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
 

Date of Report (Date of earliest event reported):  May 1, 2009

LIQUIDMETAL TECHNOLOGIES, INC.

( Exact name of Registrant as Specified in its Charter )

 

 

Delaware

 

000-31332

 

33-0264467

(State or other jurisdiction of
incorporation or organization)

 

(Commission File Number)

 

(I.R.S. Employer
Identification No.)

 

30452 Esperanza

Rancho Santa Margarita, CA  92688

(Address of Principal Executive Offices; Zip Code)

 

Registrant’s telephone number, including area code: (949) 635-2100

 

Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction 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 CRF 240.13e-4(c))

 

 

 



 

LIQUIDMETAL TECHNOLOGIES, INC.

 

FORM 8-K

 

Item 1.01.  Entry Into a Material Definitive Agreement.

 

Effective May 1, 2009, Liquidmetal Technologies, Inc. (the “Company”) completed a transaction (the “Transaction”) in which (i) the holders of the Company’s 8% Convertible Subordinated Notes exchanged such notes for a combination of new 8% Senior Secured Convertible Notes (the “Exchange Notes”) and shares of a new series of convertible preferred stock designated “Series A-2 Preferred Stock”, together with warrants thereon, and (ii) certain investors purchased, for an aggregate of $2.5 million in cash, shares of a new series of convertible preferred stock designated as “Series A-1 Preferred Stock” (together with the Series A-2 Preferred Stock, the “Preferred Stock”).  The Transaction was consummated pursuant to a Securities Purchase and Exchange Agreement, dated May 1, 2009 (the “Securities Purchase Agreement”), among the exchanging note holders and investors (collectively, the “Buyers”).  The principal purposes of the Transaction were to restructure the Company’s indebtedness and to raise additional funding for working capital.

 

In the Transaction, the Company issued:

 

·                                           $7,500,000 in principal amount of Exchange Notes,

 

·                                           500,000 shares of Series A-1 Preferred Stock at an original issue price of $5.00 per share and having a conversion price of $.10 per common share,

 

·                                           2,625,002 shares of Series A-2 Preferred Stock at an original issue price of $5.00 per share and having a conversion price of $.22 per common share,

 

·                                           to the Buyers acquiring the Exchange Notes, warrants to purchase to purchase an aggregate of 3,125,007 shares of the Company’s common stock at an exercise price of $.60 per share (the “Exchange Warrants”), and

 

·                                           to the Buyers acquiring the Preferred Stock, warrants to purchase to purchase an aggregate of 42,329,407 shares of the Company’s common stock at an exercise price of $.50 per share (the “Preferred Warrants”).

 

The following are material terms and conditions of the Transaction and the Securities Purchase Agreement:

 

Terms of Exchange Notes .  The Exchange Notes are convertible at any time at the option of the holder into shares of the Company’s common stock at a conversion price of $.60 per share, subject to adjustment for stock splits, stock dividends, and the like.  In the event that the Company issues or grants in the future shares of common stock, or securities exercisable for or convertible into common stock, for an effective per share price less than the conversion price then in effect, the conversion price will be decreased to equal such lower price, provided that such adjustment will not apply to certain exempt issuances, including stock issuances pursuant to employee stock option plans and strategic transactions.  In the event that the average of the daily volume weighted average price of the shares of the Company’s common stock for any 20 consecutive trading days exceeds 250% of the conversion price, the Company will have the right, but not the obligation, to require the holders of the Exchange Notes to convert the Exchange Notes into Company common stock at the conversion price then in effect.

 

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The Exchange Notes will bear interest at 8% per annum with interest payable in arrears on the first business day of each October and April in cash, or, at the Company’s option, in the form of additional Exchange Notes (in which case the interest rate will be 10% per annum).  From and after an event of default under the Exchange Notes and for so long as the event of default is continuing, the Exchange Notes will bear default interest at a rate of 12% per annum (or 15% per annum if the Company elects to pay interest with additional Exchange Notes).  Any unconverted Exchange Notes will become due on January 3, 2011, although the Company will have the right to redeem the Exchange Notes early by paying the remaining principal and accrued but unpaid interest (although if the cash redemption price is being paid solely from the Company’s income from continuing operations, the redemption will be subject to a three percent (3%) premium).  Under a Security Agreement entered into pursuant to the Securities Purchase Agreement, the Notes are secured by all of the Company’s assets, provided that the indebtedness under the Exchange Notes is subordinate to certain indebtedness from third-party commercial lenders to be incurred by the Company in the future and indebtedness not to exceed $4,000,000 in the aggregate that is secured solely by the Company’s and/or its subsidiaries’ accounts receivable and/or inventory.

 

Terms of Warrants .  Under both the Exchange Warrants and Preferred Warrants (collectively, the “Warrants”), the exercise price is subject to adjustment for stock splits, stock dividends, and the like.  In the event that the Company in the future issues or grants any shares of common stock, or securities exercisable for or convertible into common stock, for a per share price less than the exercise price of the Warrants as then in effect, the exercise price of the Warrants will be reduced based on a “weighted-average” formula, provided that such adjustment will not apply to certain exempt issuances, including issuances pursuant to employee stock option plans and strategic transactions.  All of the Warrants are immediately exercisable and will expire in January 2012.

 

Terms of Preferred Stock .  The terms of the Preferred Stock are set forth in a Certificate of Designations, Preferences, and Rights of Series A Preferred Stock (the “Certificate”) filed with the Delaware Secretary of State on May 1, 2009.

 

The Preferred Stock will accrue cumulative dividends at the annual rate of 8%, which will be payable semi-annually.  Beginning on the second anniversary of the initial issuance date of the Preferred Stock, the dividend rate will increase to 10% per annum. These dividends will be payable, in cash or in kind by the issuance by the Company of additional shares of Preferred Stock, only when and as declared by the Board of Directors of the Company.

 

The Preferred Stock and any accrued and unpaid dividends thereon is convertible, at the option of the holder of the Preferred Stock, into common stock of the Company at a conversion price of $.10 per share in the case of the Series A-1 Preferred Stock and a conversion price of $.22 per share in the case of the Series A-2 Preferred Stock (in both cases subject to adjustments for any stock dividends, splits, combinations and similar events).  In the event that the Company in the future issues or grants any shares of common stock, or securities exercisable for or convertible into common stock, for a per share price less than the conversion price then in effect for such series of Preferred Stock, the conversion price of such series of Preferred Stock will be reduced based on a “weighted-average” formula, provided that such adjustment will not apply to certain exempt issuances, including issuances pursuant to employee stock option plans and strategic transactions.

 

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On any matter submitted to a vote of the common stockholders of the Company, each holder of Preferred Stock is entitled to one vote for each share of common stock that would be issuable to such holder upon the conversion of all the shares of Preferred Stock held by such holder.  In addition, upon the filing of the Charter Amendment as specified below, the holders of the Preferred Stock will be entitled to elect two directors of the Company as indicated below.

 

As long as at least 25% of the number of shares of Preferred Stock originally issued are outstanding, the prior consent of the holders of at least two-thirds of the outstanding Preferred Stock shall be required for the Company to take any action that: (i) alters or changes the rights, preferences or privileges of the Preferred Stock, (ii) creates (by reclassification or otherwise) any new class or series of shares or securities having rights, preferences or privileges senior to, or on a parity with, the Preferred Stock, (iii) results in any merger, other corporate reorganization, sale of control, or any transaction in which all or substantially all of the assets of the Company are sold, (iv) amends or waives any provision of the Company’s Certificate of Incorporation or Bylaws relative to the Preferred Stock, or (v) increases the authorized size of the Company’s Board of Directors.

 

In the event of any liquidation, dissolution or winding up of the Company, the proceeds shall be paid first to the holders of the Preferred Stock in an amount equal to the original issue price of each share of Preferred Stock plus any accrued dividends on each share of Preferred Stock before any distributions are made to the holders of the Common Stock.

 

The Company has the right to redeem the Preferred Stock at any time upon 30 days advance written notice to the holder of such Preferred Stock.  In addition, holders of the Preferred Stock will have a pro rata right, based on their percentage equity ownership in the Company, to participate in subsequent issuances of equity securities of the Company.

 

Registration Rights .  In connection with the Transaction, the Company and the Buyers entered into a Registration Rights Agreement under which the Company is required, upon the written request of the holders of more than fifty percent (50%) of the securities underlying the Exchange Notes, Warrants, and Preferred Stock, on or before 180 days after the closing of the Transaction, to file a registration statement with the SEC covering the resale of the shares of Company common stock issuable pursuant to the Exchange Notes, the Warrants and the Preferred Stock and to use its best efforts to have the registration declared effective at the earliest date (but in no event later than 60 days after filing if there is no SEC review of the registration statement, or 120 days if there is an SEC review).   The Company may be required to pay liquidated damages as set forth in the Registration Rights Agreement, if the registration statement is not filed or does not become effective on a timely basis.

 

Additional Information .  Under the Securities Purchase Agreement, the Buyers acknowledged that the Company does not have sufficient shares of common stock authorized to enable the Buyers to fully convert the Exchange Notes and the Preferred Shares and to fully exercise the purchase rights represented by the Warrants.  Therefore, under the Securities Purchase Agreement, the Company agreed to hold a special meeting of shareholders at the earliest practical date, and in any event on or before July 31, 2009, for the purpose of obtaining shareholder approval of an amendment to the Company’s Certificate of Incorporation (the “Charter Amendment”) to increase the authorized shares of common

 

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stock of the Company to 300,000,000 shares. Accordingly, the terms of the Exchange Notes, Preferred Stock, and Warrants limit the ability of the Buyers to convert the Exchange Notes, Preferred Stock, and Warrants, prior to the filing and acceptance of the Charter Amendment with the Delaware Secretary of State, to the number of authorized common shares remaining under the Company’s Certificate of Incorporation.  The Charter Amendment will also grant to the holders of the Preferred Stock the right to elect two of the five members of the Company’s Board of Directors.  In the event that the Charter Amendment is not approved and filed with the Delaware Secretary of State by August 31, 2009, the holders of the Preferred Stock and Notes may require the Company to redeem all or any portion of the holders’ Preferred Stock and Notes.

 

The Securities Purchase Agreement grants to the Buyers the option to subscribe for an additional 1,000,000 shares of Series A-1 Preferred Stock at any time prior to six months from the closing date for an original issue price of $5.00 per share, provided that the Company will have the right to refuse the exercise of the option if the Company’s Board of Directors determines that the Company’s existing and anticipated capital resources at the time of exercise will be sufficient to fund the Company’s operations for a period of at least 12 months thereafter.  The Buyers of Series A-1 Preferred Stock will have the exclusive right to exercise this option as to the first 350,000 shares, with the holders of the Series A-2 Preferred Stock having the right to exercise the balance of the option.

 

The offers and sales of securities in the Transaction were made pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, including pursuant to Rule 506 thereunder.  Such offers and sales were made solely to “accredited investors” under Rule 506 and were made without any form of general solicitation and with full access to any information requested by the investors regarding the Company or the securities offered in the Transaction.

 

The descriptions set forth herein of the Securities Purchase Agreement, Exchange Notes, Warrants, Security Agreement, Certificate, Registration Rights Agreement, and the securities issued pursuant to such documents, do not purport to be complete and are qualified in their entirety by reference to the full text of such documents attached as exhibits to this Current Report on Form 8-K.

 

Item 2.03.  Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

The information included in Item 1.01 of this Form 8-K is hereby incorporated by reference into this Item 2.03.

 

Item 3.02.  Unregistered Sales of Equity Securities.

 

The information included in Item 1.01 of this Form 8-K is hereby incorporated by reference into this Item 3.02.

 

Item 3.03.  Material Modification to Rights of Security Holders.

 

The information in Item 5.03 of this Current Report on Form 8-K is incorporated by reference into this Item 3.03.

 

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Item 5.02  Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers,

 

On April 30, 2009, CK Cho and Dean Tanella resigned as directors of the Company.  The resignations of Mr. Cho and Mr. Tanella were not the result of any disagreement with the Company known to an executive officer of the Company on any matter relating to the Company’s operations, policies, or practices.  On April 30, 2009, Abdi Mahamedi, Iraj Azarm and William Scott Jr. Ph.D were elected to the Company’s Board of Directors (provided, however, that William Scott Jr. Ph.D will not take office as a director prior to the next regularly scheduled meeting of the stockholders unless and until the Company first complies with Rule 14f-1 of the Exchange Act with respect to his appointment).  In connection with their election as directors, there were no arrangements or understandings between such directors and any other persons pursuant to which they were elected as directors.

 

Since 1987, Abdi Mahamedi has served as the President and Chief Executive Officer of Carlyle Development Group of Companies (“CDG”), which develops and manages residential and commercial properties in the United States on behalf of investors worldwide.  Mr. Mahamedi and certain of the Carlyle Development Group of Companies are investors in the Company and are Buyers in the Transaction.  At CDG, Mr. Mahamedi evaluates and supervises all of the investment activities and management personnel.  Prior to joining CDG, Mr. Mahamedi founded Emanuel Land Company, a subsidiary of Emanuel & Company, a Wall Street investment banking firm, and served as a managing director for Emanuel Land Company from 1986 to 1987.  In 1983,  Mr. Mahamedi received his B.S.E. degree in Civil and Structural Engineering from the University of Pennsylvania, and in 1984 he received his M.S.E. degree in Civil and Structural Engineering from the University of Pennsylvania.  Mr. Mahamedi is 47 years old.

 

Since 1987, Iraj Azarm has served as the Comptroller of CDG, where he directs the day to day activities of the company and acts as the liaison for investors and the firm’s institutional lenders. In 1963, Mr. Azarm received degrees in  Mechanical Engineering and Economics from the University of California at Berkeley.  Mr. Azarm is 70 years old.

 

Since 2007, William Scott Jr. Ph.D has served as the treasurer and chair of the Board of Governors of Acta Materialia, Inc. From 1983 to 2004, Dr. Scott served as the technical director with ASM International.  In 1968, Dr. Scott received a Ph.D in Materials Science and Engineering from the University of Pennsylvania, and in 1963, Dr. Scott received his B.S. in Metallurgical Engineering from Lafayette College. Dr. Scott is 67 years old.

 

Item 5.03.  Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

 

The information included in Item 1.01 of this Form 8-K is hereby incorporated by reference into this Item 3.02.

 

Item 9.01.  Financial Statements and Exhibits.

 

See the Exhibit Index set forth below for a list of exhibits included with this Form 8-K.

 

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Signature

 

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 thereunder duly authorized.

 

 

LIQUIDMETAL TECHNOLOGIES, INC.

 

 

 

 

 

By:

/s/ Larry E. Buffington

 

 

Larry E. Buffington

 

 

President and Chief Executive Officer

 

Date: May 7, 2009

 

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EXHIBIT INDEX

 

Exhibit Number

 

Description

 

 

 

3.1

 

Certificate of Designations, Preferences and Rights of Series A Preferred Stock of Liquidmetal Technologies, Inc.

 

 

 

10.1

 

Securities Purchase and Exchange Agreement, dated May 1, 2009 (the “Securities Purchase Agreement”), among Liquidmetal Technologies, Inc. (the “Company”) and the investors listed on the Schedule of Buyers attached thereto (the “Buyers”).

 

 

 

10.2

 

Form of 8% Senior Secured Convertible Subordinated Note issued pursuant to Securities Purchase Agreement.

 

 

 

10.3

 

Form of Common Stock Purchase Warrant issued in connection with the 8% Senior Secured Convertible Subordinated Notes.

 

 

 

10.4

 

Form of Common Stock Purchase Warrant issued in connection with the Series A Preferred Stock.

 

 

 

10.5

 

Registration Rights Agreement, dated May 1, 2009, among the Company and the Buyers.

 

 

 

10.6

 

Security Agreement, dated May 1, 2009, among the Company and the Buyers.

 

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Exhibit 3.1

 

CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS

 

OF

 

SERIES A PREFERRED STOCK

 

OF

 

LIQUIDMETAL TECHNOLOGIES, INC.

 

(Pursuant to Section 151 of the

Delaware General Corporation Law)

 


 

Liquidmetal Technologies, Inc., a corporation organized and existing under the laws of the State of Delaware (the “ Company ”), hereby certifies that, pursuant to authority vested in the Board of Directors of the Company by Article 4 of the Certificate of Incorporation of the Company, the following resolution was adopted as of April 30, 2009 by the Board of Directors of the Company pursuant to Section 141 of the Delaware General Corporation Law:

 

“Pursuant to authority vested in the Board or Directors of the Company by Article Four of the Company’s Certificate of Incorporation, out of the total authorized number of ten million (10,000,000) shares of Company preferred stock (the “ Preferred Stock ”), par value $0.001 per share, there shall be designated (i) a series of o ne million eight hundred seventy-five thousand (1,875,000) shares which shall be issued hereunder and constitute a single series to be known as “Series A-1 Preferred Stock” (hereinafter called the “ Series A-1 Preferred Stock ”) and (ii) a series of t hree million two hundred eighty-one thousand two hundred fifty-three (3,281,253)  shares which shall be issued hereunder and constitute a single series to be known as “Series A-2 Preferred Stock” (hereinafter called the “ Series A-2 Preferred Stock ”, and together with the Series A-1 Preferred Stock, the “ Series A Preferred Stock ”).  The shares of Series A Preferred Stock have the voting powers, designations, preferences and other special rights, and qualifications, limitations and restrictions thereof set forth below:

 

1.             Certain Definitions .

 

Approved Stock Plan ” means any employee benefit, option or incentive plan which has been approved by the Board of Directors and shareholders of the Company, pursuant to which the Company’s securities may be issued to any employee, consultant, officer or director for services provided to the Company; provided that the number of shares of the Company’s Common Stock issuable pursuant to such plans, in the aggregate, shall not exceed 10% of the shares of the Company’s Common Stock outstanding on a fully-diluted basis on the date of the First Closing (as defined in the Securities Purchase and Exchange Agreement) after giving effect to the First Closing and the full exercise of the Series A-1 Option (as defined in the Securities Purchase and Exchange Agreement), as adjusted for stock splits, reverse stock splits, and the like , unless such increased amount of shares is approved by the holders of the Company’s Common Stock and the holders of the Company’s Series A Preferred Stock voting together as a

 



 

single class.  For purposes of this definition, “fully-diluted basis” shall take into account all outstanding shares of Common Stock as well as all shares of Common Stock issuable upon the conversion of all outstanding convertible securities of the Company, including all options and warrants granted.

