees and expenses of its counsel up to a maximum of
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$75,000 in the event that (A) Fidelity Investments (including any of its affiliates) purchases
Securities for an amount equal to or greater than $6,000,000 and (B) Wasatch Funds (including any
of its affiliates) purchases Securities for an amount equal to or greater than $1,000,000 and (ii)
for the reasonable fees and expenses of its counsel up to a maximum of $25,000 if only one of the
conditions specified in clauses (i)(A) and (i)(B) above is satisfied; provided, however, that to
the extent that the Company rejects the participation of Wasatch (or any of its affiliates) as a
Purchaser pursuant to section 1B(f) above, Wasatch shall be deemed to have purchased Securities in
the requisite amounts for the purposes of the Company’s obligation to reimburse the Placement Agent
in accordance with the foregoing clauses (i)(A) and (i)(B); provided further, that to the extent
that the Company rejects the participation of Fidelity Investments (or any of its affiliates) as a
Purchaser pursuant to section 1B(f) above, the Company agrees to reimburse the Placement Agent for
all of the fees and expenses of its counsel.
(c) Placement Agent as Independent Contractor. The Company hereby acknowledges that, in connection
with the Transactions, (i) the Placement, including the determination of the offering price of the
Shares and Warrants and any related discounts, commissions and fees, shall be an arm’s-length
commercial transaction between the Company and the Purchasers, (ii) the Placement Agent will be
acting as an independent contractor and will not be the agent or fiduciary of the Company or its
stockholders, creditors, employees, the Purchasers or any other party, (iii) the Placement Agent
shall not assume an advisory or fiduciary responsibility in favor of the Company (irrespective of
whether the Placement Agent has advised or is currently advising the Company on other matters) and
the Placement Agent shall have no obligation to the Company with respect to the Transactions except
as may be set forth expressly herein, (iv) the Placement Agent and its affiliates may be engaged in
a broad range of transactions that involve interests that differ from those of the Company and (v)
the Placement Agent shall not provide any legal, accounting, regulatory or tax advice with respect
to the Transactions and the Company shall consult its own legal, accounting, regulatory and tax
advisors to the extent it deems appropriate.
(d) Company Responsible for Information. The Company is and will be solely responsible for the
contents of any and all written or oral communications provided to any actual or prospective
purchaser of the Securities with the approval of the Company; and the Company recognizes that the
Placement Agent, in acting pursuant to this Agreement, will be using information provided by the
Company and its agents and representatives and the Placement Agent does not assume responsibility
for and may rely, without independent verification, on the accuracy and completeness of any such
information.
(e) Notification of Potential Purchasers. In order to allow proper coordination of the proposed
Placement, during the term of this engagement, the Company will promptly notify the Placement Agent
of any potential purchasers known to the Company to be interested in purchasing any of the
Securities, and the Company will keep the Placement Agent fully and promptly informed of the status
of any discussions or negotiations between the Company and any such potential purchasers.
(f) Confidentiality. The Company agrees that any information or advice rendered by the Placement
Agent or any of its representatives in connection with this
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engagement is for the confidential use of the Company only and the Company will not, and will not
permit any third party to, disclose or otherwise refer to such advice or information, or to the
Placement Agent, in any manner without the Placement Agent’s prior written consent.
Section 3. Additional Covenants and Agreements of the Company. The Company further covenants and
agrees with the Placement Agent as follows:
(a) Placement Agent’s Review of Proposed Amendments and Supplements. During the period beginning
on the date hereof and ending on the Closing Date, prior to amending or supplementing any SEC
Document, the Company shall furnish to the Placement Agent for review a copy of each such proposed
amendment or supplement, and the Company shall not file any such proposed amendment or supplement
to which the Placement Agent shall have reasonably objected.
(b) Amendments and Supplements. If, prior to the Closing Date, any event shall occur or condition
exist as a result of which it is necessary to amend or supplement any SEC Document in order to make
the statements therein, in the light of the circumstances, not misleading, or if in the opinion of
the Placement Agent or counsel for the Placement Agent it is otherwise necessary to amend or
supplement any SEC Document to comply with law, the Company agrees to promptly prepare and furnish
at its own expense to the Placement Agent, amendments or supplements to such SEC Document so that
the statements in such SEC Document as so amended or supplemented will not, in the light of the
circumstances, be misleading or so that such SEC Document, as amended or supplemented, will comply
with law. Neither the Placement Agent’s consent to, or delivery of, any such amendment or
supplement shall constitute a waiver of any of the Company’s obligations under this Section 3(b).
(c) Marketing; Due Diligence. The Company shall participate, and cause its officers and
representatives to participate, in the Placement, including in the marketing of the Securities and
meeting with prospective purchasers of any of the Securities, and afford prospective purchasers the
opportunity to conduct customary due diligence and make inquiries relevant to their investment
decisions regarding the Securities.