 

Buyer ” means a buyer under the Securities Purchase and Exchange Agreement.

 

Charter Amendment ” shall have the meaning set forth in the Securities Purchase and Exchange Agreement.

 

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 OTC Bulletin Board, as reported by Bloomberg Financial Markets, or, if the OTC Bulletin Board 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 p.m., New York Time, as reported by Bloomberg Financial Markets, or, if the OTC Bulletin Board 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 Financial Markets, 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 Financial Markets, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg Financial Markets, the average of the bid prices, or the ask prices, respectively, 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 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 holders of Series A Preferred Stock. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

Common Stock ” means the common stock, $0.001 par value, of the Company, including the stock into which the Series A Preferred Stock is convertible, and any capital stock of any class of the Company thereafter authorized that shall not be limited to a fixed sum in respect of the rights of the holders thereof to participate in dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Company.

 

Convertible Securities ” means any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.

 

Current Market Price ” shall mean, with respect to any shares of capital stock or other securities, (i) if such stock or securities are listed or admitted to trading on a national securities exchange or an inter-dealer quotation system or traded in the over-the-counter market, the price per share or security, as the case may be, at the close of trading on the Trading Day on

 

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which the relevant determination is to be made or, if such day is not a Trading Day, the Trading Day immediately preceding such day and (ii) if such stock or security is not so listed, admitted or traded, the fair market value of such stock or security as determined by the Board of Directors of the Company or, if the Board of Directors of the Company cannot agree, as determined by an Independent Appraiser (as defined below).

 

Excluded Securities ” means any share of Common Stock issued or issuable: (i) in connection with any Approved Stock Plan; (ii) upon conversion or exercise of any Notes, warrants or shares of Series A-1 Preferred Stock or Series A-2 Preferred Stock of the Company issued (A) pursuant to the Securities Purchase and Exchange Agreement, (B) as dividends on the Series A Preferred Stock, or (C) as interest under the Notes; (iii) upon conversion or exercise of any Options or Convertible Securities which are outstanding on the Original Issuance Date, (iv) pursuant to or in connection with commercial credit arrangements, equipment lease financings, acquisitions of other assets or businesses, and strategic transactions not primarily for financing purposes (including licensing or development agreements), but only to the extent the transactions described in this clause (iv) are entered into with non-affiliates of the Company.

 

Independent Appraiser means an investment banking firm, appraisal firm or any other financial expert of recognized national standing in the United States, selected by the holders of a majority of the Series A Preferred Stock and reasonably acceptable to the Company, that does not (or whose directors, officers, employees, affiliates or stockholders do not) have a direct or indirect material financial interest in the Company or a 5% or greater holder of Series A Preferred Stock, who has not been, and, at the time called upon to give independent financial advice to the Company or a holder of Series A Preferred Stock, is not (and none of its directors, officers, affiliates or stockholders are) a promoter, director or officer of the Company.

 

Notes ” means the Company’s 8% Secured Convertible Subordinated Notes due January 2011.

 

Options ” means rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

 

Securities Purchase and Exchange Agreement ” means the Securities Purchase and Exchange Agreement, dated May 1, 2009, among the Company and the persons identified as “Buyers” therein.

 

Senior Indebtedness ” means the principal of (and premium, if any), interest on, and all fees and other amounts (including, without limitation, any reasonable costs, enforcement expenses (including reasonable legal fees and disbursements, collateral protection expenses and other reimbursement or indemnity obligations relating thereto)), and all other obligations of the Company under (i) any of the agreements or instruments evidencing any indebtedness of the Company and its subsidiaries arising after the Original Issuance Date to an unaffiliated, third-party commercial lender (together with any renewals, refundings, refinancings or other extensions thereof) for purposes of purchasing equipment (which debt shall be secured only by the assets purchased with such financing), and (ii) indebtedness not to exceed $4,000,000 in the

 

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aggregate that is secured solely by the Company’s and/or its subsidiaries’ accounts receivable and/or inventory.

 

Series A Issuance Price ” means $5.00 per share.

 

Trading Day ” means (i) if the relevant stock or security is listed or admitted for trading on the New York Stock Exchange or any other national securities exchange, a day on which such exchange is open for business; (ii) if the relevant stock or security is not listed or admitted for trading on any national securities exchange but is quoted on any system for the automated dissemination of quotations of securities prices, a day on which trades may be effected through such system; or (iii) if the relevant stock or security is not listed or admitted for trading on any national securities exchange or quoted on any system for the automated dissemination of quotation of securities prices, a day on which the relevant stock or security is traded in a regular way in the over-the-counter market and for which a closing bid and a closing asked price for such stock or security are available.

 

Warrants ” mean the warrants issued pursuant to the Securities Purchase and Exchange Agreement.

 

2.             Dividends .

 

2A.          The holders of the Series A Preferred Stock shall be entitled to receive dividends, which shall begin to accrue on and be cumulative from the date of issuance of the Series A Preferred Stock (whether or not such dividends have been declared and whether or not there shall be net profits or net assets of the Company legally available for the payment of such dividends) at an annual rate equal to eight percent (8%) of the sum of (A) the Series A Issuance Price (also referred to as the “ Liquidation Preference ”) plus (B) any accrued dividends through the immediately preceding Dividend Accrual Date that remain unpaid (the sum being referred to as the “ Dividend Amount ”). The dividends shall accrue semi-annually on June 1 and December 1 of each year (the “ Dividend Accrual Dates ”) and shall be payable either in cash or in kind by issuance by the Company of additional shares of Series A Preferred Stock (the “ PIK Shares ”) at the option of the Company of the same securities. For purposes of clarification, if the Company pays any Dividend Amount on shares of Series A-1 Preferred Stock in PIK Shares, then such PIK Shares shall be shares of Series A-1 Preferred Stock.  If the Company pays any Dividend Amount on shares of Series A-2 Preferred Stock in PIK Shares, then such PIK Shares shall be shares of Series A-2 Preferred Stock.  Dividends shall be payable only when and as declared by the Board of Directors of the Company.  Beginning on the second anniversary of the initial issuance date of the Series A Preferred Stock (the “ Original Issuance Date ”), the dividend rate shall increase to 10% per annum.  If the Company elects to pay any Dividend Amount in PIK Shares, each holder of Series A Preferred Stock shall be deemed to be the holder of record of such holder’s pro rata share of the PIK Shares issuable with respect to the relevant Dividend Amount notwithstanding that the stock transfer books of the Company shall then be closed or that certificates evidencing such PIK Shares shall not have been actually delivered to such holder of Series A Preferred Stock.  In the event that dividends on the Series A Preferred Stock are paid with PIK Shares, each such PIK Share (i) shall be valued at the then applicable Liquidation Preference per share and (ii) shall have the same Liquidation Preference as each share of Series A

 

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Preferred Stock with respect to which the PIK Share constituted a dividend.  No dividends shall be paid on any Common Stock of the Company or any capital stock of the Company that ranks junior to the Series A Preferred Stock during any fiscal year of the Company until dividends in the aggregate Dividend Amount per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) of Series A Preferred Stock for the current and each prior Dividend Accrual Date shall have been paid or declared and set apart for payment to the holders of the Series A Preferred Stock.

 

2B.          The amount of dividends payable for any period shorter than a full year shall be determined on the basis of twelve 30-day months and a 360-day year.  Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding.

 

3.             Liquidation; Redemption .

 

3A.          Liquidation .  Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the shares of Series A Preferred Stock shall be entitled, before any distributions shall be made to the holders of the Common Stock, or any other class of capital stock of the Company ranking junior to the Series A Preferred Stock, to be paid an amount (the “ Series A Liquidation Amount ”) equal to the Liquidation Preference per share (appropriately adjusted to reflect the occurrence of any stock split, stock dividend, stock combination, stock subdivision or like occurrences) plus accrued and unpaid dividends to the payment date for the Series A Liquidation Amount; provided that if the amount per share that would be received by the holders of the shares of Series A Preferred Stock of any series if the assets of the Company were distributed ratably to the holders of the Common Stock and the Series A Preferred Stock on an as converted to Common Stock basis would be greater than the Liquidation Preference, then the holders of the Series A Preferred Stock of such series shall be entitled to receive such greater amount.  If upon such liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the assets to be distributed among the holders of Series A Preferred Stock of the Company shall be insufficient to permit payment to the holders of Series A Preferred Stock of the full Series A Liquidation Amount, then the entire assets of the Company to be distributed shall be distributed to the holders of Series A Preferred Stock.  Written notice of such liquidation, dissolution or winding up, stating a payment date, the Series A Liquidation Amount and the place where said sums shall be payable shall be given by mail, postage prepaid, not less than 30 or more than 60 days prior to the payment date stated therein, to the holders of record of each series of Series A Preferred Stock, such notice to be addressed to each shareholder at his post office address as shown by the records of the Company.  Unless waived in writing by the holders of a majority of the Series A Preferred Stock then outstanding, voting together as one class, a consolidation or merger of the Company into or with any other entity or entities, or the sale or transfer by the Company of all or substantially all of its assets, in each case under circumstances in which the holders of a majority in voting power of the outstanding capital stock of the Company, immediately prior to such a merger, consolidation or sale, own less than a majority in voting power of the outstanding capital stock of the company or the surviving or resulting company or acquirer, as the case may be, immediately following such a merger, consolidation or sale (each such transaction being hereinafter referred to as a

 

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Corporate Transaction ”) shall be treated as a liquidation within the meaning of this paragraph 3 for the purpose of determining the consideration to be received by holders of the Series A Preferred Stock upon redemption of such shares as well as the timing of such deemed redemption.

 

3B.          Optional Redemption .  The Company shall have the right at any time when no Notes remain outstanding to redeem the Series A Preferred Stock in whole or in part upon not less than 30 days’ notice at a redemption price equal to the Liquidation Preference plus any accrued and unpaid dividends through the redemption date.  Such redemption notice will include a certification by the Company’s Chief Executive Officer that the Company has sufficient funds available for such redemption. In the event of a redemption of the Series A Preferred Stock in part, the Company shall redeem the shares of each holder of Series A Preferred Stock pro rata (subject to rounding for fractional shares of Series A Preferred Stock).  The holders of Series A Preferred Stock shall have the right to convert the Series A Preferred Stock into Common Stock as set forth in Section 4A below at any time prior to the redemption date.

 

3C.          Redemption of Series A Preferred Stock .  In the event that the Charter Amendment is not filed with, and accepted for filing by, the Delaware Secretary of State by August 31, 2009, the Company shall deliver written notice thereof via facsimile and overnight courier to the holders of the Series A Preferred Stock.  At any time after the receipt of such notice by a holder of the Series A Preferred Stock, such holder may require the Company to redeem all or any portion of such holder’s Series A Preferred Stock by delivering written notice thereof (the “ Redemption Notice ”) to the Company, which Redemption Notice shall indicate the number of shares of Series A Preferred Stock such holder is electing to redeem.  Each share of the Series A Preferred Stock subject to redemption by the Company pursuant to this Section 3C shall be redeemed by the Company at a redemption price equal to the Liquidation Preference plus any accrued and unpaid dividends through the redemption date.

 

4.             Conversion .

 

4A.          Right to Convert .  Subject to the terms and conditions of this subparagraph 4A, the holder of any share or shares of Series A Preferred Stock shall have the right, at its option at any time, to convert any such shares of Series A Preferred Stock into such number of fully paid and nonassessable whole shares of Common Stock as is obtained by multiplying the number of shares of Series A Preferred Stock so to be converted by the Liquidation Preference per share and dividing the result (together with any accrued but unpaid dividends on the shares being converted as of the conversion date) by (i) in the case of Series A-1 Preferred Stock, the conversion price of $0.10 per share of Common Stock, (ii) in the case of Series A-2 Preferred Stock, the conversion price of $0.22 per share of Common Stock, or (iii) if there has been an adjustment of such conversion prices, by the conversion prices as last adjusted and in effect at the date any share or shares of Series A Preferred Stock are surrendered for conversion (such prices, or such prices as last adjusted, being referred to herein as the “ Series A-1 Conversion Price ” for the Series A-1 Preferred Stock and the “ Series A-2 Conversion Price ” for the Series A-2 Preferred Stock, and the Series A-1 Conversion Price and Series A-2 Conversion Price are herein together referred to as the “ Conversion Price ”).  Such right of conversion shall be

 

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exercised by the holder thereof by surrender of a certificate or certificates for the shares to be converted to the Company at its principal office (or such other office or agency of the Company as the Company may designate by notice in writing to the holder or holders of the Series A Preferred Stock) at any time during its usual business hours on the date set forth in such notice, together with a properly completed notice of conversion in the form attached to the Series A Preferred Stock certificate with a statement of the name or names (with address), subject to compliance with applicable laws to the extent such designation shall involve a transfer, in which the certificate or certificates for shares of Common Stock, shall be issued.  No dividends will be paid on the Series A Preferred Stock at the time of conversion.

 

As an example, to determine the number of shares of Common Stock issuable upon the conversion of 100 shares of Series A-1 Preferred Stock, the following calculations would be used (assuming no accrued but unpaid dividends and no adjustment of the conversion price):

 

100 shares of Series A-1 Preferred Stock x $5.00 per share of Series A-1 Preferred Stock = $500

 

$500/$0.10 per share of Common Stock = 5,000 shares of Common Stock

 

As an example, to determine the number of shares of Common Stock issuable upon conversion of 100 shares of Series A-2 Preferred Stock, the following calculations would be used (assuming no accrued but unpaid dividends and no adjustment of the conversion price):

 

100 shares of Series A-2 Preferred Stock x $5.00 per share of Series A-2 Preferred Stock = $500

 

$500/$0.22 per share of Common Stock =  2,273 shares of Common Stock

 

4B.          Issuance of Certificates; Time Conversion Effected .  On or before the second business day following the date of receipt by the Company of the written notice referred to in subparagraph 4A and surrender of the certificate or certificates for the share or shares of the Series A Preferred Stock to be converted (the “ Share Delivery Date ”), the Company shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, subject to compliance with applicable laws to the extent such designation shall involve a transfer, a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such share or shares of Series A Preferred Stock. To the extent permitted by law, such conversion shall be deemed to have been effected and the Conversion Price shall be determined as of the close of business on the date on which such written notice shall have been received by the Company and the certificate or certificates for such shares shall have been surrendered as aforesaid, and at such time the Series A Preferred Stock rights of the holder of such share or shares shall cease, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby.

 

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4C.          Fractional Shares; Dividends; Partial Conversion .  No fractional shares shall be issued upon conversion of the Series A Preferred Stock into Common Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share, and no payment or adjustment shall be made upon any conversion on account of any cash dividends paid on the Series A Preferred Stock so converted or the Common Stock issued upon such conversion.  In case the number of shares of Series A Preferred Stock represented by the certificate or certificates surrendered pursuant to subparagraph 4A exceeds the number of shares converted, the Company shall upon such conversion, execute and deliver to the holder thereof at the expense of the Company, a new certificate for the number of shares of Series A Preferred Stock represented by the certificate or certificates surrendered which are not to be converted.

 

4D.          Adjustments to Conversion Price .

 

(1)  Direct or Indirect Issuances of Common Stock .  If the Company shall, at any time or from time to time after the Original Issuance Date, issue any shares of Common Stock (other than an issuance of Common Stock as a dividend or in a split or subdivision in respect of which the adjustment provided for in subparagraph 4D(2) applies), any Options, or any Convertible Securities without consideration or for consideration per share less than the Conversion Price in effect for the Series A Preferred Stock immediately prior to the issuance of such Common Stock or securities, then such Conversion Price shall forthwith be lowered to a price determined by multiplying the Conversion Price then in effect by a fraction, (x) the numerator of which shall be the number of shares of Common Stock outstanding determined on a fully-diluted basis (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issuance or upon conversion or exchange of Convertible Securities (including the Series A Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issuance) (the “ Outstanding Common ”) immediately prior to such issuance plus the number of shares of Common Stock that the aggregate consideration received by the Company for such issuance would purchase at such Conversion Price (determined by dividing the aggregate consideration received by the Company in respect of such issuance by the Conversion Price in effect immediately prior to such issuance), and (y) the denominator of which shall be the number of shares of Outstanding Common immediately after such issuance but before giving effect to anti-dilution contained in other Securities (as defined in the Securities Purchase and Exchange Agreement) that would be triggered by the same issuance; provided , however , that adjustments to the Conversion Price pursuant to the terms of this subparagraph 4D(1) shall not apply to issuances of Excluded Securities, including Options to purchase Excluded Securities and Convertible Securities convertible into Excluded Securities.  For purposes of this subparagraph 4D, “fully-diluted basis” shall take into account all outstanding shares of Common Stock as well as all shares of Common Stock issuable upon the conversion of all outstanding convertible securities of the Company, including all options and warrants granted.

 

For the purposes of any adjustment of the Conversion Price pursuant to paragraph (1) of this subparagraph 4D, the following provisions shall be applicable:

 

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(i)            Such adjustment shall be separately calculated for the Series A-1 Preferred Stock and the Series A-2 Preferred Stock based on the respective Series A-1 Conversion Price and Series A-2 Conversion Price then in effect.

 

(ii)           In the case of the issuance of Common Stock for cash in a public offering or private placement, the consideration shall be deemed to be the amount of cash paid therefor before deducting therefrom any discounts, commissions or placement fees payable by the Company to any underwriter or placement agent in connection with the issuance and sale thereof.

 

(iii)          In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined in good faith by the Board of Directors of the Company.

 

(iv)          In the case of the issuance of Options or Convertible Securities (except for Options or Convertible Securities which are Excluded Securities):

 

(A)          the aggregate maximum number of shares of Common Stock deliverable upon exercise of such Options (assuming the satisfaction of any conditions to convertibility or exchangeability, including, without limitation, the passage of time) shall be deemed to have been issued at the time such Options were issued and for a consideration equal to the consideration (determined in the manner provided in subparagraphs (ii) and (iii) above), if any, received by the Company upon the issuance of such Options plus the minimum purchase price provided in such Options for the Common Stock covered thereby;

 

(B)           the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such Convertible Securities or upon the exercise of Options to purchase or rights to subscribe for such Convertible Securities and subsequent conversion or exchange thereof (assuming the satisfaction of any conditions to convertibility or exchangeability, including, without limitation, the passage of time) shall be deemed to have been issued at the time such Convertible Securities, Options, or rights were issued and for a consideration equal to the consideration received by the Company for any such Convertible Securities and related Options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the additional consideration, if any, to be received by the Company upon the conversion or exchange of such Convertible Securities or the exercise of any related Options or rights (the consideration in each case to be determined in the manner provided in paragraphs (ii) and (iii) above);

 

(C)           on any change in the number of shares or exercise price of Common Stock deliverable upon exercise of any such options or rights or conversions of or exchanges for such securities, the Conversion Price shall forthwith be readjusted to such conversion price as would have been obtained had

 

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the adjustment made upon the issuance of such options, rights or securities not converted prior to such change or options or rights related to such securities not converted prior to such change been made upon the basis of such change; and

 

(D)          no further adjustment of the Conversion Price adjusted upon the issuance of any such options, rights, convertible securities or exchangeable securities shall be made as a result of the actual issuance of Common Stock on the exercise of any such rights or options or any conversion or exchange of any such securities.