(d) Blue Sky Compliance. The Company shall reasonably cooperate with the Placement Agent and
counsel for the Placement Agent to qualify or register all of the Securities for sale under (or
obtain exemptions from the application of) the state securities or blue sky laws of those
jurisdictions designated by the Placement Agent, shall comply with such laws and shall continue
such qualifications, registrations and exemptions in effect so long as required for the
distribution of all of the Securities. The Company shall not be required to qualify as a foreign
corporation or to take any action that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to taxation as a
foreign corporation. The Company will advise the Placement Agent promptly of the suspension of the
qualification or registration of (or any such exemption relating to) the Securities for offering,
sale or trading in any jurisdiction or any initiation or threat of any proceeding for any such
purpose, and in the event of the issuance of any order suspending such qualification, registration
or exemption, the Company shall use its best efforts to obtain the withdrawal thereof at the
earliest possible moment.
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(e) Use of Proceeds. The Company shall apply the net proceeds from the sale of the Securities
sold by it for the purposes as set forth in the Purchase Agreement.
(f) Transfer Agent. The Company shall maintain, at its expense, a registrar and transfer
agent for the shares of Common Stock (including the Warrant Shares).
(g) Agreement Not to Offer or Sell Additional Shares; Lock-Up Agreements for Directors and
Officers; Enforcement of Existing Lock-Up Agreements.
(i) During the period commencing on the date hereof and ending on the earlier of (x)
the 150th day following the Closing Date and (y) 30 days after the Effective Date
(as defined in the Resale Registration Rights Agreement) (the “Lock-up Period”), the Company
will not, without the prior written consent of Jefferies (which consent may be withheld at
the sole discretion of Jefferies), directly or indirectly, sell, offer, contract or grant
any option to sell, pledge, transfer or establish an open “put equivalent position” within
the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of or transfer, or
announce the offering of, or file any registration statement under the Securities Act in
respect of, any shares of Common Stock, options or warrants to acquire shares of Common
Stock or securities exchangeable or exercisable for or convertible into shares of Common
Stock (other than as contemplated by the Transaction Documents with respect to the
Securities); provided, however, that the Company may issue shares of its Common Stock,
options to purchase its shares of Common Stock or shares of Common Stock upon exercise of
options, pursuant to any stock option, stock bonus or other stock plan or arrangement
described in the SEC Documents.
(ii) On or prior to the date hereof, the Company shall have furnished to the Placement
Agent an agreement in the form of Exhibit A hereto from each director and officer
and each beneficial owner (as defined and determined according to Rule 13d-3 under the
Exchange Act) of five or more percent of the outstanding issued share capital of the
Company, and such agreement shall be in full force and effect on the Closing Date.
(h) Existing Lock-Up Agreement. The Company will enforce all existing agreements between the
Company and any of its security holders, if any, that prohibit the sale, transfer, assignment,
pledge or hypothecation of any of the Company’s securities in connection with the Placement. In
addition, the Company will direct the transfer agent to place stop transfer restrictions upon any
such securities of the Company that are bound by such existing “lock-up” agreements for the
duration of the periods contemplated in such agreements.
(i) Investment Limitation. The Company shall not invest, or otherwise use the proceeds received by
the Company from its sale of the Securities in such a manner as would require the Company to
register as an investment company under the Investment Company Act.
(j) No Stabilization or Manipulation. The Company will not take, directly or indirectly, any
action designed to or that might be reasonably expected to cause or result in stabilization or
manipulation of the price of any of the Securities or any other reference security, whether to
facilitate the sale or resale of the Securities or otherwise.
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Section 4. Conditions of the Placement Agent’s Obligations. The obligations of the Placement Agent
as provided herein shall be subject to the accuracy of the representations, warranties and
agreements of the Company set forth herein as of the date hereof and as of the Closing Date as
though then made, to the timely performance by the Company of its covenants and other obligations
hereunder, and to each of the following conditions:
(a) Accountant’s Comfort Letter(b) . On the Closing Date, the Placement Agent shall have
received from Eisner, LLP a letter dated the Closing Date addressed to the Placement Agent, in form
and substance reasonably satisfactory to the Placement Agent confirming that they are (A)
registered independent public or certified public accountants as required by the Exchange Act and
(B) in compliance with the applicable requirements relating to the qualification of accountants
under Rule 2-01 of Regulation S-X.
(b) No Material Adverse Change. For the period from and after the date of this Agreement and
prior to the Closing Date, in the judgment of the Placement Agent, there shall have not occurred
any Material Adverse Change.
(c) Opinions of Counsel for the Company. On the Closing Date, the Placement Agent shall have
received the opinion of counsel for the Company, dated as of such Closing Date, in form and
substance reasonably satisfactory to the Placement Agent as set forth in Exhibit B.
(d) Officers’ Certificate. On the Closing Date, the Placement Agent shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer or President of the
Company and the Chief Financial Officer or Chief Accounting Officer of the Company, dated as of the
Closing Date, to the effect that:
(i) for the period from and after the date of this Agreement and prior to the Closing
Date, there has not occurred any Material Adverse Change;
(ii) the representations, warranties and covenants of the Company set forth in Section
1(A) of this Agreement are true and correct with the same force and effect as though
expressly made on and as of such Closing Date; and
(iii) the Company has complied with all the agreements hereunder and satisfied all the
conditions on its part to be performed or satisfied hereunder at or prior to such Closing
Date.
(e) All corporate proceedings and other legal matters incident to the authorization, form and
validity of the Transaction Documents and Securities and all other legal matters relating to the
offering, issuance and sale, as applicable, of the Securities and the other Transactions shall be
reasonably satisfactory in all material respects to the Placement Agent; and the Company shall have
furnished to Schulte Roth & Zabel LLP, counsel to the Placement Agent, all documents and
information that it may reasonably request to enable them to pass upon such matters.
(f) The Company shall not have sustained since the date of the latest audited financial
statements (i) any material loss or interference with its business from fire, explosion,
8
flood or other calamity, whether or not covered by insurance, or from any strike, job action,
slowdown, work stoppage, labor dispute or court or governmental action, order or decree or (ii)
since such date, there shall not have been any change in the common stock, short-term debt or
long-term debt of the Company or any Material Adverse Change, the effect of which, in any such case
set forth in clause (i) or (ii), is, in the judgment of the Placement Agent, so material and
adverse as to make it impracticable or inadvisable to proceed with the Placement or the delivery of
the Securities being delivered on the Closing Date on the terms and in the manner contemplated in
this Agreement and the Purchase Agreement.
(g) 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, the
American Stock Exchange, any stock exchange or automated quotation system owned or operated by The
Nasdaq Stock Market, Inc. 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 the
settlement of such trading generally shall have been materially disrupted or minimum prices shall
have been established on any such exchange or such market by the Commission, by such exchange or by
any other regulatory body or governmental authority having jurisdiction, (ii) a banking moratorium
shall have been declared by Federal or state authorities of the United States, (iii) the United
States shall have become engaged in hostilities (other than existing hostilities), there shall have
been a significant escalation in hostilities involving the United States or there shall have been a
declaration of a national emergency or war (other than existing declarations of war) by the United
States or (iv) there shall have occurred any other calamity or crisis or any change in general
domestic or international economic, political or financial conditions, including without limitation
as a result of terrorist activities, or the effect of international conditions on the financial
markets in the United States shall be such, as to make it, in the sole discretion of the Placement
Agent, impracticable or inadvisable to proceed with the Placement or delivery of the Securities
being delivered on the Closing Date on the terms and in the manner contemplated in the Purchase
Agreement.
(h) Each of the Transaction Documents, other than this Agreement, shall be in form and
substance reasonably satisfactory to the Placement Agent and shall have been duly executed and
delivered by the Company and the other parties thereto, and the Securities shall have been duly
executed and delivered by the Company.
(i) All conditions to closing of the Purchase Agreement shall be satisfied or, where
applicable, waived.
(j) The sale of the Securities shall not be enjoined (temporarily or permanently) on the
Closing Date.
(k) Additional Documents. On or before the Closing Date, the Placement Agent shall have received
such information, documents and opinions as they may reasonably require in order to evidence the
accuracy of any of the representations and warranties, or the satisfaction of any of the conditions
or agreements, herein contained.
Section 5. Indemnification.
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(a) Indemnification of the Placement Agent. The Company agrees to indemnify and hold harmless the
Placement Agent and its affiliates and their respective officers, directors, managers, members,
partners, employees and agents, and any other persons controlling the Placement Agent or any of its
affiliates within the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act (the Placement Agent and each such other person being referred to as an “Indemnified
Person”), to the fullest extent lawful, from and against all claims, liabilities, losses, damages
and expenses (or actions in respect thereof), as incurred (“Losses”), to which such Indemnified
Person may become subject under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or the laws or regulations of foreign jurisdictions where the
Securities have been offered or at common law or otherwise (including in settlement of any
litigation), insofar as such Losses (or actions in respect thereof as contemplated below) arises
out of or is based:
(A) (i) upon any untrue statement or alleged untrue statement of a material fact
contained in the SEC Documents (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not misleading;
(ii) upon any untrue statement or alleged untrue statement of a material fact contained
in any materials or information provided to investors by, or with the approval in writing
of, the Company in connection with the marketing of the Securities and the Placement,
including any roadshow or investor presentations made to investors by the Company (whether
in person or electronically), or the omission or alleged omission therefrom of a material
fact necessary in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(iii) any breach by the Company of any representation or warranty or failure to comply
with any of the covenants and agreements contained in this Agreement; or
(iv) any act or failure to act or any alleged act or failure to act by the Placement
Agent in connection with, or relating in any manner to, the Securities or the Placement
contemplated hereby, and which is included as part of or referred to in any Losses or action
arising out of or based upon any matter covered by clauses (i), (ii) or (iii) above,
provided that the Company shall not be liable under this clause (iv) to the extent that a
court of competent jurisdiction shall have determined by a final judgment that such Losses
resulted solely from any such acts or failures to act undertaken or omitted to be taken by
the Placement Agent through its willful misconduct or gross negligence; and
(B) the violation of any applicable laws or regulations of foreign jurisdictions where
the Securities have been offered; and to reimburse the Indemnified Person for
(i) all expenses (including, without limitation, reasonable fees and expenses of
counsel chosen by the Placement Agent) as such expenses are incurred by the Placement Agent
in connection with investigating, preparing, defending or settling any action or claim for
which indemnification has or is reasonably likely to be sought by the
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Indemnified Person, whether or not in connection with litigation in which any
Indemnified Person is a named party; and
(ii) any other Losses incurred by the Placement Agent.