 

4D(2).     Subdivision or Combination of Stock . In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares or shall declare or pay a dividend on its outstanding shares of Common Stock payable in shares of Common Stock, the Series A-1 Conversion Price and Series A-2 Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, such Conversion Prices in effect immediately prior to such combination shall be proportionately increased.

 

4D(3).     Record Date .  In case the Company shall take a record of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities, or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

 

4D(4).     Certain Distributions .  If, at any time or from time to time after the Original Issuance Date, the Company shall issue or distribute to the holders of shares other than Series A Preferred Stock (the “ Dividend Stock ”) evidences of its indebtedness, any other securities of the Company or any cash, property or other assets (excluding any issuance or distribution described in paragraph 4D(1), 4D(2), or 4(E), and also excluding cash dividends or cash distributions paid out of net profits legally available therefor in the full amount thereof) (any such non-excluded event being herein called a “ Special Dividend ”), then and in each such event the holders of each series of Series A Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of Series A Preferred Stock of such series had been converted into Common Stock on the date of such event.

 

4E.           Reorganization or Reclassification .  If any capital reorganization or reclassification of the capital stock of the Company shall be effected in such a way (including, without limitation, by way of consolidation or merger, but excluding a consolidation, merger or sale which is treated as a Liquidation with respect to holders of Series A Preferred Stock for purposes of paragraph 3) that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock then, as a condition of such

 

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reorganization or reclassification, lawful and adequate provision (in form satisfactory to the holders of at least a majority of the outstanding shares of Series A Preferred Stock, voting together as one class) shall be made whereby each holder of a share or shares of Series A Preferred Stock shall thereafter have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock of the Company immediately theretofore receivable upon the conversion of such share or shares of the Series A Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of such stock immediately theretofore so receivable had such reorganization or reclassification not taken place and in any such case appropriate provision shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including without limitation provisions for adjustments of the Conversion Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights (including an immediate adjustment, by reason of such reorganization or reclassification, of the Conversion Price to the value for the Common Stock reflected by the terms of such reorganization or reclassification if the value so reflected is less than the Conversion Price in effect immediately prior to such reorganization or reclassification).  In the event of a merger or consolidation of the Company as a result of which a greater or lesser number of shares of common stock of the surviving company are issuable to holders of the Common Stock of the Company outstanding immediately prior to such merger or consolidation, the Conversion Price in effect immediately prior to such merger or consolidation shall be adjusted in the same manner as though there were a subdivision or combination of the outstanding shares of Common Stock of the Company.  The Company will not effect any such consolidation or merger, or any sale of all or substantially all its assets and properties, unless prior to the consummation thereof the successor company (if other than the Company) resulting from such consolidation or merger or the company purchasing such assets shall assume by written instrument (in form satisfactory to the holders of at least a majority of the outstanding shares of Series A Preferred Stock voting together as one class) executed and mailed or delivered to each holder of shares of Series A Preferred Stock at the last address of such holder appearing on the books of the Company, the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to receive.

 

4F.           Notice of Adjustment .  Upon any adjustment of the Series A-1 Conversion Price or Series A-2 Conversion Price, then, and in each such case, the Company shall give written notice thereof by first class mail, postage prepaid, addressed to each holder of shares of Series A-1 Preferred Stock or Series A-2 Preferred Stock, as applicable, at the address of such holder as shown on the books of the Company, which notice shall state the Conversion Price resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.

 

4G.          Other Notices .  In case at any time:

 

(1)           the Company shall declare any dividend upon its Common Stock payable in cash or stock or make any other distribution to the holders of its Common Stock;

 

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(2)           the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of such stock of any class or other rights;

 

(3)           there shall be any capital reorganization or reclassification of the capital stock of the Company, or a consolidation or merger of the Company with, or a sale of all or substantially all its assets to, another company; or

 

(4)           there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company;

 

then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, addressed to each holder of any shares of Series A Preferred Stock at the address of such holder as shown on the books of the Company, (a) at least 15 days’ prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 15 days’ prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be.

 

4H.          Mandatory Conversion .  The Board of Directors of the Company shall have the right to convert each share of Series A Preferred Stock into Common Stock no less than 30 days after the Company provides written notice to holders of Series A Preferred Stock certifying that the Current Market Price of the Common Stock for 30 consecutive trading days has exceeded $0.70 (as appropriately adjusted for stock dividends, stock splits, recombinations and reclassifications of the Common Stock) with an average daily trading volume during such period of not less than 200,000 shares of Common Stock.  In addition, (A) the Board of Directors of the Company shall convert each share of Series A-1 Preferred Stock into Common Stock upon receipt of the written notice of holders of a majority of the then-outstanding shares of Series A-1 Preferred Stock of their election to cause an automatic conversion pursuant to this subparagraph 4H, and (B) the Board of Directors of the Company shall convert each share of Series A-2 Preferred Stock into Common Stock upon receipt of the written notice of holders of a majority of the then-outstanding shares of Series A-2 Preferred Stock of their election to cause an automatic conversion pursuant to this subparagraph 4H.  Any such conversion shall be effected in accordance with the provisions of subparagraphs 4B and 4C hereof, and any Series A Preferred Stock converted pursuant to this paragraph shall be converted into a number of shares of Common Stock equal to the quotient obtained by dividing (i) the Liquidation Preference per share of Series A Preferred Stock by (ii) the applicable Conversion Price.

 

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4I.            Stock to be Reserved .

 

(1)  From and after the filing and acceptance of the Charter Amendment with the Delaware Secretary of State, the Company will at all times reserve and keep available out of its authorized but unissued Common Stock, solely for the purpose of issuance upon the conversion of the Series A Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Series A Preferred Stock.  All shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all liens, duties and charges arising out of or by reason of the issue thereof (including, without limitation, in respect of taxes) and, without limiting the generality of the foregoing, the Company covenants that it will from time to time take all such action as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the effective Conversion Price.  The Company will take all such action within its control as may be necessary on its part to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Common Stock of the Company may be listed.  The Company will not take any action which results in any adjustment of the Conversion Price if after such action the total number of shares of Common Stock issued and outstanding and thereafter issuable upon exercise of all options and conversion of Convertible Securities, including upon conversion of the Series A Preferred Stock, would exceed the total number of shares of such class of Common Stock then authorized by the Company’s Certificate of Incorporation.

 

(2)           The Company will at all times reserve and keep available out of its authorized but unissued Series A Preferred Stock, a sufficient number of shares solely for the purpose of satisfying the Company’s obligations to issue PIK Shares as herein provided.  All shares of Series A Preferred Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all liens, duties and charges arising out of or by reason of the issue thereof (including, without limitation, in respect of taxes).

 

4J.           No Reissuance of Series A Preferred Stock .  Shares of Series A Preferred Stock that are converted into shares of Common Stock as provided herein shall not be reissued.

 

4K.          Issue Tax .  The issuance of certificates for shares of Common Stock upon conversion of the Series A Preferred Stock shall be made without charge to the holders thereof for any issuance tax, stamp tax, transfer tax, duty or charge in respect thereof, provided that the Company shall not be required to pay any tax, duty or charge which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Series A Preferred Stock which is being converted.

 

4L.           Closing of Books .  The Company will at no time close its transfer books against the transfer of any Series A Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series A Preferred Stock in any manner which interferes with the timely conversion of such Series A Preferred Stock; provided , however , nothing herein shall be construed to prevent the Company from setting record dates for the holders of its securities.

 

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4M.         Limitations on Conversions .

 

(1)           Beneficial Ownership .  Unless waived by a holder of Series A Preferred Stock upon no less than sixty one (61) days prior written notice to the Company, the Company shall not effect any conversion of the Series A Preferred Stock pursuant to this Section 4 to the extent that after giving effect to such conversion such holder (together with such holder’s affiliates) would beneficially own in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion.  Even if such holder waives the limitation set forth in the preceding sentence, the Company shall in no event effect any conversion under this Section 4, and such holder shall not have the right to convert Series A Preferred Stock pursuant to this Section 4, to the extent that after giving effect to such conversion, such holder (together with such holder’s affiliates) would beneficially own in excess of 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion.  For purposes of the foregoing sentences, the number of shares of Common Stock beneficially owned by a holder of Series A Preferred Stock and its affiliates shall include the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining Series A Preferred Stock owned by such holder or any of its affiliates and (B) conversion of the unexercised or nonconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by such holder or any of its affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(M)(1), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended.  For purposes of this Section 4(M)(1), in determining the number of outstanding shares of Common Stock, the holders of Series A Preferred Stock may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Form 10-Q or Form 10-K, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Company’s 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 a holder of Series A Preferred Stock, the Company shall within two (2) business days confirm orally and in writing to such 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 Series A Preferred Stock, by such holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.  Notwithstanding the foregoing, the limitations of this paragraph shall not apply to Carlyle Liquid, LLC, Carlyle Holdings, LLC, Abdi Mahamedi, Atlantic Realty, and Ricardo Salas.

 

(2)           Until the filing and acceptance of the Charter Amendment with the Delaware Secretary of State, no Buyer shall be issued, upon conversion or exercise of such Buyer’s Notes, Series A Preferred Stock, or Warrants, a number of shares of Common Stock in the aggregate for all such conversions or exercises greater than the product of the Conversion Cap (as defined below) multiplied by a fraction, the numerator of which is the aggregate purchase price paid by the Buyer for all of the Notes, shares of Series A Preferred Stock, and Warrants purchased by the Buyer pursuant to the Securities Purchase and Exchange Agreement

 

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and the denominator of which is $23,124,933.33, which is the aggregate purchase price paid by all of the Buyers for all of the Notes, shares of Series A Preferred Stock, and Warrants purchased pursuant to the Securities Purchase and Exchange Agreement (with respect to each Buyer, the “ Conversion Cap Allocation ”).  In the event that any Buyer shall sell or otherwise transfer any of such Buyer’s Series A Preferred Stock, the transferee shall be allocated a pro rata portion of such Buyer’s Conversion Cap Allocation based on the Series A Issuance Price of the Series A Preferred Stock purchased by the Buyer , and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the Conversion Cap Allocation allocated to such transferee. The term “Conversion Cap” shall mean 32,985,406 shares of Common Stock, which represents all shares of authorized but unissued Common Stock as of the date of the Securities Purchase and Exchange Agreement to the extent not previously reserved for issuance pursuant to Convertible Securities and Options existing prior to such date.

 

4N.          Company’s Failure to Timely Convert .  If the Company shall fail to issue a certificate to a holder of Series A Preferred Stock or credit such holder’s balance account with the Depository Trust Company (“ DTC ”) through its Deposit/Withdrawal At Custodian system for the number of shares of Common Stock to which such holder is entitled upon conversion of any Series A Preferred Stock on or prior to the date which is five (5) business days after the date that such holder exercises its conversion rights pursuant to this Section 4 (a “ Conversion Failure ”), then (A) the Company shall pay liquidated damages to such holder for each day of such Conversion Failure in an amount equal to 1.0% of the product of (I) the sum of the number of shares of Common Stock not issued to such holder on or prior to the Share Delivery Date and to which the such holder is entitled, and (II) the Closing Sale Price of the Common Stock on the Share Delivery Date and (B) such holder, upon written notice to the Company, may void its notice of conversion (in the form attached to the Series A Preferred Stock) with respect to, and have returned any Series A Preferred Stock that has not been converted pursuant to such notice of conversion; provided that the voiding of such notice of conversion shall not affect the Company’s obligations to make any payments of dividends pursuant to Section 2 hereof which have accrued prior to the date of such notice pursuant to this Section 4(N) or otherwise.  In addition to the foregoing, if within three (3) Trading Days after the Company’s receipt of such notice of conversion, the Company shall fail to issue and deliver a certificate to such holder or credit such holder’s balance account with DTC for the number of shares of Common Stock to which such holder is entitled upon such holder’s conversion of any Series A Preferred Stock, and if on or after such Trading Day such holder purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by such holder of Common Stock issuable upon such conversion that such holder anticipated receiving from the Company (a “ Buy-In ”), then the Company shall, within five (5) business days after such holder’s request and in such holder’s discretion, either (i) pay cash to such holder in an amount equal to such holder’s total purchase price (including brokerage commissions and other out-of-pocket expenses, 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 Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to such holder a certificate or certificates representing such Common Stock and pay cash to such 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 that such holder exercises its conversion rights pursuant to this Section 4.

 

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5.             Right to Participate in Future Issuances .

 

In case the Company proposes at any time to issue or sell any Common Stock or any Options or Convertible Securities other than Excluded Securities and other than securities issued in a public offering (the “ Offered Securities ”), the Company shall, no later than ten (10) days prior to the consummation of such transaction (a “ Preemptive Rights Transaction ”), give notice in writing (the “ Preemptive Rights Offer Notice ”) of such Preemptive Rights Transaction to each Series A Preferred Stock holder (each, a “ Preemptive Rights Holder ”).  The Preemptive Rights Offer Notice shall describe the proposed Preemptive Rights Transaction, identify the proposed purchaser, and contain an offer (the “ Preemptive Rights Offer ”) to sell to each Preemptive Rights Holder, at the same consideration to be paid by the proposed purchasers, that number of Offered Securities required to maintain such Preemptive Rights Holder’s ownership percentage of the fully-diluted Common Stock in effect as of the date of the Preemptive Rights Offer Notice (the “ Maximum Offer Amount ”); provided, however, that in calculating such ownership percentage, only the Preemptive Rights Holder’s Series A Preferred Stock (and not any outstanding shares of Common Stock or Options or other Convertible Securities then held by the Preemptive Rights Holder) will be included when the percentage interest is calculated.  A Preemptive Rights Holder may subscribe for all or a portion of its Maximum Offer Amount on or prior to the 30 th  day following the date of sale of the Offered Securities to the initial purchasers.  Any of the Offered Securities not subscribed for by a Preemptive Rights Holder shall be offered to the other Preemptive Rights Holders pursuant to a written notice from the Company on a pro rata basis for a period of 30 days.  When the Offered Securities are accepted in the manner set forth in this paragraph 5, the Company shall, as promptly as practicable but no later than twenty (20) days after acceptance by a Preemptive Rights Holder of its subscription portion of the Maximum Offer Amount, issue certificates representing the applicable number of Offered Securities (free of all liens and encumbrances) to such holder against delivery by such holder of the consideration payable therefor.  Any notice required to be given by Company pursuant to this paragraph 5 shall (i) specify the name of the proposed purchaser, the number of shares to be issued, the amount and type of consideration to be received therefor, and the other material terms on which the Company proposes to issue the shares, and (ii) contain an offer to sell to those holders permitted to participate in such offer all of such shares at the same price per share and for consideration consisting of (x) cash equal to the amount of cash proposed to be paid by the proposed purchaser and (y) if any of the consideration to be paid by the proposed purchaser is non-cash consideration, either the same non-cash consideration or, at the election of the particular holder, cash having an equivalent value to the non-cash consideration proposed to be paid by the proposed purchaser.  The determination of equivalent value required by the preceding sentence shall be made by an Independent Appraiser, it being understood that the fees and expenses of such Independent Appraiser shall be paid by the Company.  Notwithstanding anything to contrary herein, before the Company sends a Preemptive Rights Offer Notice to a Preemptive Rights Holder, the Company shall send written notification to such Preemptive Rights Holder that the Company intends to send a Preemptive Rights Offer Notice to such Preemptive Rights Holder (such notice, the “ Pre-Notice ”).  If the Company does not receive, within three (3) business days from the date of the Pre-Notice, a written notice from such Preemptive Rights Holder stating that he, she or it does not wish to receive material non-public information relating to the Company, then the Company shall send a Preemptive Rights Offer

 

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Notice to such Preemptive Rights Holder and such Preemptive Rights Holder shall not have the rights set forth in this paragraph.

 

6.             Voting - Series A Preferred Stock .  In addition to any class voting rights provided by law and the Certificate of Incorporation, the holders of Series A Preferred Stock shall have the right to vote together with the holders of Common Stock as a single class on any matter on which the holders of Common Stock are entitled to vote, at any annual or special meeting of the stockholders and not as a separate class, and may act by written consent in the same manner as the holders of Common Stock; provided , however , that from and after the filing and acceptance of the Charter Amendment with the Delaware Secretary of State, the voting rights of the holders of Series A Preferred Stock shall be subject to any limitations that are set forth in the Charter Amendment.  With respect to the voting rights of the holders of the Series A Preferred Stock pursuant to the preceding sentence, each holder of Series A Preferred Stock shall be entitled to one vote for each share of Common Stock that would be issuable to such holder upon the conversion of all the shares of Series A Preferred Stock held by such holder on the record date for the determination of shareholders entitled to vote at such meeting or the effective date of such written consent (after taking into account the conversion limitation set forth in Section 4M(1) above but disregarding the conversion limitation set forth in Section 4M(2) hereof), and shall have voting rights and powers equal to the voting rights and powers of the Common Stock, and shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Company.