The indemnity agreement set forth in this Section 5(a) shall be in addition to any liabilities that
the Company may otherwise have.
(b) Notifications and Other Indemnification Procedures. Promptly after receipt by an
Indemnified Person under this Section 5 of notice of the commencement of any action, such
Indemnified Person will, if a claim in respect thereof is to be made against the Company under this
Section 5, notify the Company in writing of the commencement thereof, but the omission so to notify
the Company will not relieve it from any liability which it may have to any Indemnified Person for
indemnification, except to the extent that the Company shall have been materially prejudiced by
such failure. In case any such action is brought against any Indemnified Person and such
Indemnified Person seeks or intends to seek indemnity from an Company, the Company will be entitled
to participate in, and, to the extent that it shall elect, jointly with all other indemnifying
parties similarly notified, by written notice delivered to the Indemnified Person promptly after
receiving the aforesaid notice from such Indemnified Person, to assume the defense thereof with
counsel reasonably satisfactory to such Indemnified Person; provided, however, if the defendants in
any such action include both the Indemnified Person and the Company and the Indemnified Person
shall have reasonably concluded that a conflict may arise between the positions of the Company and
the Indemnified Person in conducting the defense of any such action or that there may be legal
defenses available to it and/or other indemnified parties which are different from or additional to
those available to the Company, the Indemnified Person or parties shall have the right to select
separate counsel to assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such Indemnified Person or parties. Upon receipt of notice from the Company to
such Indemnified Person of the Company’s election so to assume the defense of such action and
approval by the Indemnified Person of counsel, the Company will not be liable to such Indemnified
Person under this Section 5 for any legal or other expenses subsequently incurred by such
Indemnified Person in connection with the defense thereof unless (i) the Indemnified Person shall
have employed separate counsel in accordance with the proviso to the preceding sentence (it being
understood, however, that the Company shall not be liable for the expenses of more than one firm of
attorneys (together with local counsel), approved by the Company, representing the indemnified
parties who are parties to such action) or (ii) the Company shall not have employed counsel
satisfactory to the Indemnified Person to represent the Indemnified Person within a reasonable time
after notice of commencement of the action, in each of which cases the fees and expenses of counsel
shall be at the expense of the Company.
(c) Settlements. The Company under this Section 5 shall not be liable for any settlement of
any proceeding effected without its written consent, but if settled with such consent or if there
be a final judgment for the plaintiff, the Company agrees to indemnify the Indemnified Person
against any Losses by reason of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an Indemnified Person shall have requested the Company to reimburse the
Indemnified Person for fees and expenses of counsel as contemplated by Section 5(b) hereof, the
Company agrees that it shall be liable for any settlement of any
11
proceeding
effected without its written consent if (i) such settlement is entered into more than 30 days
after receipt by the Company of the aforesaid request and (ii) the Company shall not have
reimbursed the Indemnified Person in accordance with such request prior to the date of such
settlement. The Company shall not, without the prior written consent of the Indemnified Person,
effect any settlement, compromise or consent to the entry of judgment in any pending or threatened
action, suit or proceeding in respect of which any Indemnified Person is or could have been a party
and indemnity was or could have been sought hereunder by such Indemnified Person, unless such
settlement, compromise or consent includes (i) an unconditional release of such Indemnified Person
from all liability on claims that are the subject matter of such action, suit or proceeding 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 Person.
Section 6. Contribution. If the indemnification provided for in Section 5 is for any reason
held to be unavailable to or otherwise insufficient to hold harmless an Indemnified Person in
respect of any Losses referred to therein, then the Company shall contribute to the aggregate
amount paid or payable by such Indemnified Person, as incurred, as a result of any Losses referred
to therein (i) in such proportion as is appropriate to reflect the relative benefits received by
the Company, on the one hand, and the Placement Agent, on the other hand, from the Placement
pursuant to this Agreement or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company, on the one hand, and
the Placement Agent, on the other hand, in connection with the statements or omissions which
resulted in such Losses, as well as any other relevant equitable considerations. The relative
benefits received by the Company, on the one hand, and the Placement Agent, on the other hand, in
connection with the Placement pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the Placement pursuant to this Agreement
(before deducting expenses) received by the Company, and the fee received by the Placement Agent in
connection with the Placement. The relative fault of the Company, on the one hand, and the
Placement Agent, on the other hand, shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the Company, on the one hand,
or the Placement Agent, on the other hand, and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission. Notwithstanding the
provisions hereof, the aggregate contribution of all Indemnified Persons to all Losses shall not
exceed the amount of fees actually received by the Placement Agent pursuant to this Agreement with
respect to the services rendered pursuant to this Agreement.
The Company agrees to reimburse the Indemnified Persons for all expenses (including, without
limitation, reasonable fees and expenses of counsel) as they are incurred in connection with
investigating, preparing, defending or settling any action or claim for which contribution has or
is reasonably likely to be sought by the Indemnified Person, whether or not in connection with
litigation in which any Indemnified Person is a named party.
The provisions set forth in Section 5(c) with respect to notice of commencement of any action
shall apply if a claim for contribution is to be made under this Section 6; provided, however, that
no additional notice shall be required with respect to any action for which notice has been given
under Section 5(c) for purposes of indemnification.
12
The Company and the Placement Agent agree that it would not be just and equitable if
contribution pursuant to this Section 6 were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable considerations referred to in
this Section 6.
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. For purposes of this Section 6, each officer and employee of the
Placement Agent and each person, if any, who controls the Placement Agent within the meaning of the
Securities Act and the Exchange Act shall have the same rights to contribution as the Placement
Agent.
Section 7. Effectiveness of this Agreement; Termination; and Survival.
(a) This Agreement shall become effective upon signing by the parties hereto.
(b) The Placement Agent may resign at any time and the Company may terminate the Placement
Agent’s services at any time, each by giving at least ten days’ prior written notice to the other.
If the Placement Agent resigns because of a good faith diligence issue or because of the failure of
any condition specified in Section 4 to be satisfied when and as required (whether or not the
Company’s fault directly or indirectly) or the Company terminates the Placement Agent’s services
for any reason, the Placement Agent and its counsel shall be entitled to receive all of the amounts
due pursuant to Section 2(b) of this Agreement up to, and including, the effective date of such
expiration, termination or resignation, as the case may be.
(c) If the Placement Agent’s services hereunder are terminated by the Company, and the Company
completes an offering of equity or equity-linked securities within one year of such termination or
expiration with investors contacted by the Placement Agent during the engagement pursuant to this
Agreement in connection with the Transactions, the Company shall pay the Placement Agent
concurrently with the closing of such transaction the fees set forth in Section 2(b) of this
Agreement.
(d) The respective representations, warranties and other statements of the Company and its
officers and the agreements, covenants and the indemnities set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation made by or on
behalf of the Placement Agent or the Company or any of its or their partners, officers or directors
or any controlling person, as the case may be, and will survive delivery of and payment for the
Securities sold hereunder or any termination of this Agreement (for whatever reason).
Section 8. Notices. All communications hereunder shall be in writing and shall be mailed, hand
delivered or telecopied and confirmed to the parties hereto as follows:
13
If to the Placement Agent:
Jefferies & Company, Inc.
520 Madison Avenue
New York, New York 10022
Facsimile: (212) 284-2280
Attention: General Counsel
520 Madison Avenue
New York, New York 10022
Facsimile: (212) 284-2280
Attention: General Counsel
with a copy to:
Schulte Roth & Zabel LLP
919 Third Avenue
New York, NY 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
Attention: Eleazer N. Klein, Esq.
919 Third Avenue
New York, NY 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
Attention: Eleazer N. Klein, Esq.
If to the Company:
Electro-Optical Sciences, Inc.
3 West Main Street, Suite 201
Irvington, NY 10533
Telephone: (914) 591-3183
Facsimile: (914) 591-3183
Attention: Chief Financial Officer
3 West Main Street, Suite 201
Irvington, NY 10533
Telephone: (914) 591-3183
Facsimile: (914) 591-3183
Attention: Chief Financial Officer
with a copy to:
Dreier LLP
499 Park Avenue
New York, NY 10022
Telephone: (212) 328-6100
Facsimile: (212) 328-6101
Attention: Valerie Price, Esq.
499 Park Avenue
New York, NY 10022
Telephone: (212) 328-6100
Facsimile: (212) 328-6101
Attention: Valerie Price, Esq.
Any party hereto may change the address for receipt of communications by giving written notice
to the others.
Section 9. Successors. This Agreement will inure to the benefit of and be binding upon the parties
hereto, and to the benefit of the employees, officers and directors and controlling persons
referred to in Section 5 and Section 6, and in each case their respective successors, and personal
representatives, and no other person will have any right or obligation hereunder. The term
“successors” shall not include any Purchaser.
Section 10. Partial Unenforceability. The invalidity or unenforceability of any Section, paragraph
or provision of this Agreement shall not affect the validity or enforceability of any other
Section, paragraph or provision hereof. If any Section, paragraph or provision of this Agreement
is for any reason determined to be invalid or unenforceable, there shall be
14
deemed to be made such minor changes (and only such minor changes) as are necessary to make it
valid and enforceable.
Section 11. Governing Law Provisions. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York (without giving effect to any conflict
of law principles). Any legal suit, action or proceeding arising out of or based upon this
Agreement or the Transactions (“Related Proceedings”) may be instituted in the federal courts of
the United States of America located in the Borough of Manhattan in the City of New York or the
courts of the State of New York in each case located in the Borough of Manhattan in the City of New
York (collectively, the “Specified Courts”), and each party irrevocably submits to the exclusive
jurisdiction (except for proceedings instituted in regard to the enforcement of a judgment of any
such court (a “Related Judgment”), as to which such jurisdiction is non-exclusive) of such courts
in any such suit, action or proceeding.