 

7.             Further Restrictions .  As long as at least 25% of the number of shares of Series A Preferred Stock issued on the Original Issuance Date are outstanding, and in addition to any other vote of the holders of Series A Preferred Stock required by law or by the Certificate of Incorporation, the prior consent of the holders of at least two-thirds of the outstanding Series A Preferred Stock shall be required for the Company to take any action that: (i) alters or changes the rights, preferences or privileges of the Series A Preferred Stock, (ii) constitutes the incurrence of indebtedness by the Company which possesses senior repayment rights to the Series A Preferred Stock, other than Senior Indebtedness, (iii) creates (by reclassification or otherwise) any new class or series of shares or securities having rights, preferences or privileges senior to, or on a parity with, the Series A Preferred Stock, (iv) results in the redemption of any shares of Common Stock or any other shares or securities on a parity with or junior to the Series A Preferred Stock (other than pursuant to equity incentive agreements with service providers giving the Company the right to repurchase shares upon the termination of services), (v) results in the issuance of any shares of Common Stock or Options or Convertible Securities with an effective issuance, conversion or exercise price, as applicable, lower than the Series A-1 Conversion Price at the time of such issuance (other than Excluded Securities), (vi) results in any merger, other corporate reorganization, sale of control, or any transaction in which all or substantially all of the assets of the Company are sold, (vii) amends or waives any provision of the Company’s Certificate of Incorporation or Bylaws relative to the Series A Preferred Stock, (viii) increases the authorized size of the Company’s Board of Directors, (ix) results in the payment or declaration of any dividend on any shares of Common Stock or any other shares or securities junior to the Series A Preferred Stock, (x) results in a confession of judgment against the Company, or settle or compromise by or against the Company (provided that no such consent shall be required for matters involving less than $50,000.00), (xi) results in any filing by the

 

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Company for bankruptcy or receivership, (xii) results in any guaranty of any debt of a third party other than a direct or indirect wholly owned subsidiary of the Company; (xiii) results in the making of any material cash investments in the securities of another entity other than in the ordinary course of business or other than investments in wholly owned subsidiaries of the Company, (xiv) results in the mortgaging, pledging, or creating of a security interest in the property of the Company other than in the ordinary course of the Company’s business consistent with past practice, or (xv) results in the Company entering into a materially new line of businesses not related to the Company’s current line of business.

 

8.             No Waiver .  Except as otherwise modified or provided for herein, the holders of Series A Preferred Stock shall also be entitled to, and shall not be deemed to have waived, any other applicable rights granted to such holders under the applicable provisions of the Delaware General Corporation Law.

 

9.             No Impairment .  The Company will not, through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities on any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of Article Four and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights and liquidation preferences granted hereunder of the holders of the Series A Preferred Stock against impairment.

 

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IN WITNESS WHEREOF, this Certificate of Designation has been executed by the Company by a duly authorized executive officer as of this 1 st  day of May, 2009.

 

 

 

LIQUIDMETAL TECHNOLOGIES, INC.

 

 

 

 

 

 

 

By:

/s/ Tony Chung

 

Name:

  Tony Chung

 

Title:

  Chief Financial Officer

 


Exhibit 10.1

 

SECURITIES PURCHASE AND EXCHANGE AGREEMENT

 

SECURITIES PURCHASE AND EXCHANGE AGREEMENT (the “ Agreement ”), dated as of May 1, 2009, among Liquidmetal Technologies, Inc., a Delaware corporation (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 are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 144A (“ Rule 144A ”) of the Securities Act of 1933, as amended (the “ 1933 Act ”), by Section 4(2) of the 1933 Act, and/or by Rule 506 of Regulation D (“ Regulation D ”) as promulgated by the United States Securities and Exchange Commission (the “ SEC ”) under the 1933 Act.

 

B.            The Company currently has outstanding: (i) a series of 8% Convertible Subordinated Notes in the aggregate principal amount of $ 20,624,933.33 that were issued in a January 2007 private placement by the Company and were also issued as interest on such notes (the “ Existing Notes ”), and (ii) common stock purchase warrants to purchase up to an aggregate of 8,138,352 shares of the Company’s common stock, par value $.001 per share (the “ Common Stock ”), which warrants were issued in connection with the Existing Notes and which have (a) an original exercise price of $1.93 per share and an expiration date of January 3, 2012 or (b) an original exercise price of $1.55 per share and an expiration date of December 28, 2012 (the “ Existing Warrants ”).

 

C.            The Company and Buyers desire to enter into a transaction under which, subject to the terms and conditions of this Agreement: (i) each holder of the Existing Notes will exchange such holder’s Existing Notes and Existing Warrants for a new series of convertible notes, shares of a new class of preferred stock, or a combination of such new notes and new shares of preferred stock, together with new warrants issued thereon and (ii) certain investors will purchase for cash consideration shares of a new class of preferred stock of the Company (collectively, the “ Transactions ” or the “ Offering ”).

 

D.            In order to effectuate the Transactions, the Company has authorized and/or approved:  (1) a new series of convertible preferred stock of the Company to be designated as the Company’s “Series A-1 Preferred Stock,” par value $0.001 per share (the “ Series A-1 Preferred ”); (2) a new series of preferred stock of the Company to be designated as the Company’s “Series A-2 Preferred Stock,” par value $0.001 per share (the “ Series A-2 Preferred ”);  (3) a series of 8% Senior Secured Convertible Notes of the Company in the form attached hereto as Exhibit A (the “ Exchange Notes ”); (4) a series of Common Stock Purchase Warrants in the form attached hereto as Exhibit B to be issued in connection with the issuance of shares of Series A-1 Preferred and Series A-2 Preferred (the “ Preferred Warrants ”); and (5) a series of Common Stock Purchase Warrants in the form attached hereto as Exhibit C to be issued in connection with the issuance of the Exchange Notes (the “ Exchange Warrants ”).

 



 

E.             Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, in substantially the form attached hereto as Exhibit D (the “ Registration Rights Agreement ”), pursuant to which the Company has agreed to provide certain registration rights with respect to the Conversion Shares and the Warrant Shares (each as defined below) under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws.

 

NOW, THEREFORE , the Company and each Buyer hereby agree as follows:

 

1.                                        PURCHASE OF SERIES A-1 SHARES, SERIES A-2 SHARES, EXCHANGE NOTES, AND WARRANTS; OPTION TO PURCHASE ADDITIONAL SERIES A-1 SHARES .

 

(a)           Purchase of Series A-1 Shares and Preferred 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 such Buyer severally, but not jointly, agrees to purchase and acquire from the Company on the First Closing Date (as defined below), the number of Series A-1 Shares set forth opposite such Buyer’s name in Column (3) on the Schedule of Buyers and the Preferred Warrants set forth opposite such Buyer’s name in Column (4) on the Schedule of Buyers.  This paragraph shall not apply to any Buyer for which the number of shares of Series A-1 Shares set forth next to the Buyer’s name on the Schedule of Buyers is zero (0).

 

(b)           Purchase of Series A-2 Shares and Preferred 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 such Buyer severally, but not jointly, agrees to purchase and acquire from the Company on the First Closing Date (as defined below), the number of Series A-2 Shares set forth opposite such Buyer’s name in Column (5) on the Schedule of Buyers and the Preferred Warrants set forth opposite such Buyer’s name in Column (6) on the Schedule of Buyers.  This paragraph shall not apply to any Buyer for which the number of shares of Series A-2 Shares set forth next to the Buyer’s name on the Schedule of Buyers is zero (0).

 

(c)           Purchase of Exchange Notes and Exchange Warrants .  Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, on the First Closing Date (as defined below), the Company shall issue to each Buyer, and each Buyer severally, but not jointly, agrees to purchase and acquire from the Company an Exchange Note in the aggregate principal amount set forth opposite the Buyer’s name in Column (7) on the Schedule of Buyers and the Exchange Warrants set forth opposite the Buyer’s name in Column (8) on the Schedule of Buyers.  This paragraph shall not apply to any Buyer for which the amount of Exchange Notes set forth next to the Buyer’s name on the Schedule of Buyers is zero (0).  The Company agrees and acknowledges that the Exchange Notes, Exchange Warrants, and Series A-2 Shares are being issued hereunder to the Buyers thereof solely in exchange for other securities of the Company for purposes of Rule 144(d)(3)(ii) under the 1933 Act.

 

(d)           Purchase Price .  The purchase price for the Series A-1 Shares (together with the related Preferred Warrants described in Section 1(a) above) shall be $5.00 per Series A-1 Share.  The purchase price for the Series A-2 Shares (including the related Preferred Warrants described in Section 1(b) above) shall be $5.00 principal amount of Existing Notes per Series A-2

 

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Share.  The purchase price for the Exchange Notes (including the related Exchange Warrants described in Section 1(c) above) shall be equal to $1.00 for each $1.00 of principal amount under the Exchange Notes.

 

(e)           Payment of Purchase Price .  On the First Closing Date (as defined below), the aggregate purchase price to be paid by each Buyer for all of the Preferred Shares, Exchange Notes, and Warrants being purchased hereunder (referred to as the “ Investment Amount ”) shall be paid in the form of:  (i) cash, in the amount set forth opposite the Buyer’s name in Column (2) on the Schedule of Buyers, by wire transfer of immediately available funds in accordance with the Company’s written wire instructions and (ii) the surrender and exchange of all rights under the Existing Notes, with the total remaining value, including unpaid principal and accrued but unpaid interest, set forth opposite the Buyer’s name in Column (1) on the Schedule of Buyers, and the surrender and exchange of all rights under and with respect to the Existing Warrants.  Upon the First Closing and receipt of the Investment Amounts described above, the Company shall deliver to each Buyer the Series A-1 Shares, the Series A-2 Shares, the Exchange Notes, and the Warrants which such Buyer is then purchasing, duly executed on behalf of the Company and registered in the name of such Buyer or its designee.

 

(f)            Option to Purchase Series A-1 Shares .

 

(i)            The Company hereby grants to the Buyers of Preferred Stock (as defined below) an option (the “ Series A-1 Option ”), upon the terms and subject to the conditions herein contained, to purchase up to an aggregate of one million (1,000,000) Series A-1 Shares (the “ Option Shares ”) for a purchase price of $5.00 per Series A-1 Share.  Notwithstanding the foregoing and subject to the terms and conditions set forth below in this Section 1(f), (A) the Buyers of Series A-1 Shares (the “ A-1 Buyers ”) shall have the first right to purchase the first three hundred fifty thousand (350,000) Option Shares (the “ Initial Option Shares ”) pursuant to this Series A-1 Option and (B) the Buyers of Series A-2 Shares (the “ A-2 Buyers ”) shall have the first right to purchase the remaining six hundred fifty thousand (650,000) Option Shares plus the Initial Option Shares, if any, not purchased by the A-1 Buyers (the “ Remaining Shares ”).  The right of the A-2 Buyers to purchase the Remaining Shares shall be contingent upon (1) the purchase by the A-1 Buyers of all, but not less than all, of the Initial Option Shares or (2) the failure of the A-1 Buyers to purchase all of the Initial Option Shares on or before the date that is five (5) months from the date of the First Closing (the “ Remaining Share Condition ”).

 

(ii)           With regard to the purchase of the Initial Option Shares, each A-1 Buyer shall be entitled to purchase a maximum number of Initial Option Shares pursuant to the Series A-1 Option in the same proportion as its purchase obligation set forth in Column (3) on the Schedule of Buyers; provided that any A-1 Buyer may assign its rights to purchase Initial Option Shares under this Section 1(f)(ii) to any other Buyer.  The Series A-1 Option may be exercised by the A-1 Buyers for the purchase of Initial Option Shares by delivering an Exercise Notice (as defined below) to the Company at any time and from time to time after the date hereof up until 5:00 p.m., New York City time, on the date that is five (5) months from the date of the First Closing.  Any A-1 Buyer who elects to purchase Initial Option Shares in accordance with this Section 1(f)(ii) must provide the Company with written notice (an “ Exercise Notice ”) stating that such Buyer is exercising its Series A-1 Option and setting forth the number of Initial

 

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Option Shares such Buyer intends to purchase.

 

(iii)          Upon the occurrence of the Remaining Share Condition, each A-2 Buyer shall be entitled to purchase a maximum number of Remaining Shares pursuant to the Series A-1 Option in the same proportion as its purchase obligation set forth in Column (5) on the Schedule of Buyers; provided that any A-2 Buyer may assign its rights to purchase Remaining Shares under this Section 1(f)(iii) to any other Buyer.  The Series A-1 Option may be exercised by the A-2 Buyers for the purchase of Remaining Shares by delivering an Exercise Notice to the Company at any time after the Remaining Share Condition occurs and from time to time thereafter until 5:00 p.m., New York City time, on the date that is six (6) months from the date of the First Closing (the “ Option Expiration Date ”).

 

(iv)          In addition to any other limitation provided herein, in no event shall any part of the Series A-1 Option be exercisable unless the applicable Exercise Notice is delivered to the Company on or before the Option Expiration Date, provided that in the event that the A-1 Buyers purchased all of the Initial Option Shares pursuant to the Series A-1 Option and the A-2 Buyers did not purchase all of the Remaining Shares pursuant hereto, then the A-1 Buyers shall have the right to purchase any Remaining Shares not purchased by the A-2 Buyers (the “ Remaining Unpurchased Shares ”) by delivering to the Company an Exercise Notice with respect thereto no later than thirty (30) days after the Option Expiration Date.  Each A-1 Buyer shall have the right to purchase the Remaining Unpurchased Shares in the same proportion as its purchase obligation set forth in Column (3) on the Schedule of Buyers; provided that any A-1 Buyer may assign its rights to purchase the Remaining Unpurchased Shares under this Section 1(f)(iv) to any other Buyer.

 

(v)           Notwithstanding anything in this Agreement to the contrary, upon the Company’s receipt of an Exercise Notice, if the Board of Directors of the Company determines in good faith that the Company’s anticipated capital resources (including access to borrowing availability under credit facilities) will be sufficient to fund the Company’s operations for a period of at least twelve (12) months after the Company’s receipt of the Exercise Notice, then the Company shall have the right to refuse the exercise of the Series A-1 Option by delivering, prior to the Option Closing Date (as defined below), a written notice to the exercising Buyers stating that the Board of Directors has made such determination, in which event the Buyers will not have the right to exercise the Series A-1 Option (a “ Refusal Notice ”).  After any such Refusal Notice, the Buyers will have the right to deliver a subsequent Exercise Notice at any time after the thirtieth (30 th ) day after receipt of the Refusal Notice, subject to the Company’s right to issue a Refusal Notice again at such time.  Notwithstanding the foregoing, in the event that a Refusal Notice is delivered in response to an Exercise Notice properly delivered by the A-1 Buyers on or before the date that is five (5) months from the date of the First Closing, then the A-2 Buyers shall not have a right to purchase any Remaining Shares unless the A-1 Buyers are first provided with an opportunity to purchase the Initial Option Shares covered by such Exercise Notice.  In addition, in the event that a Refusal Notice is delivered in response to an Exercise Notice properly delivered by the A-2 Buyers prior to the Option Expiration Date, then the A-1 Buyers shall not have the right to purchase any Remaining Unpurchased Shares unless the A-2 Buyers are first provided with an opportunity to purchase the Remaining Shares covered by such Exercise Notice.

 

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(g)           Closing .  The purchase and sale of the Series A-1 Shares, the Series A-2 Shares, the Exchange Notes, and the Warrants (the “ First Closing ”) shall occur on the First Closing Date at the offices of Foley & Lardner LLP, 100 North Tampa Street, Suite 2700, Tampa, Florida 33602.  The date and time of the First Closing (the “ First Closing Date ”) shall be 10:00 a.m., New York, NY Time, on the date hereof, subject to notification of satisfaction (or waiver) of the conditions to the First Closing set forth in Sections 6 and 7 below (or such later date as is mutually agreed to by the Company and each Buyer).  The closing with respect to each exercise of the Series A-1 Option shall occur on a date (each such date, an “ Option Closing Date ”) specified by the exercising Buyer that is not less than fifteen (15) business days nor more than twenty (20) business days following the date upon which such Buyer provides the Company with an Exercise Notice.  The First Closing Date and each Option Closing Date are herein referred to as a “ Closing Date ” and each closing hereunder is referred to as a “ Closing .”

 

(h)           Certain Definitions .  For purposes of this Agreement, the following capitalized terms shall have the following meanings:

 

(i)            “ Conversion Shares ” means shares of Common Stock issuable upon the conversion of the Preferred Shares or Exchange Notes.

 

(ii)           “ Preferred Shares ” means shares of Series A-1 Shares and/or Series A-2 Shares, as applicable.

 

(iii)          “ Schedule of Buyers ” means the Schedule of Buyers attached to this Agreement.

 

(iv)          “ Securities ” means the Exchange Notes, Preferred Shares, Conversion Shares, and Warrant Shares.

 

(v)           “ Series A-1 Shares ” means shares of Series A-1 Preferred (including any shares issued as dividends on the Series A-1 Preferred), and “ Series A-2 Shares ” means shares of Series A-2 Preferred (including any shares issued as dividends on the Series A-2 Preferred).

 

(vi)          “ Warrants ” means the Preferred Warrants and Exchange Warrants.

 

(vii)         “ Warrant Shares ” means the shares of Common Stock issuable upon the exercise of the Warrants.

 

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 Preferred Shares, the Exchange Notes, and the Warrants, as applicable, 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

 

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accordance with or pursuant to a registration statement or an exemption from the registration requirements of the 1933 Act and applicable state securities laws.  Such Buyer presently does not have any agreement or understanding, directly or indirectly, with any person to distribute any of the Securities.

 

(b)           Qualified Institutional Buyer; Accredited Investor Status .  Such Buyer is a “qualified institutional buyer” as defined in Rule 144A under the 1933 Act (a “ QIB ”) and/or such Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D .

 

(c)           Transfer or Resale .  In connection with such Buyer’s subsequent offers to sell, such Buyer (i) will offer the Securities for resale only upon the terms and conditions set forth in this Agreement (the “ Exempt Resales ”), and (ii) will solicit offers to buy the Securities only from, and will offer and sell the Securities only to, (A) persons reasonably believed by such Buyer to be QIBs or (B) persons reasonably believed by such Buyer to be an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (an “ Accredited Investor ”) or (C) persons reasonably believed by such Buyer to be non-U.S. persons referred to in Regulation S under the 1933 Act (“ Non-U.S. Persons ”), and in connection with each such sale, it will take reasonable steps to ensure that the purchaser of such Securities is aware that such sale is being made in reliance on Rule 144A, Regulation D or Regulation S, as applicable.

 

(d)           General Solicitation .  No form of general solicitation or general advertising in violation of the 1933 Act has been or will be used nor will any offers in any manner involving a public offering within the meaning of Section 4(2) of the 1933 Act or, with respect to any Securities to be sold in reliance on Regulation S, by means of any directed selling efforts be made by such Buyer or any of its representatives in connection with the offer and sale of any of the Securities.

 

(e)           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 in part 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.

 

(f)            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 which have been requested by such Buyer.  Such Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company and have received what such Buyer and its advisors, if any, believe to be satisfactory answers to any such inquiries.  Such Buyer understands that its investment in the Securities involves a high degree of risk.  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.

 

(g)           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

 

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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.

 

(h)           Restrictions .  Such Buyer understands that except as provided in this Agreement and 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 a form 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, such as Rule 144 or Rule 144A promulgated under the 1933 Act (or a successor rule thereto) (collectively, “ Rule 144 ”); (ii) any sale of the Securities made in 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(p)) 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) except as set forth in the Registration Rights Agreement, 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 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 below), including, without limitation, this Section 2(h); provided , that in order to make any sale, transfer or assignment of Securities, such Buyer and its pledgee makes such disposition in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.

 

(i)            Legends .  Buyer understands that the certificates or other instruments representing the Preferred Shares, the Exchange Notes and the Warrants and, until such time as the resale of the Conversion Shares and the Warrant Shares have been registered under the 1933 Act as contemplated by the Registration Rights Agreement, the certificates representing the Securities, 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 CONVERTIBLE 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 IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,

 

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OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED 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 upon which it is stamped, if, unless otherwise required by state securities laws, (i) such Securities are registered for resale under the 1933 Act or (ii) in connection with a sale, assignment or other transfer, such holder provides the Company with an opinion of counsel, in a form reasonably acceptable to the Company, to the effect that such sale, assignment or transfer of the Securities may be made without registration under the applicable requirements of the 1933 Act.

 

(j)            Validity; Enforcement .  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 by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies, and except that any rights to indemnity or contribution under the Transaction Documents (as defined below) may be limited by federal and state securities laws and public policy considerations.

 

(k)           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, (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.

 

(l)            Residency .  Such Buyer is a resident of that jurisdiction specified below its address on the Schedule of Buyers.  Such Buyer represents that it was not organized solely for purposes of making an investment in the Company.

 

(m)          Certain Trading Activities .  Such Buyer has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Buyer, engaged in any transactions in the securities of the Company (including, without limitation, any Short Sales (as defined in Regulation SHO promulgated under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) ) involving the Company’s securities) since the time that such Buyer was first contacted by the Company or any other Person regarding an investment in the

 

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Company.  Such Buyer covenants that neither it nor any Person acting on its behalf or pursuant to any understanding with it will engage in any transactions in the securities of the Company (including Short Sales) prior to the time that the transactions contemplated by this Agreement are publicly disclosed by the Company.  Such Buyer has maintained, and covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to Section 4(e) such Buyer will maintain, the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction) and any information other than the terms of this transaction that the Company provided to such Buyer on a confidential basis.

 

(n)           No Group .  Other than affiliates of such Buyer who are also Buyers under this Agreement, such Buyer is not under common control with or acting in concert with any other Buyer and is not part of a “group.”  Other than Carlyle Liquid, LLC, Carlyle Holdings, LLC, Abdi Mahamedi, Atlantic Realty, and Ricardo Salas (the “ Affiliated Investors ”), no Buyer, together with its affiliates, will, following any Closing, beneficially own more than 10% of the voting power of the Company’s then-outstanding capital stock.

 

(o)           Buyer Due Diligence .  Such Buyer acknowledges that, except for the matters that are expressly covered by the provisions of this Agreement, including the exhibits and schedules hereto, such Buyer is relying on its own investigation and analysis in entering into this Agreement and consummating the transactions contemplated hereby.  Such Buyer is informed and sophisticated in the transactions contemplated by this Agreement and has undertaken such investigation, and has been provided with and has evaluated such documents and information, as it has deemed necessary in connection with the execution, delivery and performance of this Agreement.  Such Buyer is consummating the transactions contemplated by this Agreement without any representation or warranty, expressed or implied, by the Company except as expressly set forth in this Agreement and the exhibits and schedules hereto.  Such Buyer acknowledges and agrees that the Company does not make and has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.

 

3.             REPRESENTATIONS AND WARRANTIES OF THE COMPANY .

 

The Company represents and warrants to each of the Buyers that:

 

(a)           Organization and Qualification .  The Company and its “ Subsidiaries ” (which for purposes of this Agreement means any entity in which the Company, directly or indirectly, owns capital stock or holds an equity or similar interest) are corporations or other legal entities duly organized and validly existing in good standing under the laws of the jurisdictions in which they are organized, as set forth on Schedule 3(a) , and have the requisite power and authorization to own their properties and to carry on their business as now being conducted.  The Company and each Subsidiary is duly qualified as a foreign corporation or other legal entity 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, as set forth on Schedule 3(a) , except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect.  As used in this Agreement, “ Material Adverse Effect ” means any material adverse effect on the business, properties, assets,

 

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operations, results of operations, or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole.  The Company has no Subsidiaries except as set forth on Schedule 3(a) .

 

(b)           Authorization; Enforcement; Validity .  The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, the Securities, the Registration Rights Agreement, the Security Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section 5) and each of the other agreements entered into by the parties hereto in connection with the Transactions contemplated by this Agreement (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 Preferred Shares, the Exchange Notes and the Warrants and the reservation for issuance and the issuance of the Conversion Shares and the Warrant Shares issuable upon conversion, issuance or exercise thereof, as the case may be, have been duly authorized by the Company’s Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders.  This Agreement and the other Transaction Documents of even date herewith 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, and except that any rights to indemnity or contribution under the Transaction Documents may be limited by federal and state securities laws and public policy considerations.

 

(c)           Issuance of Securities .  The Preferred Shares, the Exchange Notes and the Warrants are duly authorized and, upon issuance in accordance with the terms hereof, shall be free from all taxes, liens and charges with respect to the issue thereof.  Upon the filing of the Charter Amendment (as defined in Section 4(m) hereof) with the Delaware Secretary of State, the number of shares of Common Stock which equals the sum of 100% of the number of shares of Common Stock issuable upon conversion of the Preferred Shares and the Exchange Notes and exercise of the Warrants to be issued at the First Closing will be duly authorized and reserved for issuance.  Upon conversion, exercise or issuance in accordance with the terms of the Preferred Shares, the Exchange Notes and the Warrants, the Conversion Shares and the Warrant Shares, as the case may be, will be validly issued, fully paid and nonassessable and free from all 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 of the Buyers contained in Section 2, the issuance by the Company of the Securities is exempt from the registration requirements of Section 5 of 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 Preferred Shares, the Exchange Notes and the Warrants and the reservation for issuance and issuance of the Conversion Shares and the Warrant Shares) will not (i) result in a violation of the certificate of incorporation, any certificate of designations, preferences and rights of any outstanding series

 

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of preferred stock or the bylaws of the Company or any of its Subsidiaries, (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 material agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, except which are the subject of written waivers or consents which have been obtained or effected on or prior to the applicable Closing Date or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of the Principal Market (as defined below)) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected, except in the case of clauses (ii) and (iii), for such breaches or defaults as could not reasonably be expected to have a Material Adverse Effect.

 

(e)           Consents .  Except as disclosed in Schedule 3(e) , 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.  All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the First Closing Date (other than filings and reports relating to the offer and sale of the Securities required under Regulation D or applicable securities or “Blue Sky” laws as contemplated under Section 4(b) of this Agreement), and the Company and its Subsidiaries are unaware of any facts or circumstances which 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 (as defined below) and has no knowledge of any facts which would reasonably lead to delisting or suspension of the Common Stock in the foreseeable future.

 

(f)            Acknowledgment Regarding Buyer’s Purchase of Securities .  The Company acknowledges and agrees that each Buyer is acting solely in the capacity of arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby and that, except as set forth on Schedule 3(f) , no Buyer is (i) an officer or director of the Company, (ii) an “affiliate” of the Company (as defined in Rule 144) or (iii) to the knowledge of the Company, a “beneficial owner” of more than 10% of the Common Stock (as defined for purposes of Rule 13d-3 of the Exchange Act).  The Company further acknowledges 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.

 

(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

 

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persons engaged by any Buyer or its investment advisor) relating to or arising out of the transactions contemplated hereby.

 

(h)           No Integrated Offering .  None of the Company, its Subsidiaries, any of their affiliates, and any Person acting on their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of any of the Securities under the 1933 Act or cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated.

 

(i)            Rights Agreement The Company has not adopted a 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 .  The Company has 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 Exchange Act (all of the foregoing filed prior to the date hereof (whether or not required to be filed), and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “ SEC Documents ”).  As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and, to the Company’s knowledge, 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.

 

(k)           Financial Statements .  As of their respective 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 year-end audit adjustments).

 

(l)            Absence of Certain Changes .  Except as disclosed in Schedule 3(l)  or in the SEC Documents, since December 31, 2008 (i) there has been no Material Adverse Effect, and (ii)  t he Company has not (A) declared or paid any dividends, (B) sold any assets, individually or in the aggregate, in excess of $100,000 outside of the ordinary course of business, or (C) had capital expenditures, individually or in the aggregate, in excess of $250,000.  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

 

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bankruptcy proceedings or any actual knowledge of any fact which 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 First Closing, will not be Insolvent (as defined below).  For purposes of this Section 3(l), “ Insolvent ” means (i) the Company is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured, or (ii) the Company intends to incur or believes that it will incur debts that would be beyond its ability to pay as such debts mature.

 

(m)          Conduct of Business .  Neither the Company nor its Subsidiaries is in violation of any term of or in default under its Certificate of Incorporation or Bylaws or their organizational charter or bylaws, respectively.  Except as disclosed in Schedule 3(m) , neither the Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company or its Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct its business in violation of any of the foregoing, except for possible violations which would not, individually or in the aggregate, 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 OTC Bulletin Board (the “ Principal Market ”) other than violations which could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect and has no knowledge of any facts or circumstances which would reasonably lead to delisting or suspension of the Common Stock by the Principal Market in the foreseeable future.  Except as disclosed on Schedule 3(m), since January 1, 2006, (i) the Common Stock has been designated for quotation 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.

 

(n)           Regulatory Permits .  The Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.

 

(o)           Equity Capitalization .  As of the date hereof, the number of shares and type of all authorized, issued, and outstanding capital stock of the Company, and all shares of Common Stock reserved for issuance under the Plans (as defined below), is set forth in Schedule 3(o) .  All of such outstanding shares have been, or upon issuance will be, validly issued and are fully paid and nonassessable.  All of such outstanding shares of capital stock are duly authorized, validly issued, fully paid and nonassessable.  No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company.  Except as disclosed in the SEC Documents and other than pursuant to this Agreement and as contemplated by the Company’s employee and director benefit, incentive, or option plans disclosed in the Company’s SEC Documents (the “ Plans ”), (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, and (ii) there are no

 

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agreements, understandings, claims, antidilution protection or other commitments or rights of any character whatsoever that could require the Company to issue additional shares of capital stock of the Company or adjust the purchase or exercise price of any such instrument.  Except as disclosed in the SEC Documents, there are no agreements or arrangements (other than the Registration Rights Agreement) under which the Company is obligated to register the sale of any of its securities under the 1933 Act.

 

(p)           Indebtedness and Other Contracts .  Except as disclosed in Schedule 3(p)  or in the SEC Documents, neither the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness, or (ii) is in violation of any term of or in default under any contract, agreement or instrument relating to any Indebtedness.  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 (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 (as defined below) in respect of indebtedness or obligations of 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.

 

(q)           Absence of Litigation .  Except as disclosed in the SEC Documents, 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 Subsidiaries that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

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(r)            Insurance .  The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company reasonably believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged.  Neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.

 

(s)           Employee Relations .  Except as disclosed in Schedule 3(s) , neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or employs any member of a union.  The Company and its Subsidiaries believe that their relations with their employees are good.  No executive officer of the Company (as defined in Rule 501(f) of the 1933 Act) 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, to the knowledge of the Company, is, or is now expected to be, 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.  The Company and its Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting employment and employment practices, 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.

 

(t)            Title .  The Company and its Subsidiaries have 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 and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(t)  or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries.  Any real property and facilities held under lease by the Company and any of its Subsidiaries 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 and its Subsidiaries.

 

(u)           Intellectual Property Rights .  To the knowledge of the Company and except as set forth in the SEC Documents, the Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights (“ Intellectual Property Rights ”) necessary to conduct their respective businesses as now conducted.  The Company does not have any knowledge of any infringement by the Company or its Subsidiaries of Intellectual Property Rights of others.  Except as set forth in Schedule 3(u) , there is no claim, action or proceeding being made or brought, or to the knowledge of the Company, being threatened, against the Company or its Subsidiaries regarding its Intellectual Property Rights which could have a Material Adverse Effect.

 

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(v)           Environmental Laws .  The Company and its Subsidiaries (i) are in material compliance with any and all Environmental Laws (as hereinafter defined), (ii) have received all material permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in material 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.

 

(w)          Tax Status .  The Company and each of its Subsidiaries (i) has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction in which such filings are required, (ii) has paid all taxes and other governmental assessments and charges that are owed by it, including all taxes shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and for which adequate reserves have been established on the Company’s books, 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.

 

(x)            Disclosure .  The Company confirms that it has not provided any of the Buyers or their respective agents or counsel with any information that will constitute material, nonpublic information on the First Closing Date, other than information and documentation regarding the transactions contemplated by this Agreement, which information shall be included on the 8-K Filing (as defined in Section 4(e) below).  The Company understands and confirms that each of the Buyers will rely on the foregoing representations in effecting transactions in securities of the Company.  The Company acknowledges and agrees that no Buyer makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 2.

 

(y)           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, or that has constituted or which might reasonably be expected to constitute, 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) sold, bid for, purchased, or paid anyone any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company.

 

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(z)            Internal Accounting and Disclosure Controls .  The Company and each of its Subsidiaries 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 set forth in the SEC Documents, the Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-14 under the Exchange Act) that are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange 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 to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange 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.  Except as set forth in the SEC Documents, during the twelve months prior to the date hereof neither the Company nor any of its Subsidiaries have received any notice or correspondence from any accountant relating to any potential material weakness in any part of the system of internal accounting controls of the Company or any of its Subsidiaries.

 

(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)         U.S. Real Property Holding Corporation .  The Company is not, nor has 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 Buyer’s request.

 

(cc)         Bank Holding Company Act .  Neither the Company nor any of its Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the “ BHCA ”) and to regulation by the Board of Governors of the Federal Reserve System (the “ Federal Reserve ”).  Neither the Company nor any of its Subsidiaries or affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five (25%) or more of the total equity of a bank or any  equity that is subject to the BHCA and to regulation by the Federal Reserve.  Neither the Company nor any of its Subsidiaries or affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.

 

(dd)         Trading Activities .  It is understood and acknowledged by the Company that, except as set forth in Section 4(l) of this Agreement (which contains certain covenants by the Buyers):  (i) none of the Buyers have been asked to agree, nor has any Buyer agreed, to desist

 

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from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) any Buyer, and counter parties in “derivative” transactions to which any such Buyer is a party, directly or indirectly, presently may have a “short” position in the Common Stock, and (iii) each Buyer shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction.  The Company further understands and acknowledges that one or more Buyers may engage in hedging and/or trading activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Conversion Shares and the Warrant Shares are being determined and (b) such hedging and/or trading activities, if any, can reduce the value of the existing stockholders’ equity interest in the Company both at and after the time the hedging and/or trading activities are being conducted.  The Company acknowledges that such aforementioned hedging and/or trading activities do not constitute a breach of this Agreement, the Notes, the Warrants or any of the documents executed in connection herewith, except to the extent such hedging and/trading activities violate the provisions of Section 4(l) of this Agreement.

 

(ee)         Shell Company Status .  The Company is not, nor has it at any time previously been, considered a “shell company” within the meaning of Rule 144(i)(1)(i) (or any successor rule) under the 1933 Act.

 

4.              COVENANTS .

 

(a)           Best Efforts .  Each party shall use its best efforts timely to satisfy each of the 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 shall, on or before any applicable Closing Date, 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 any Closing Date.

 

(c)           Reporting Status With a view to making available to the Buyers the benefits of Rule 144 promulgated under the 1933 Act or any similar rule or regulation of the Commission that may at any time permit the Buyers to sell securities of the Company to the public without registration, the Company shall use its commercially reasonable efforts to: (i) make and keep public information available, as those terms are understood and defined in Rule 144; (ii) file with the Commission in a timely manner all reports and other documents required of the Company under the 1933 Act and the Exchange Act; and (iii) furnish to each Buyer, so long as such Buyer owns Registrable Securities (as defined in the Registration Rights Agreement) (the “ Reporting Period ”), promptly upon request, (A) a written statement by the Company, if true, that it has complied with the applicable reporting requirements of Rule 144, the 1933 Act and the

 

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Exchange Act, (B) a copy of the most recent annual or quarterly report of the Company and copies of such other reports and documents so filed by the Company, (C) the information required by Rule 144A(d)(4) (or any successor rule) under the 1933 Act, and (D) such other information as may be reasonably requested to permit the Buyers to sell such securities pursuant to Rule 144 without registration.

 

(d)           Fees .  The Company shall be responsible for the payment of any placement agent’s fees, transfer taxes or stamp duties, 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.  Except as otherwise set forth in this Agreement or 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.

 

(e)           Disclosure of Transactions and Other Material Information .  On or before 8:30 a.m., New York, NY Time, on the fourth Business Day following the date hereof, the Company shall file a Current Report on Form 8-K describing the terms of the transactions contemplated by the Transaction Documents in the form required by the Exchange Act, and attaching the material Transaction Documents (including, without limitation, this Agreement (and all schedules to this Agreement), the form of Exchange Note, the Security Agreement, and the Registration Rights Agreement) as exhibits to such filing (including all attachments, the “ 8-K Filing ”).  Neither the Company nor any Buyer shall issue any press releases or any other public statements with respect to the Transactions; 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 (ii) as is required by applicable law and regulations.

 

(f)            Reservation of Shares .  From and after the filing of the Charter Amendment with the Delaware Secretary of State, the Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, 100% of the Conversion Shares and the Warrant Shares.

 

(g)           Sales by Buyers .  Each Buyer will sell any Securities sold by it in compliance with applicable prospectus delivery requirements, if any, or otherwise in compliance with the requirements for an exemption from registration under the 1933 Act and the rules and regulations promulgated thereunder.  No Buyer will make any sale, transfer or other disposition of the Securities in violation of the federal or state securities laws.