Section 12. General Provisions. This Agreement and the other Transaction Documents constitute the
entire agreement of the parties to this Agreement and supersede all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in two or more counterparts, each one of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement may not be amended or modified unless in writing by all of the parties
hereto, and no condition herein (express or implied) may be waived unless waived in writing by each
party whom the condition is meant to benefit. The failure by any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof. The Section headings herein are for the convenience of the
parties only and shall not affect the construction or interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a sophisticated business person who was
adequately represented by counsel during negotiations regarding the provisions hereof, including,
without limitation, the indemnification provisions of Section 5 and the contribution provisions of
Section 6, and is fully informed regarding said provisions. Each of the parties hereto further
acknowledges that the provisions of Sections 5 and 6 hereto fairly allocate the risks in light of
the ability of the parties to investigate the Company, its affairs and its business in order to
assure that adequate disclosure has been made in the SEC Documents, as required by the Securities
Act, the Exchange Act and any other applicable law.
15
If the foregoing is in accordance with your understanding of our agreement, kindly sign and
return to the Company the enclosed copies hereof, whereupon this instrument, along with all
counterparts hereof, shall become a binding agreement in accordance with its terms.
| Very truly yours,
ELECTRO-OPTICAL SCIENCES, INC. |
||||
| By: | /s/ Joseph V. Gulfo | |||
| Name: | Joseph V. Gulfo | |||
| Title: | President and Chief Executive Officer | |||
The foregoing Placement Agency
Agreement is hereby confirmed
and accepted by the Placement Agent
in New York, New York as of the
date first above written.
Agreement is hereby confirmed
and accepted by the Placement Agent
in New York, New York as of the
date first above written.
| JEFFERIES & COMPANY, INC. |
|||
| By: | /s/ Michael Bauer | ||
| Name: | Michael Bauer | ||
| Title: | Managing Director | ||
EXHIBIT A
___, 2006
Jefferies & Company, Inc.
520 Madison Avenue
New York, New York 10022
520 Madison Avenue
New York, New York 10022
RE: Electro-Optical Sciences, Inc.
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares (“Shares”) of the
Common Stock (the “Common Stock”), par value $0.001 per share, of Elecro-Optical Sciences, Inc.
(the “Company”) or securities convertible into or exchangeable or exercisable for Shares. The
Company is proposing a private placement of Shares and related warrants (“Warrants”) (the
“Placement”) for which you will act as the Placement Agent. The Warrants will be exercisable from
time to time into shares of Common Stock. The undersigned recognizes that the Placement will be of
benefit to the undersigned and will benefit the Company by, among other things, raising additional
capital for its operations. The undersigned acknowledges that you are relying on the
representations and agreements of the undersigned contained in this letter in carrying out the
Placement and in entering into a placement agency agreement with the Company with respect to the
Placement.
In consideration of the foregoing, the undersigned hereby agrees that the undersigned will not
(and will cause any spouse or immediate family member of the spouse or the undersigned living in
the undersigned’s household not to), without the prior written consent of Jefferies & Company, Inc.
(which consent may be withheld in its sole discretion), directly or indirectly, sell, offer,
contract or grant any option to sell (including without limitation any short sale), pledge,
transfer, establish an open “put equivalent position” within the meaning of Rule 16a-1(h) under the
Securities Exchange Act of 1934, as amended, or otherwise dispose of any Shares, options or
warrants to acquire Shares, or securities exchangeable or exercisable for or convertible into
Shares currently or hereafter owned either of record or beneficially (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended) by the undersigned (or such spouse or family
member), or publicly announce an intention to do any of the foregoing, for a period commencing on
the date hereof and continuing through the close of trading on the date 180 days after the date of
the closing of the Placement. The undersigned also agrees and consents to the entry of stop
transfer instructions with the Company’s transfer agent and registrar against the transfer of
Shares or securities convertible into or exchangeable or exercisable for Shares held by the
undersigned except in compliance with the foregoing restrictions.
Notwithstanding the foregoing, the undersigned may transfer any Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock either (i) during the
undersigned’s lifetime to his or her immediate family or to a trust if the beneficiaries of such
trust are exclusively the undersigned and/or a member or members of his or her immediate family or
(ii) upon death by will or intestacy; provided, however, that prior to any such transfer each
A-1
transferee shall execute an agreement substantially identical to this agreement and which
shall be satisfactory to Jefferies & Company Inc., pursuant to which each transferee shall agree to
receive and hold such Common Stock, or securities convertible into or exchangeable or exercisable
for Common Stock, subject to the provisions hereof, and there shall be no further transfer except
in accordance with the provisions hereof. For purposes of this paragraph, “immediate family” shall
mean spouse, lineal descendant, father, mother, brother, sister or domestic partner of the
transferor, whether by law or otherwise, or any grandparent, mother-in-law, father-in-law,
daughter-in-law, brother-in-law, stepchild, grandchild or step-grandchild, uncle, aunt, niece or
nephew of the transferor, and which shall include adoptive relationships.
With respect to the Placement and any subsequent exercise of the Warrants into Shares, the
undersigned waives any registration rights relating to registration under the Securities Act of
1933, as amended, of any Shares owned either of record or beneficially by the undersigned,
including any rights to receive notice of the Placement.
This agreement is irrevocable and will be binding on the undersigned and the respective
successors, heirs, personal representatives, and assigns of the undersigned. This agreement shall
be governed by and construed in accordance with the internal laws of the State of New York.
| Printed Name of Holder | ||||||
| By: | ||||||
| Signature | ||||||
| Printed Name of Person Signing | ||||||
| (and indicate capacity of person signing if signing as custodian, trustee, or on behalf of an entity) | ||||||
A-2
EXHIBIT B
Opinion of Counsel for the Company, to be delivered pursuant to Section 4(c) of the Placement
Agency Agreement
1. The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, with corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the SEC
Documents and to enter into and perform its obligations under this Agreement.
2. The Company has all necessary corporate power and authority to execute and deliver
the Transaction Documents, to perform its obligations thereunder, to issue the Securities
and to consummate the other Transactions.
3. The Placement Agency Agreement has been duly authorized, executed and delivered by
the Company.
4. Each of the Transaction Documents (other than the Placement Agency Agreement) has
been duly authorized, executed and delivered by the Company and constitutes a valid and
binding agreement of the Company, enforceable against the Company in accordance with its
terms.
5. The Company has all necessary corporate power and authority to execute, issue and
deliver the Warrants; the Warrants have been duly authorized for issuance and sale by the
Company, will be issued in the form contemplated by Purchase Agreement when fully executed
and issued in accordance with the terms of the Purchase Agreement and delivered to and paid
for by the Purchasers pursuant to the Purchase Agreement, will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with their terms.
6. The Company has all necessary corporate power and authority to issue and deliver the
Warrant Shares. The Warrant Shares have been duly reserved for issuance by the Company;
provided that such opinion is based solely on the number of Warrant Shares issuable as of
the Closing Date, without regard to the anti-dilution provisions of the Warrants. The
Warrant Shares, when issued in accordance with the Warrant, will be validly issued, fully
paid and nonassessable. Assuming the Warrant Shares were issued as of the date hereof, (i)
the issuance of the Warrant Shares would not violate any preemptive rights, rights of first
refusal or, to the best of our knowledge, other similar rights to subscribe for or purchase
securities of the Company upon the issuance or sale thereof; and (ii) such Warrant Shares
would be issuable in compliance with federal securities laws.
7. The Company has all necessary corporate power and authority to issue and deliver the
Shares; the Shares have been duly authorized, and, when duly issued and delivered to the
Purchasers and paid for by the Purchasers in accordance with the terms of the Purchase
Agreement, the Shares will be duly and validly issued, fully paid and nonassessable and will
be issued in compliance with federal and state securities laws. None of the Shares will be
issued in violation of any preemptive rights, rights of first
B-1
refusal or, to the best of our knowledge, other similar rights to subscribe for or
purchase securities of the Company upon the issuance or sale thereof.
8. The execution and delivery of the Transaction Documents by the Company, the
performance by the Company of its obligations thereunder (other than performance by the
Company of its obligations under the indemnification sections of such agreements, as to
which no opinion need be rendered), including the issuance and sale of the Shares and
Warrants and the issuance of the Warrant Shares upon exercise of the Warrants (i) will not
result in any violation of the provisions of the Charter or By-laws of the Company; (ii)
will not constitute a breach of, or Default under, or result in the creation or imposition
of any security interest, mortgage, pledge, lien, charge, encumbrance or adverse claim upon
any property or assets of the Company, pursuant to any material agreement filed as an
exhibit to the SEC Documents; (iii) will not result in any violation of any federal or New
York law or the Delaware General Corporation Law or, to the best of our knowledge, any
administrative regulation or administrative or court decree, applicable to the Company; or
(v) will not require any consent, approval, authorization or other order of, or registration
or filing with, any court or other governmental or regulatory authority or agency, except
(i) with respect to the transactions contemplated by the Resale Registration Rights
Agreement as may be required under the Securities Act and the Exchange Act, (ii) the filing
of Form D with the Commission; (iii)as required by the state securities or “blue sky” laws
and (iv) for such consents, approvals, authorizations, orders, filings or registrations
which have been obtained or made.
9. Assuming the accuracy of the representations and warranties of the Placement Agent
contained in Section 1(B) of the Placement Agency Agreement and of the Company and the
Purchasers contained in the Purchase Agreement and the compliance of such parties with the
agreements set forth herein and therein, it is not necessary, in connection with the
issuance and sale of any of the Securities, in the manner contemplated by Transaction
Documents, to register any of the Securities under the Securities Act.
10. Based on the Company’s certifications as to the use of proceeds from the sale of
the Securities, the Company is not, and after receipt of payment for the Securities will not
be, an “investment company” within the meaning of Investment Company Act.
11. Each document filed pursuant to the Exchange Act (other than the financial
statements and supporting schedules included therein, as to which no opinion need be
rendered) complied when so filed as to form in all material respects with the Exchange Act.
12. The Company has an authorized capitalization as set forth in the Purchase
Agreement, and all of the outstanding shares of Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable. None of the outstanding shares of Common
Stock were issued in violation of any preemptive rights, rights of first refusal or, to the
best of our knowledge, other similar rights to subscribe for or purchase securities of the
Company upon the issuance or sale thereof.