 

(h)           Like Treatment of Noteholders The terms of the Exchange Note(s) issued to each Buyer pursuant to the terms of this Agreement and the Transaction Documents shall be identical in all material respects.  In addition, neither the Company nor any of its affiliates shall, directly or indirectly, pay or cause to be paid any consideration (immediate or contingent), whether by way of interest, fee, payment for the redemption or conversion of the Exchange Notes, or otherwise, to any Buyer of Exchange Notes or holder of Exchange Notes, for or as an inducement to, or in connection with the solicitation of, any consent, waiver or amendment of any terms or provisions of the Transaction Documents, unless such consideration is required to be paid to all Buyers of Exchange Notes or holders of Exchange Notes bound by such consent, waiver or amendment.  The Company shall not, directly or indirectly, redeem any Exchange

 

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Notes unless such offer of redemption is made pro rata to all Buyers of Exchange Notes or holders of Exchange Notes, as the case may be, on identical terms.  For clarification purposes, this provision constitutes a separate right granted by the Company to each Buyer of Exchange Notes and negotiated separately by each Buyer of Exchange Notes, is intended for the Company to treat the Buyers of Exchange Notes as a class, and shall not in any way be construed as the Buyers of Exchange Notes acting in concert or as a group with respect to the purchase, disposition or voting of Exchange Notes or otherwise.

 

(i)            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 material misrepresentation or breach of any material 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 material covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate, instrument or 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) any disclosure made by such Buyer pursuant to Section 4(e).  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 that 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 4(i) shall be the same as those set forth in Section 5 of the Registration Rights Agreement.  Notwithstanding anything herein to the contrary, the Company shall have no indemnification obligations to any Buyer hereunder to the extent that an Indemnified Liability is attributable to the gross negligence or willful misconduct of such Buyer.

 

(j)            Tax Matters .  The Buyers and the Company agree that each of (i) the Series A-1 Shares and the Preferred Warrants issued thereon, (ii) the Series A-2 Shares and the Preferred Warrants issued thereon, and (iii) the Exchange Notes and the Exchange Warrants constitute an “investment unit” for purposes of Section 1273(c)(2) of the Internal Revenue Code of 1986, as amended (the “ Code ”).  The Buyers shall notify the Company of their determination of the allocation of the issue price of such investment unit among the Series A-1 Shares and the Preferred Warrants, the Series A-2 Shares and the Preferred Warrants, and the Exchange Notes

 

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and the Exchange Warrants in accordance with Section 1273(c)(2) of the Code and Treasury Regulation Section 1.1273-2(h), and neither the Buyers nor the Company shall take any position inconsistent with such allocation in any tax return or in any judicial or administrative proceeding in respect of taxes so long as the same allocation is made by all Buyers.

 

(k)           RESERVED.

 

(l)            No Transactions Pending Announcement of Transaction .  Each Buyer covenants that neither it nor any Person acting on its behalf or pursuant to any understanding with it has engaged or will engage in any transactions in the securities of the Company (including short sales within the meaning of SEC Regulation SHO) from the time that it has first learned of the transactions contemplated by this Agreement until the time that the transactions contemplated by this Agreement are publicly disclosed by the Company.  Such Buyer has maintained, and covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to Section 4(e) hereof, such Buyer will maintain, the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction) and any information other than the terms of this transaction that the Company provided to Buyer on a confidential basis.

 

(m)          Shareholder Approval of Charter Amendment The Buyers have been informed by the Company that the Company does not have sufficient shares of Common Stock authorized to enable the Buyers to fully convert the Exchange Notes and the Preferred Shares and to fully exercise the purchase rights represented by the Warrants.  The Company shall hold a special meeting of shareholders (which may also be at the annual meeting of shareholders) at the earliest practical date, and in any event on or before July 31, 2009, for the purpose of obtaining shareholder approval of an amendment to the Company’s Certificate of Incorporation (“ Shareholder Approval ”) in substantially the form attached as Exhibit I hereto (the “ Charter Amendment ”), with the recommendation of the Company’s Board of Directors that such proposal be approved, and the Company shall solicit proxies from its shareholders in connection therewith in the same manner as all other management proposals in such proxy statement, and shall otherwise use commercially reasonable efforts to solicit from its shareholders proxies in favor of such matters and to obtain Shareholder Approval.  All management-appointed proxy holders shall vote their proxies in favor of such proposal.  If the Company does not obtain Shareholder Approval at the first meeting, the Company shall call a meeting every four months thereafter to seek Shareholder Approval until the earlier of (i) the date Shareholder Approval is obtained or (ii) the date that there are no Exchange Notes or Preferred Shares outstanding.  Upon obtaining Shareholder Approval, the Company will, as soon as practicable thereafter, file the Charter Amendment with the Delaware Secretary of State.

 

(n)           Approval of Charter Amendment by Buyers of Series A-1 Shares and Series A-2 Shares .  Each Buyer of Series A-1 Shares and each Buyer of Series A-2 Shares agrees to vote all shares of capital stock of the Company, including, without limitation, shares of the Company’s Common Stock, shares of the Company’s Series A-1 Preferred, and shares of the Company’s Series A-2 Preferred, registered in his, her or its name, beneficially owned by him, her or it, or for which he, she or it holds a proxy (including those shares identified in the Voting Proxy Agreements described in Section 7(j) hereof) as of the date of this Agreement and any and all other shares of capital stock or other voting securities of the Company legally or beneficially

 

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owned by him, her or it or for which he, she or it holds a proxy (including those shares identified in the Voting Proxy Agreements described in Section 7(j) hereof) after the date of this Agreement or acquired by him, her or it after the date of this Agreement (including, without limitation, through new issuances, exercises of stock options or warrants, conversion or exchange of convertible or exchangeable securities, stock splits, stock dividends, recapitalizations and similar events) in favor of the Charter Amendment to increase the number of authorized shares of Common Stock to 300,000,000.

 

(o)            Information Rights .  The holders of the Exchange Notes shall have the right to receive unaudited monthly financial statements of the Company (consisting of a balance sheet and income statement in a form ordinarily prepared by the Company) upon written request to the Company and upon entering into a mutually agreeable nondisclosure agreement with the Company acknowledging that such financial statements constitute “material nonpublic information” of the Company.

 

(p)            Board Observation Rights . The Buyers of Exchange Notes hereunder hereby appoint Dwight Mamanteo (the “ Observer ”) as their representative to serve as an observer to the Board of Directors of the Company (the “ Board ”).  The Company agrees that, beginning on the date of the First Closing and continuing for so long as fifty percent (50%) of the original principal amount of the Exchange Notes issued on the date of the First Closing remain outstanding, the Observer:

 

(i)            will have the right to attend all regular and special meetings of the Board or any committees thereof, provided that the Board or any such committee may excuse the Observer from portions of the meeting for any discussions that they reasonably believe to be appropriate only for members of the Board;

 

(ii)           will be copied on all Board-wide or committee-wide communications made by the Company and/or Board members and will be provided with all Board-wide or committee-wide distributed materials, including Board books, unless the Observer requests in writing not to be copied on such communications and materials;

 

(iii)          will treat all information received in connection with its Board observation rights hereunder (“ Board Information ”) confidentially and not disclose it to any other third party and will not use the Board Information for any purposes other than representing the interests of the holders of the Exchange Notes with respect to their rights under the Exchange Notes; notwithstanding the foregoing, the Observer may share Board Information with any holder of Exchange Notes that enters into a confidentiality agreement with the Company in a form reasonably acceptable to the Company;

 

Observer agrees that much of the Board Information will be “material nonpublic information” and that Observer will at all times comply with SEC Regulation FD and applicable insider trading laws with respect thereto.  Observer also agrees that its rights under this Section 3(p) are being granted to Observer personally and that Observer may not designate any other person to attend Board or committee meetings in lieu of Observer, unless otherwise consented to in writing by the Company.  The Company agrees to reimburse Observer for any reasonable out-of-pocket

 

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travel expenses incurred by the Observer in attending any Board or committee meeting pursuant to this Section 4(p).

 

(q)           Sale of South Korean Manufacturing Facility .  In the event that Liquidmetal Korea Co. Ltd., a subsidiary of the Company organized under the laws of the Republic of Korea (“ LMK ”), sells its manufacturing facility in the Republic of Korea (the “ Facility ”), the Company will cause LMK to use its best efforts to transfer and distribute the proceeds of sale (net of transaction expenses and the payoff of obligations encumbering the Facility), or as much thereof as shall be permitted to be transferred under the laws and procedures of the Republic of Korea, to the Company.  The Company will use any such proceeds received by it solely to pay the outstanding principal of the Exchange Notes pursuant to Section 1(i) of the Exchange Notes as promptly as practicable after the Company’s receipt of such proceeds.

 

5.             TRANSFER AGENT INSTRUCTIONS .  Within three (3) business days after the First Closing Date, 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 Conversion Shares and the Warrant Shares in such amounts as specified from time to time by each Buyer to the Company upon conversion of the Series A-1 Shares, the Series A-2 Shares, and the Exchange Notes or exercise of the Warrants in the form of Exhibit E attached hereto (the “ Irrevocable Transfer Agent Instructions ”).  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(h) hereof, will be given by the Company to its transfer agent with respect to the Warrant Shares and Conversion Shares, and that the Conversion Shares and the Warrant Shares 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 Sections 2(c), (h), and (i) hereof, the Company shall permit the transfer and shall promptly instruct its transfer agent to issue one or more certificates or credit notes or 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 Securities 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 so long as the Buyer complies with the terms of Section 2(h) and Section 2(i).  The Company acknowledges that a breach by it of its obligations under this Section 5 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.  Nothing in this Section 5 will affect in any way the Buyer’s obligations and agreements set forth in Section 4 hereof to comply with all applicable prospectus delivery requirements, upon resale of the Securities.

 

6.             CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY .  The obligation of the Company hereunder to issue the Series A-1 Shares, the Series A-2 Shares,

 

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the Exchange Notes and the Warrants to each respective Buyer at the First Closing is subject to the satisfaction, at or before the First 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:

 

(a)           Such Buyer shall have executed each of the Transaction Documents to which it is a party and delivered the same to the Company.

 

(b)           Such Buyer and each other Buyer shall have delivered to the Company the Investment Amount for the Series A-1 Shares, the Series A-2 Shares, the Exchange Notes, and the Warrants being purchased by such Buyer and each other Buyer at the First Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company and/or by surrender of such Buyer’s and each other Buyers’ Existing Notes.  Such Buyer and each other Buyer surrendering Existing Notes shall also surrender his, her, or its Existing Warrants.

 

(c)           The representations and warranties of such Buyer shall be true and correct in all material respects as of the First Closing Date (except for representations and warranties that speak as of a different 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 First Closing Date.

 

(d)           The Company shall have received written resignations of all members of the Company’s Board of Directors, other than John Kang and Robert Biehl, resigning their positions as directors of the Company.

 

7.             CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYERS .  The obligation of each Buyer hereunder to purchase the Series A-1 Shares, the Series A-2 Shares, the Exchange Notes and the Warrants at the First Closing is subject to the satisfaction, at or before the First 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:

 

(a)           The Company shall have executed and delivered to such Buyer (i) each of the Transaction Documents and (ii) the Exchange Notes and the Warrants being purchased by such Buyer at the First Closing pursuant to this Agreement.  In addition, the Company shall have issued to such Buyer the Series A-1 Shares and the Series A-2 Shares being purchased by such Buyer at the First Closing pursuant to this Agreement.

 

(b)           All of the Buyers shall have executed their respective Transaction Documents and paid the respective purchase price for their Securities hereunder (including the wiring of the cash purchase price for the Series A-1 Shares).

 

(c)           The Company shall have filed with the Delaware Secretary of State a Certificate of Designation for the Preferred Stock in substantially the form attached hereto as Exhibit F .

 

(d)           The Company shall have delivered to such Buyer a copy of the Irrevocable

 

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Transfer Agent Instructions, in the form of Exhibit E attached hereto, which instructions shall have been delivered to and acknowledged in writing by the Company’s transfer agent.

 

(e)           The Company shall have delivered to such Buyer a certificate evidencing the incorporation and good standing of the Company issued by the Secretary of State of Delaware, as of a date within 10 days of the First Closing Date and a bring-down good standing certificate issued by the Secretary of State of Delaware dated as of the First Closing Date.

 

(f)            The Company shall have delivered to such Buyer a certificate, executed by the Secretary of the Company and dated as of the First Closing Date, as to (i) the resolutions consistent with Sections 3(b) and 4(k) as adopted by the Company’s Board of Directors (the “ Resolutions ”), (ii) the Certificate of Incorporation and (iii) the Bylaws, each as in effect at the First Closing.

 

(g)           Each Buyer shall have received the opinion of Foley & Lardner LLP, the Company’s counsel, dated as of the First Closing Date, in substantially the form of Exhibit G attached hereto.

 

(h)           The representations and warranties of the Company shall be true and correct as of the First Closing Date (except for representations and warranties that speak as of a different date) and the Company shall have performed, satisfied and complied 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 First Closing Date.

 

(i)            The Company shall have received the written resignations of all of the members of the Company’s Board of Directors, other than John Kang and Robert Biehl, resigning their positions as directors of the Company.  F ollowing the receipt of such resignations, John Kang and Robert Biehl, as the only remaining directors, shall (i) set the size of the Company’s Board of Directors at five (5) members, (ii) appoint Abdi Mahamedi, Bill Scott, and Iraj Azarm to fill the vacancies on the Company’s Board of Directors (provided, however, that Bill Scott shall not take office as a director prior to the next regularly scheduled meeting of the stockholders unless and until the Company first complies with Rule 14f-1 of the Exchange Act with respect to his appointment), (iii) approve the Charter Amendment, and (iv) approve the calling of a meeting of the shareholders for the purpose of obtaining Shareholder Approval of the Charter Amendment.

 

(j)            The following shareholders of the Company shall have entered into a Voting Proxy Agreement in substantially the form attached hereto as Exhibit H :  John Kang, Abdi Mahamedi,  Jack Chitayat, and Ricardo Salas.

 

8.             RELEASE AND WAIVER .  In exchange for the agreements and covenants of the Company hereunder and effective upon the First Closing, each of the Buyers, on behalf of himself, herself, or itself and his, her, or its agents, assigns, heirs, devisees, and successors, releases, waives, and forever discharges the Company, its agents, officers, directors, shareholders, employees, attorneys, and representatives, from any and all claims, causes of action, suits, debts, liabilities, damages and expenses (including attorneys’ fees and costs) of any type whatsoever (collectively, “ Claims ”), whether known or unknown, that any of the Buyers have or may have or may have at any time through the date hereof as a result of any breach or default under the Existing Notes, the Existing Warrants, or the related Securities Purchase Agreement dated January 3, 2007, or under the related Registration Rights Agreement dated

 

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January 3, 2007.  Upon the First Closing and the issuance of the Securities in accordance with this Agreement, each of the Existing Notes will be deemed satisfied and paid in full and the Existing Warrants will be deemed to be terminated.

 

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 non-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.

 

(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 effective when counterparts have been signed by each party and delivered to the other parties; provided that a facsimile signature (including electronic copies of documents in Adobe PDF format) 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 supersedes 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 and the instruments referenced herein 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, the holders of more than one-half of the

 

26



 

outstanding Preferred Shares, and the holders of Exchange Notes representing more than one-half of the aggregate principal amount of the outstanding Exchange Notes, and any amendment to this Agreement made in conformity with the provisions of this Section 9(e) shall be binding on all Buyers and holders of Series A-1 Shares, Series A-2 Shares, Exchange Notes, and Warrants, as applicable.  No provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement of the waiver is sought.  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.

 

(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 electronic mail or 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:

 

Liquidmetal Technologies, Inc.
30452 Esperanza
Rancho Santa Margarita, California  92688
Facsimile: (949) 635-2188
Attention:  Tony Chung, CFO
Email:  Tony.Chung@Liquidmetal.com

 

with a copy (which shall not constitute notice) to:

 

Foley & Lardner LLP
100 North Tampa Street, Suite 2700
Tampa, Florida  33602
Facsimile:                                             (813) 221-4210
Attention:                                          Curt Creely, Esq.
Email:
                                                                 ccreely@foley.com

 

If to a Buyer, to its address, electronic mail 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,

 

27



 

respectively.

 

(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 Preferred Shares, the Exchange Notes, and the Warrants.  The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of at least a majority of the outstanding Preferred Shares and the holders of Exchange Notes representing at least a majority of the aggregate principal amount of the Exchange Notes then outstanding, except pursuant to a sale of all or substantially all of the business and assets of the Company whether by means of merger, consolidation, asset sale, stock sale, or otherwise.

 

(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.

(i)            Survival .  The representations and warranties of the Company and the Buyers contained in Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5, and 9 shall survive the First Closing.  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)           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, 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.

 

(l)            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 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 confirms that it has independently participated in the negotiation of the transaction

 

28



 

contemplated hereby with the advice of its own counsel and advisors.  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.

 

(m)          Reimbursement of Counsel Expenses .  The Company shall reimburse the holders of the Existing Notes for the reasonable legal fees of one joint legal counsel to represent them in connection with the transactions contemplated by this Agreement, provided that such reimbursement shall not exceed $10,000 in total for such counsel’s fees.

 

29



 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to this Securities Purchase and Exchange Agreement to be duly executed as of the date first written above.

 

 

COMPANY:

 

 

 

LIQUIDMETAL TECHNOLOGIES, INC.

 

 

 

 

 

By:

/s/ Tony Chung

 

 

 

 

 

Name: Tony Chung

 

 

Title:   Chief Financial Officer

 

[Counterpart Signature Page to Securities Purchase and Exchange Agreement]

 



 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to this Securities Purchase and Exchange Agreement to be duly executed as of the date first written above.

 

 

 

BUYERS

 

 

 

 

 

/s/ Carlyle Liquid Holdings, LLC

 

 

 

/s/ Fort Mason Master, LP

 

 

 

/s/ Fort Mason Partners, LP

 

 

 

/s/ The Tail Wind Fund Ltd.

 

 

 

/s/ Solomon Strategic Holdings, Inc.

 

 

 

/s/ Carlyle Liquid, LLC

 

 

 

/s/ Carlyle Holdings, LLC

 

 

 

/s/ Castlerigg Master Investments Ltd.

 

 

 

/s/ Diamond Opportunity Fund, LLC

 

 

 

/s/ Rockmore Investment Master Fund Ltd.

 

 

 

/s/ Abdi Mahamedi

 

 

 

/s/ BridgePointe Master Fund Ltd.

 

 

 

/s/ Iroquois Master Fund

 

 

 

/s/ Rodd Friedman

 

 

 

/s/ Myron Neugeboren

 

 

 

/s/ Ricardo Salas

 

 

 

/s/ Chang Ki Cho

 

 

 

/s/ Eric Brachfeld

 

 

 

/s/ Ed Neugeboren

 

 

 

/s/ Wynnefield Partners Small Cap Value LP

 

[Counterpart Signature Page to Securities Purchase and Exchange Agreement]

 



 

 

/s/ Wynnefield Partners Small Cap Value LP I

 

 

 

/s/ Wynnefield Small Cap Value Offshore Fund, Ltd.

 

 

 

/s/ Kenneth Lisiak

 

 

 

/s/ Vestal Venture Capital

 

 

 

/s/ Mermelstein Development

 

 

 

/s/ Atlantic Realty

 

[Counterpart Signature Page to Securities Purchase and Exchange Agreement]



 

SCHEDULE OF BUYERS

 

 

 

 

 

(1)

 

(2)

 

(3)

 

(4)

 

(5)

 

(6)

 

(7)

 

(8)

 

 

 

Buyer

 

Address, E-Mail and
Facsimile Number

 

Value of Existing
Notes to be
Exchanged

 

Cash Investment

 

Series A-1
Shares to be
Purchased

 

Preferred
Warrants to be
Issued in
Connection with
Series A-1
Shares

 

Series A-2
Shares to be
Purchased

 

Preferred
Warrants to be
Issued in
Connection with
Series A-2
Shares

 

Aggregate
Principal Amount
of Exchange Notes
to be Purchased

 

Exchange
Warrants to be
Issued in
Connection with
Exchange Notes

 

Legal Representative’s
Address and Facsimile
Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carlyle Liquid Holdings, LLC

 

 

 

 

 

$

2,500,000.00

 

500,000

 

12,500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carlyle Liquid Holdings, LLC

 

 

 

$

4,443,710.48

 

 

 

 

 

 

 

888,743

 

10,099,343

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fort Mason Master, LP

 

580 California Street
Suite 1925
San Francisco, CA 94104
(415) 288-8113

 

$

1,334,979.22

 

 

 

 

 

 

 

84,928

 

965,087

 

$

910,341.27

 

379,309

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fort Mason Partners, LP

 

580 California Street
Suite 1925
San Francisco, CA 94104
(415) 288-8113

 

$

86,572.51

 

 

 

 

 

 

 

5,508

 

62,586

 

$

59,035.02

 

24,598

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tail Wind Fund Ltd.

 

c/o Tail Wind Advisory and Management Ltd
767 Third Avenue, 6th Floor
New York, NY 10017
(212) 676-5665

 

$

1,554,670.05

 

 

 

 

 

 

 

98,904

 

1,123,906

 

$

1,060,151.56

 

441,730

 

Peter J. Weisman, PC
767 Third Avenue, 6th Floor
New York, NY 10017
(212) 676-5665

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Solomon Strategic Holdings Inc.

 

c/o Tail Wind Advisory and Management Ltd
767 Third Avenue, 6th Floor
New York, NY 10017
(212) 676-5665

 

$

310,933.98

 

 

 

 

 

 

 

19,781

 

224,782

 

$

212,030.29

 

88,346

 

Peter J. Weisman, PC
767 Third Avenue, 6th Floor
New York, NY 10017
(212) 676-5665

 

 


 


 

SCHEDULE OF BUYERS

(Continued)

 

 

 

 

 

(1)

 

(2)

 

(3)

 

(4)

 

(5)

 

(6)

 

(7)

 

(8)

 

 

 

Buyer

 

Address, E-Mail and
Facsimile Number

 

Value of Existing
Notes to be
Exchanged

 

Cash Investment

 

Series A-1
Shares to be
Purchased

 

Preferred
Warrants to be
Issued in
Connection with
Series A-1
Shares

 

Series A-2
Shares to be
Purchased

 

Preferred
Warrants to be
Issued in
Connection with
Series A-2
Shares

 

Aggregate
Principal Amount
of Exchange Notes
to be Purchased

 

Exchange
Warrants to be
Issued in
Connection with
Exchange Notes

 

Legal Representative’s
Address and Facsimile
Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carlyle Liquid, LLC

 

2 Gannett Drive
Suite 201
White Plains, NY 10604
(914) 694-6789

 

$

2,338,056.05

 

 

 

 

 

 

 

467,612

 

5,313,764

 

$

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carlyle Holdings, LLC

 

2 Gannett Drive
Suite 201
White Plains, NY 10604
(914) 694-6789

 

$

290,535.70

 

 

 

 

 

 

 

58,108

 

660,309

 

$

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Castlerigg Master Investments Ltd.

 

c/o Sandell Asset Management Corporation
40 West 57th Street
26th Floor
New York, NY 10019
(212) 603-5710

 

$

2,487,472.04

 

 

 

 

 

 

 

158,246

 

1,798,250

 

$

1,696,242.47

 

706,768

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diamond Opportunity Fund

 

500 Skokie Blvd, Suite 310
Northbrook, IL 60062
(847) 919-4410

 

$

406,750.00

 

 

 

 

 

 

 

25,877

 

294,049

 

$

277,368.60

 

115,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rockmore Investment Master Fund Ltd.

 

150 East 58th Street, 28th Floor
New York, NY 10155
(212) 258-2315

 

$

1,243,736.02

 

 

 

 

 

 

 

79,123

 

899,125

 

$

848,121.24

 

353,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Abdi Mahamedi

 

c/o Carlyle Development Group
2 Gannett Drive, Suite 201
White Plains, NY 10604
(914) 694-6789

 

$

581,071.42

 

 

 

 

 

 

 

116,215

 

1,320,617

 

$

 

0

 

 

 

 



 

SCHEDULE OF BUYERS

(Continued)

 

 

 

 

 

(1)

 

(2)

 

(3)

 

(4)

 

(5)

 

(6)

 

(7)

 

(8)

 

 

 

Buyer

 

Address, E-Mail and
Facsimile Number

 

Value of Existing
Notes to be
Exchanged

 

Cash Investment

 

Series A-1
Shares to be
Purchased

 

Preferred
Warrants to be
Issued in
Connection with
Series A-1
Shares

 

Series A-2
Shares to be
Purchased

 

Preferred
Warrants to be
Issued in
Connection with
Series A-2
Shares

 

Aggregate
Principal Amount
of Exchange Notes
to be Purchased

 

Exchange
Warrants to be
Issued in
Connection with
Exchange Notes

 

Legal Representative’s
Address and Facsimile
Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BridgePointe Master Fund Ltd.

 

c/o Roswell Capital Partners
1120 Sanctuary Parkway
Suite 325
Alpharetta, GA 30004
(770) 777-5844

 

$

903,242.73

 

 

 

 

 

 

 

57,462

 

652,975

 

$

615,934.03

 

256,640

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Iroquois Master Fund

 

641 Lexington Avenue
26th Floor
New York, NY 10022
(212) 207-3452

 

$

236,925.29

 

 

 

 

 

 

 

15,073

 

171,279

 

$

161,562.72

 

67,318

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rodd Friedman

 

93 Hillspoint Road
Westport, CT 06880
(203) 663-1303

 

$

70,544.03

 

 

 

 

 

 

 

4,488

 

50,998

 

$

48,104.98

 

20,044

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Myron Neugeboren

 

P.O. Box 1410
Lakeville, Ct 06309
(860) 435-2603

 

$

13,696.33

 

 

 

 

 

 

 

872

 

9,902

 

$

9,339.72

 

3,892

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ricardo Salas

 

64 Ritz Cove Drive
Monarch Beach, CA 92629
(949) 315-3096

 

$

411,664.31

 

 

 

 

 

 

 

82,333

 

935,601

 

$

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chang Ki Cho

 

 

 

$

542,485.01

 

 

 

 

 

 

 

108,498

 

1,232,921

 

$

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eric Brachfeld

 

890 West End Avenue
Suite 160
New York, NY 10025
(212) 298-9933

 

$

67,810.63

 

 

 

 

 

 

 

13,563

 

154,116

 

$

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ed Neugeboren

 

282 New Norwalk Road
New Canaan, CT 06840
(212) 618-0202

 

$

9,522.11

 

 

 

 

 

 

 

606

 

6,884

 

$

6,493.26

 

2,706

 

 

 

 



 

SCHEDULE OF BUYERS

(Continued)

 

 

 

 

 

(1)

 

(2)

 

(3)

 

(4)

 

(5)

 

(6)

 

(7)

 

(8)

 

 

 

Buyer

 

Address, E-Mail and
Facsimile Number

 

Value of Existing
Notes to be
Exchanged

 

Cash Investment

 

Series A-1
Shares to be
Purchased

 

Preferred
Warrants to be
Issued in
Connection with
Series A-1
Shares

 

Series A-2
Shares to be
Purchased

 

Preferred
Warrants to be
Issued in
Connection with
Series A-2
Shares

 

Aggregate
Principal Amount
of Exchange Notes
to be Purchased

 

Exchange
Warrants to be
Issued in
Connection with
Exchange Notes

 

Legal Representative’s
Address and Facsimile
Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wynnefield Partners Small Cap Value LP

 

450 Seventh Avenue
Suiite 509
New York, NY 10123
(212) 760-0824

 

$

527,250.09

 

 

 

 

 

 

 

33,543

 

381,161

 

$

359,539.32

 

149,809

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wynnefield Partners Small Cap Value LP I

 

450 Seventh Avenue
Suiite 509
New York, NY 10123
(212) 760-0824

 

$

690,446.62

 

 

 

 

 

 

 

43,925

 

499,140

 

$

470,825.34

 

196,178

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wynnefield Small Cap Value Offshore

 

450 Seventh Avenue
Suiite 509
New York, NY 10123
(212) 760-0824

 

$

665,339.46

 

 

 

 

 

 

 

42,328

 

480,989

 

$

453,704.41

 

189,044

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kenneth Lisiak

 

17 Ross Lane
Middleton, MA 01949
(978) 774-3778

 

$

79,541.24

 

 

 

 

 

 

 

15,909

 

180,776

 

$

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vestal Venture Capital

 

6471 Enclave Way
Boca Raton, FL 33496
(561) 912-9979

 

$

456,370.88

 

 

 

 

 

 

 

29,034

 

329,921

 

$

311,205.78

 

129,670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mermelstein Development

 

302 Fifth Avenue, 8th Floor
New York, NY 10001

 

$

581,071.42

 

 

 

 

 

 

 

116,215

 

1,320,617

 

$

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Atlantic Realty

 

c/o Jack Chitayat
1836 El Camino Del Teatro
La Jolla, CA 92037

 

$

290,535.70

 

 

 

 

 

 

 

58,108

 

660,309

 

$

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

20,624,936.33

 

$

2,500,006.00

 

500,009

 

12,500,012

 

2,625,017

 

29,829,425

 

$

7,500,021.00

 

3,125,031

 

 

 

 



 

Schedule 3(a)

 

Subsidiaries

 

Name of Subsidiary

 

Jurisdiction of
Incorporation or
Organization

 

Jurisdictions in which
Qualified to Do Business as a
Foreign Corporation or Entity

Liquidmetal Golf

 

California Corporation

 

None

 

 

 

 

 

Liquidmetal Korea Co., Ltd.

 

South Korean organized entity

 

South Korea

 

 

 

 

 

Amorphous Technologies International (Asia) PTE Ltd.

 

Singapore organized entity
(inactive, dissolution in progress)

 

Singapore

 

 

 

 

 

Liquidmetal Coatings, LLC

 

Delaware Limited Liability Company

 

None

 



 

Schedule 3(e)

 

None.

 



 

Schedule 3(f)

 

None other than that disclosed in SEC Documents.

 



 

Schedule 3(l)

 

None other than that disclosed in SEC Documents.

 



 

Schedule 3(m)

 

None.

 



 

Schedule 3(o)

 

Shares of Common Stock outstanding

 

44,825,402

 

 

 

 

 

Options to purchase Common Stock outstanding:

 

 

 

 

 

 

 

1996 Stock Option Plan

 

3,039,198

 

 

 

 

 

2002 Equity Incentive Plan

 

2,621,421

 

 

 

 

 

2002 Non-employee Director Stock Option Plan

 

540,000

 

 

 

 

 

Options Not Under a Plan

 

1,845,163

 

 

 

 

 

Total Options Outstanding

 

8,045,782

 

 



 

Schedule 3(p)

 

None other than (i) that disclosed in SEC Documents, and (ii)  the default by Liquidmetal Korea Co. Ltd., the Company’s subsidiary organized under the laws of the Republic of Korea under its loan from Kookmin Bank.

 



 

Schedule 3(s)

 

None.

 



 

Schedule 3(t)

 

None other than that disclosed in SEC Documents.

 



 

Schedule 3(u)

 

None.

 



 

EXHIBITS

 

Exhibit A

 

Form of Exchange Note

Exhibit B

 

Form of Preferred Warrant

Exhibit C

 

Form of Exchange Warrant

Exhibit D

 

Form of Registration Rights Agreement

Exhibit E

 

Form of Irrevocable Transfer Agent Instructions

Exhibit F

 

Form of Certificate of Designation

Exhibit G

 

Form of Opinion of Foley & Lardner LLP

Exhibit H

 

Form of Voting Proxy Agreement

Exhibit I

 

Form of Charter Amendment

 



 

Exhibit A

 

Filed separately, therefore omitted.

 



 

Exhibit B

 

Filed separately, therefore omitted.

 



 

Exhibit C

 

Filed separately, therefore omitted.

 



 

Exhibit D

 

Filed separately, therefore omitted.

 



 

Exhibit E

 

Form of Irrevocable Transfer Agent Instructions

 



 

TRANSFER AGENT INSTRUCTIONS

 

LIQUIDMETAL TECHNOLOGIES, INC.

 

May 1, 2009

 

American Stock Transfer & Trust Company

Attn:  Mr. Joe Wolf

59 Maiden Lane

New York, NY 10038

 

Re:          Private Placement of 8 % Senior Secured Convertible Notes,  Series A Preferred Shares and Warrants

 

Ladies and Gentlemen:

 

This letter refers to that certain Securities Purchase and Exchange Agreement, dated as of May 1, 2009 (the “Securities Purchase Agreement”), by and among Liquidmetal Technologies, Inc., a Delaware corporation (the “Company”), and the investors listed on the Schedule of Buyers attached thereto (collectively, the “Buyers”) pursuant to which the Company has issued the following to certain of the Buyers: (i) 8 % Senior Secured Convertible Notes (the “Exchange Notes”), which are convertible into shares of common stock of the Company, par value $0.001 per share (the “Common Stock”), (ii) shares of the Company’s Series A-1 Preferred Stock, par value $0.001 per share (the “Series A-1 Shares”), which are convertible into shares of Common Stock, (iii) shares of the Company’s Series A-2 Preferred Stock, par value $0.001 per share (the “Series A-2 Shares,” and together with the Series A-1 Shares, the “Series A Shares”), which are convertible into shares of Common Stock; (iv) Common Stock Purchase Warrants issued in connection with the issuance of Series A Shares (the “Preferred Warrants”); and (v) Common Stock Purchase Warrants issued in connection with the issuance of the Exchange Notes (the “Exchange Warrants”, and together with the Preferred Warrants, the “Warrants”).

 

The Company hereby authorizes and instructs you (provided that you are the transfer agent of the Company at such time):

 

(i)            to establish as of the date of this letter a reserve of 32,985,406 shares of Common Stock for issuance to holders of Exchange Notes upon conversion of their Exchange Notes, conversion of the Series A Shares, and exercise of the Warrants (the “Conversion Share Reserve”).  Upon the Company’s notification to you that the Company has filed with the Delaware Secretary of State a Certificate of Amendment to the Company’s Certificate of Incorporation increasing the number of the Shares of the Company’s Common Stock to 300,000,000 (a “Charter Amendment Notification”), the Conversion Share Reserve will be increased to 217,613,202.  The Conversion Share Reserve shall be adjusted to appropriately reflect the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Common Stock), reorganization, recapitalization, reclassification, exchange or other like change with respect to Common Stock occurring on or after the date hereof; and

 

(ii)           to issue shares of Common Stock upon conversion of the Exchange Notes (the “Note Conversion Shares”) to or upon the order of a Buyer from time to time upon delivery to you of a properly completed and duly executed Notice, in the form attached hereto as Exhibit I , which has been acknowledged by the Company as indicated by the signature of a duly authorized officer of the Company thereon; and

 



 

(iii)          to issue shares of Common Stock upon conversion of the Series A Shares (the “Series A Conversion Shares”, and together with the Note Conversion Shares, the “Conversion Shares”) to or upon the order of a Buyer from time to time upon delivery to you of a properly completed and duly executed Notice, in the form attached hereto as Exhibit II, which has been acknowledged by the Company as indicated by the signature of a duly authorized officer of the Company thereon; and

 

(iv)          to issue shares of Common Stock upon exercise of the Warrants (the “Warrant Shares”) to or upon the order of a Buyer from time to time upon delivery to you of a properly completed and duly executed Notice, in the form attached hereto as Exhibit III, which has been acknowledged by the Company as indicated by the signature of a duly authorized officer of the Company thereon.

 

Notwithstanding the foregoing, until you have received the Charter Amendment Notification, you will not issue any Conversion Shares or Warrant Shares to any Buyer as aforesaid to the extent that the aggregate number of such shares would exceed the number of shares set forth next to the Buyer’s name on Exhibit V hereto.

 

You acknowledge and agree that so long as you have previously received (a) written confirmation from the Company’s outside legal counsel that either (1) a registration statement covering resales of all or some of the Conversion Shares and Warrant Shares (the “Securities”) has been declared effective by the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”), or (2) that sales of all or some of the Securities may be made in conformity with Rule 144 under the Securities Act and (b) if applicable, a copy of such registration statement identifying the Securities covered thereby, then within two (2) business days of your receipt of any Notice described in (ii)-(iv) above, you shall issue the certificates representing the Conversion Shares or the Warrant Shares, as applicable, and to the extent that the Notice identifies Securities that are covered by foregoing either of clause (1) or (2) above, such certificates shall not bear any legend restricting transfer of the Conversion Shares or Warrant Shares and should not be subject to any stop-transfer restriction; provided , however , that if such Conversion Shares or Warrant Shares are not registered for resale under the Securities Act or able to be sold under Rule 144, then, the certificates for such Conversion Shares or Warrant Shares shall bear the following legend:

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE 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 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.  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.