B-2
13. Except as disclosed in the Purchase Agreement and the SEC Documents, (i) there are
no outstanding securities convertible into or exchangeable for, or warrants, options or
rights issued by the Company to purchase any shares of Common Stock, (ii) there are no
statutory, contractual, preemptive or, to the best of our knowledge, other rights to
subscribe for or to purchase any shares of Common Stock and (iii) there are no restrictions
upon transfer of the Common Stock pursuant to the Company’s Charter or By-laws or the
General Corporation Law of the State of Delaware or otherwise.
14. The Company is not (i) in violation of its Charter or By-laws, (ii) to the best of
our knowledge, in Default under any agreement filed as an exhibit to the SEC Documents,
except for such Defaults as would not, individually or in the aggregate, result in a
Material Adverse Change or (iii) to the best of our knowledge, in violation of any law,
administrative regulation or administrative or court decree applicable to the Company or has
failed to obtain any material license, permit, certificate, franchise or other governmental
authorization or permit necessary to the ownership of its property or to the conduct of its
business, except for such violations or failures as would not, individually or in the
aggregate, result in a Material Adverse Change.
15. To the best of our knowledge, there are no legal or governmental proceedings
pending to which the Company is a party or of which any property or assets of the Company is
subject which, if determined adversely to the Company, could reasonably be expected to have
a material adverse effect on the financial position, stockholders’ equity, results of
operations or business of the Company; and, to the best of our knowledge, no such
proceedings are overtly threatened or contemplated by governmental authorities or threatened
by others.
In addition, we have participated in conferences with officers and other representatives of
the Company, representatives of the registered, independent public or certified public accountants
for the Company [and with representatives of the Placement Agent] at which the contents of the SEC
Documents, and any supplements or amendments thereto, and related matters were discussed and,
although we are not passing upon and do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the SEC Documents, and any supplements or
amendments thereto made prior to the Closing Date, on the basis of the foregoing, nothing has come
to our attention which would lead us to believe that, as of the respective filing dates of the SEC
Documents or at the Closing Date, the SEC Documents contained an untrue statement of a material
fact or omitted 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 (it being understood that we
express no belief as to the financial statements or schedules or other statistical or financial
data derived therefrom, included or incorporated by reference in the SEC Documents or any
amendments or supplements thereto and we have not examined the accounting, financial or statistical
records from which such statements, schedules and data were derived).
Enforceability opinions are expected to be subject to customary enforceability exceptions, and
all opinions are expected to be subject to customary assumptions, exceptions and qualifications.
B-3
Exhibit 99.1
For further information contact:
David Carey
Lazar Partners Ltd.
212-867-1762
dcarey@lazarpartners.com
Lazar Partners Ltd.
212-867-1762
dcarey@lazarpartners.com
Electro-Optical Sciences Announces $13.2 Million Private Placement
IRVINGTON, New York – November 1, 2006 – Electro-Optical Sciences, Inc. (“EOS”) [NASDAQ CM: MELA],
a medical device company focused on the design and development of MelaFind®, a
non-invasive, point-of-care instrument to assist in the early diagnosis of melanoma, today
announced that it has secured a private placement of approximately $13.2 million comprised
of common stock issued at the closing market price on October 31, 2006 and warrants to purchase 15% of the common stock issued, with an
exercise price at an 18% premium to the closing market price.
Pursuant to the securities purchase agreements, a total of approximately 2,312, 384 shares of the
company’s common stock and five-year warrants to purchase up to approximately 346,858 shares of the
company’s common stock at an exercise price of $6.70 per share were offered for aggregate gross
proceeds of approximately $13.2 million.
Jefferies & Company, Inc. acted as the sole placement agent for the transaction.
This press release does not constitute an offer to sell or the solicitation of an offer to buy any
securities. There shall not be any sale of these securities in any jurisdiction in which such
offering would be unlawful.
About Electro-Optical Sciences
EOS is a medical device company focused on designing and developing a non-invasive, point-of-care
instrument to assist in the early diagnosis of melanoma. MelaFind, EOS’s flagship product,
features a hand-held imaging device that emits multiple wavelengths of light to capture images of
suspicious pigmented skin lesions and extract data. The data are then analyzed against EOS’s
proprietary database of melanomas and benign lesions using sophisticated algorithms in order to
provide information to the physician and produce a recommendation of whether the lesion should be
biopsied.
Melanoma is the deadliest of skin cancers, responsible for approximately 80% of all skin cancer
deaths. Unless melanoma is detected early and excised with proper margins, the patient survival
rate is poor, as there is currently no cure for advanced stage melanoma.
For more information on EOS, visit www.eosciences.com.
Safe Harbor
This press release includes “forward-looking statements” within the meaning of the Securities
Litigation Reform Act of 1995. These statements include but are not limited to our plans,
objectives, expectations and intentions and other statements that contain words such as “expects,”
“contemplates,” “anticipates,” “plans,” “intends,” “believes” and variations of such words or
similar expressions that predict or indicate future events or trends, or that do not relate to
historical matters. These statements are based on our current beliefs or expectations and are
inherently subject to significant uncertainties and changes in circumstances, many of which are
beyond our control. There can be no assurance that our beliefs or expectations will be achieved.
Actual results may differ materially from our beliefs or expectations due to economic, business,
competitive, market and regulatory factors.
# # #