 

A form of written confirmation from the Company’s legal counsel that a registration statement covering resales of the Conversion Shares or the Warrant Shares has been declared effective by the SEC under the Securities Act is attached hereto as Exhibit IV .

 



 

In furtherance of the foregoing, with respect to any Conversion Shares issuable pursuant to the conversion of the Exchange Notes or Series A-2 Preferred Stock in the manner set forth above to a Buyer who represents in writing that such Buyer is not, and has not been for a period of at least ninety (90) days thereto, an “affiliate” within the meaning of Rule 144 and that such Buyer has a holding period of at least six months with respect to such Conversion Shares for purposes of Rule 144, such Conversion Shares shall be issued without any restrictive legend thereon based on the Buyer’s compliance with Rule 144.

 

These instructions may not be rescinded or revoked other than by means of a communication signed by the Company.

 

Please execute this letter in the space indicated to acknowledge your agreement to act in accordance with these instructions.  Should you have any questions concerning this matter, please contact Curt Creely of Foley & Lardner LLP, our outside legal counsel, at (813) 225-4122.

 



 

 

Very truly yours,

 

 

 

THE COMPANY:

 

 

 

LIQUIDMETAL TECHNOLOGIES, INC.

 

 

 

 

 

By:

 

 

 

Tony Chung

 

 

Chief Financial Officer

 

 

THE FOREGOING INSTRUCTIONS ARE

ACKNOWLEDGED AND AGREED TO

 

this        day of                       , 2009

 

AMERICAN STOCK TRANSFER & TRUST COMPANY

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

Enclosures

 



 

EXHIBIT I

LIQUIDMETAL TECHNOLOGIES, INC.

NOTICE

 

Reference is made to the 8% Senior Secured Convertible Note (the “Note” ) issued to the undersigned by Liquidmetal Technologies, Inc. (the “Company” ).  In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock, par value $0.001 per share (the “Common Stock” ), of the Company as of the date specified below.

 

Date of Conversion:

 

Aggregate Conversion Amount to be converted:

 

The undersigned  hereby certifies to the Company that the undersigned’s conversion of the amount set forth above in accordance with Section 3(a) of the Note will not directly result in the undersigned (together with the undersigned’s affiliates) beneficially owning in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion, calculated in accordance with Section 3(d)(i) of the Note; provided that if the undersigned has previously waived the 4.99% beneficial ownership limitation upon no less than sixty one (61) days prior written notice, the undersigned certifies to the Company that the undersigned’s conversion of the amount set forth above will not directly result in the undersigned (together with the undersigned’s affiliates) beneficially owning in excess of 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion, calculated in accordance with Section 3(d)(i) of the Note.  Notwithstanding the foregoing, the certification set forth in this paragraph shall not apply to, and shall not be deemed to be made by, any Affiliated Investor (as that term is defined in the Purchase Agreement referred to in the Note).

 

Please confirm the following information:

 

Conversion Price:

 

Number of shares of Common Stock to be issued:

 

Please issue the Common Stock into which the Note is being converted in the following name and to the following address:

 

Issue to:

 

 

Facsimile Number:

Authorization:

 

By:

 

 

 

 

 

 

 

Title:

 

 

 

 

 

 

 

Dated:

 

 

 

 

 

 

Account Number:

(if electronic book entry transfer)

 

Transaction Code Number:

(if electronic book entry transfer)

 

6



 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Notice and hereby directs American Stock Transfer & Trust Co. to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated May 1, 2009, from the Company.

 

 

LIQUIDMETAL TECHNOLOGIES, INC.

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

7



 

EXHIBIT II

 

NOTICE

 

To Liquidmetal Technologies, Inc.

 

In accordance with and pursuant to the Certificate of Designation of Liquidmetal Technologies, Inc. (the “Company” ), the undersigned hereby elects to convert shares of Series A-1 Preferred Stock, par value $0.001 per share (the “ Series A-1 Shares ”) and/or shares of Series A-2 Preferred Stock, par value $0.001 per share (the “ Series A-2 Shares ”, and together with the Series A-1 Shares, the “ Series A Shares ”) into shares of Common Stock, par value $0.001 per share (the “Common Stock” ), of the Company as of the date specified below.

 

Date of Conversion:

 

Amount of Series A-1 Shares to be converted:

 

Amount of Series A-2 Shares to be converted:

 

Liquidation Preference:

 

Conversion Price for Series A-1 Shares:

 

Conversion Price for Series A-2 Shares:

 

Number of shares of Common Stock to be issued upon conversion of Series A-1 Shares:

 

Number of shares of Common Stock to be issued upon conversion of Series A-2 Shares:

 

Total number of shares of Common Stock to be issued upon conversion of Series A Shares:

 

The undersigned requests that certificates for the shares of Common Stock issuable upon conversion of the Series A Shares be issued in the name of

 

 

 

Print Name of Holder:

 

 

 

 

 

 

Signature:

 

 

Name:

 

Title:

 

 

 

 

 

HOLDER’S SOCIAL SECURITY OR

 

TAX IDENTIFICATION NUMBER:

 

 

 

 

 

 

 

 

 

Holder’s Address:

 

 

 

 

 

 

 

 

 

8



 

ACKNOWLEDGMENT

 

                The Company hereby acknowledges this Notice and hereby directs American Stock Transfer & Trust Co. to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated May 1, 2009, from the Company.

 

 

LIQUIDMETAL TECHNOLOGIES, INC.

 

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

9



 

EXHIBIT III

 

NOTICE

 

To Liquidmetal Technologies, Inc.

 

The undersigned hereby irrevocably elects to purchase                             shares of common stock, par value $0.001 per share, of Liquidmetal Technologies, Inc. (“ Common Stock ”), pursuant to Warrant No. [  ], originally issued May 1, 2009 (the “ Warrant ”), and, if not a Cashless Exercise in accordance with Section 4, encloses herewith $                 in cash, federal funds or other immediately available funds, which sum represents the aggregate Exercise Price (as defined in the Warrant) for the number of shares of Common Stock to which this Exercise Notice relates, together with any applicable taxes payable by the undersigned pursuant to the Warrant.

 

The undersigned  hereby certifies to the Company that the undersigned’s exercise of the amount set forth above will not directly result in the undersigned (together with the undersigned’s affiliates) beneficially owning in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such exercise, calculated in accordance with Section 4(b) of the Warrant; provided that if the undersigned has waived the 4.99% beneficial ownership requirement  by providing the Company with notice at least 61 days prior to the date hereof, the undersigned hereby certifies to the Company that the undersigned’s exercise of the amount set forth above will not directly result in the undersigned (together with the undersigned’s affiliates) beneficially owning in excess of 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion, calculated in accordance with Section 4(b) of the Warrant.  Notwithstanding the foregoing, the certification set forth in this paragraph shall not apply to, and shall not be deemed to be made by, any Affiliated Investor (as that term is defined in the Purchase Agreement referred to in the Warrant).

 

The undersigned requests that certificates for the shares of Common Stock issuable upon this exercise be issued in the name of

 

 

 

Print Name of Holder:

 

 

 

 

 

 

Signature:

 

 

Name:

 

Title:

 

 

 

 

 

HOLDER’S SOCIAL SECURITY OR

 

TAX IDENTIFICATION NUMBER:

 

 

 

 

 

 

 

 

 

Holder’s Address:

 

 

 

 

 

10



 

ACKNOWLEDGMENT

 

                The Company hereby acknowledges this Notice and hereby directs American Stock Transfer & Trust Co. to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated May 1, 2009, from the Company.

 

 

LIQUIDMETAL TECHNOLOGIES, INC.

 

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

11



 

EXHIBIT IV

 

FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT

 

American Stock Transfer & Trust Company

Attn:  Mr. Joe Wolf

59 Maiden Lane

New York, NY 10038

 

Re:          Liquidmetal Technologies, Inc.

 

Ladies and Gentlemen:

 

We are counsel to Liquidmetal Technologies, Inc., a Delaware corporation (the “Company”), and have represented the Company in connection with the negotiation and execution of that certain Securities Purchase and Exchange Agreement, dated as of May 1,, 2009, by and among the investors named on the Schedule of Buyers attached thereto (the “Buyers”) and the Company (the “Purchase Agreement”).  Upon the terms and subject to the conditions of the Purchase Agreement, the Company has issued the following to certain of the Buyers: (i) 8 % Senior Secured Convertible Notes (the “Exchange Notes”), which are convertible into shares of common stock of the Company, par value $0.001 per share (the “Common Stock”), (ii) shares of the Company’s Series A-1 Preferred Stock, par value $0.001 per share (the “Series A-1 Shares”), which are convertible into shares of Common Stock, (iii) shares of the Company’s Series A-2 Preferred Stock, par value $0.001 per share (the “Series A-2 Shares,” and together with the Series A-1 Shares, the “Series A Shares”), which are convertible into shares of Common Stock; (iv) Common Stock Purchase Warrants issued in connection with the issuance of Series A Shares (the “Preferred Warrants”); and (v) Common Stock Purchase Warrants issued in connection with the issuance of the Exchange Notes (the “Exchange Warrants”, and together with the Preferred Warrants, the “Warrants”).   Pursuant to the Purchase Agreement, the Company entered into a Registration Rights Agreement with the Buyers, dated as of May 1, 2009 (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).  In connection with the Company’s obligations under the Registration Rights Agreement, on                      , 2009, the Company filed the Registration Statement on Form S-1 (File No. 333-                  ) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities which names each of the Buyers as a selling stockholder thereunder.

 

In connection with the Registration Statement, we advise you that a member of the SEC’s staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the Securities Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS], and we 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 Securities Act of 1933, as amended, pursuant to the Registration Statement.

 

 

Very truly yours,

 

 

 

[COMPANY’S COUNSEL]

 

 

 

By:

 

 

 

CC:          [LIST NAMES OF BUYERS]

 

12



 

EXHIBIT V
Allocation of Conversion Cap

 

Buyer

 

Allocation of Conversion Cap
(Based on Investment Amount)

 

Carlyle Liquid Holdings, LLC

 

3,566,000

 

Carlyle Liquid Holdings, LLC

 

6,338,509

 

Fort Mason Master, LP

 

1,904,214

 

Fort Mason Partners, LP

 

123,487

 

Tail Wind Fund Ltd.

 

2,217,581

 

Solomon Strategic Holdings Inc.

 

443,516

 

Carlyle Liquid, LLC

 

3,335,003

 

Carlyle Holdings, LLC

 

414,420

 

Castlerigg Master Investments Ltd.

 

3,548,130

 

Diamond Opportunity Fund

 

580,188

 

Rockmore Investment Master Fund Ltd.

 

1,774,065

 

Abdi Mahamedi

 

828,840

 

BridgePointe Master Fund Ltd.

 

1,288,385

 

Iroquois Master Fund

 

337,950

 

Rodd Friedman

 

100,624

 

Myron Neugeboren

 

19,536

 

Ricardo Salas

 

587,198

 

Chang Ki Cho

 

773,801

 

Eric Brachfeld

 

96,725

 

Ed Neugeboren

 

13,582

 

Wynnefield Partners Small Cap Value LP

 

752,070

 

Wynnefield Partners Small Cap Value LP I

 

984,853

 

Wynnefield Small Cap Value Offshore

 

949,040

 

Kenneth Lisiak

 

113,458

 

Vestal Venture Capital

 

650,967

 

Mermelstein Development

 

828,840

 

Atlantic Realty

 

414,420

 

Total

 

32,985,406

 

 

13



 

Exhibit F

 

Filed separately, therefore omitted.

 



 

Exhibit G

 

Form of Opinion of Foley & Lardner LLP

 



 

 

May 1, 2009

 

ATTORNEYS AT LAW
100 NORTH TAMPA STREET, SUITE 2700
TAMPA, FL 33602-5810
P.O. BOX 3391
TAMPA, FL 33601-3391
813.229.2300 TEL
813.221.4210 FAX
www.foley.com

 

CLIENT/MATTER NUMBER
078489-0130

 

 

 

 

 

 

 

To the Addressees Set Forth on

Attached Schedule A

Re:                                Liquidmetal Technologies, Inc.

 

Ladies and Gentlemen:

 

We have acted as counsel to Liquidmetal Technologies, Inc., a Delaware corporation (the “ Company ”), in connection with the transactions contemplated by the Securities Purchase and Exchange Agreement, dated as of the date hereof (the “ Purchase Agreement ”), among the Company and the persons and entities set forth in Schedule A hereto (the “ Buyers ”).  This letter is being delivered to you pursuant to Section 7(g) of the Purchase Agreement.  Capitalized terms not otherwise defined in this letter shall have the respective meanings ascribed to them in the Purchase Agreement.  The Uniform Commercial Code as currently in effect in the State of New York is referred to herein as the “ New York UCC ”, and the Uniform Commercial Code as currently in effect in the State of Delaware is referred to herein as the “ Delaware UCC ”.

 

In rendering this opinion, we have examined (i) the Purchase Agreement, the Exchange Notes, the Warrants, the Registration Rights Agreement, the Voting Proxy Agreement, the Security Agreement, the Account Control Agreement, and the Certificate of Designations, Preferences and Rights of Series A Preferred Stock of the Company (collectively, the “ Transaction Documents ”), (ii) a copy of the Certificate of Incorporation of the Company certified by the Secretary of the State of Delaware on April 21, 2009 (the “ Certificate ”), (iii) a certificate of good standing with respect to the Company issued by the Delaware Secretary of State dated April 21, 2009, (iv) a copy of the Bylaws of the Company certified by the Secretary of the Company on or about the date of this letter (the “ Bylaws ”), (v) a copy of the resolutions of the Board of Directors of the Company adopted on April 30, 2009, as certified by the Secretary of the Company on the date of this letter, and (vi) an unfiled copy of the financing statement attached hereto as Exhibit A (the “ UCC Financing Statement ”) naming the Company as debtor and WC Collateral Agent LLC (“ Agent ”), as secured party and agent for the persons or entities listed as a Secured Party on Schedule 1 to the Security Agreement (the “ Investors ”), which we understand will be filed in the office of the Secretary of State of  Delaware (the “ Filing Office ”).  We have also considered such matters of law and of fact, including the examination of originals or copies, certified or otherwise identified to our satisfaction, of such records and documents of the Company, certificates of officers, directors and representatives of the Company, certificates of public officials and such other documents as we have deemed appropriate as a basis for the opinions set forth below.  We also have relied upon the factual representations made by the Company in the Transaction Documents.  We have made no attempt to independently verify the factual statements and representations contained in certificates or in the Transaction Documents.

 

BOSTON
BRUSSELS
CHICAGO
DETROIT
JACKSONVILLE

 

LOS ANGELES
MADISON
MILWAUKEE
NEW YORK
ORLANDO

 

SACRAMENTO
SAN DIEGO
SAN DIEGO/DEL MAR
SAN FRANCISCO
SILICON VALLEY

 

TALLAHASSEE
TAMPA
TOKYO
WASHINGTON, D.C.

 



 

As to the incorporation and good standing of the Company under the laws of the State of Delaware, we have relied solely on certificates from the Delaware Secretary of State dated April 21, 2009, which we assume remain accurate as of the date of this letter.

 

The opinions set forth in this letter are limited to the federal laws of the United States of America, the laws of the State of New York, and, with respect to our opinions in paragraphs 1, 2 and 3, the Delaware General Corporation Law as set forth in the Aspen Publishers Guide, Volume 3, and, we express no opinion as to the laws of any other jurisdiction.  In addition, we express no opinion relating to usury laws, Federal Reserve Board margin regulations, and local laws (including statutes, administrative decisions, and rules and regulations of county, municipal and political subdivisions), as well as any choice-of-law provisions in the Transaction Documents.

 

Our opinion in paragraph 4 concerning the validity, binding effect, and enforceability of the Transaction Documents means that (i) the Transaction Documents constitute effective contracts under applicable law, and (ii) subject to the remainder of this paragraph, a remedy will be available to the applicable party if the Company is in material default under the Transaction Documents to obtain the practical realization of benefits contemplated by the Purchase Agreement.  This opinion does not mean that (a) any particular remedy is available upon a material default, or (b) every provision of the Transaction Documents will be upheld or enforced in any or each circumstance by a court. Furthermore, the validity, binding effect and enforceability of the Transaction Documents may be limited or otherwise affected by (y) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar statutes, rules, regulations or other laws affecting the enforcement of creditors’ rights and remedies generally and (z) the unavailability of, or limitation on the availability of, specific performance or injunctive relief or a particular right or remedy (whether in a proceeding in equity or at law) because of an equitable principle or a requirement as to commercial reasonableness, conscionability, or good faith.

 

For purposes of our opinion set forth in opinion paragraph 11 herein as it relates to the laws of the State of Delaware, we have reviewed standard compilations of the version of the UCC as enacted in such state, as set forth in the Commerce Clearing House Secured Transactions Guide, Volume 2 and 5, and our opinion is based solely on such review.  We are not licensed to practice law in the State of Delaware, do not purport to be experts on the laws of Delaware, and did not consult local counsel in such state.

 

Our security interest opinion in paragraph 11 is limited to Article 9 of the Delaware UCC, and therefore this opinion paragraph does not address (i) laws of any jurisdiction other than Article 9 of the Delaware UCC, (ii) collateral of a type not subject to Article 9 of the Delaware UCC, or (iii) under §§ 9-301 through 9-307 of the Delaware UCC, what law governs perfection, the effect of perfection or non-perfection, or priority of security interests granted in the collateral covered by this opinion letter.

 

In rendering the opinions set forth below, we have made the following assumptions, in addition to the other assumptions set forth in this letter: (i) the genuineness of all signatures other than those on behalf of the Company; (ii) the authenticity and completeness of all documents submitted to us as originals; (iii) the conformity to originals of all documents and instruments submitted to us as photostatic copies, and the authenticity and completeness of the originals of such latter

 

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documents;  (iv) the legal capacity of each natural person; (v) the legal existence of all parties to the Transaction Documents other than the Company; (vi) the power and authority of each person other than the Company to execute, deliver and perform each document executed and delivered and to do each other act done or to be done by such person; (vii) the authorization, execution, and delivery by each person other than the Company of each document executed and delivered or to be executed and delivered by such person; (viii) the legality, validity, binding effect, and enforceability as to each person other than the Company of each document executed and delivered or to be executed and delivered and of each other act done or to be done by such person; (ix) the payment of all required documentary stamps, taxes and fees imposed upon the execution, filing or recording of documents; (x) that there have been no undisclosed modifications of any documents reviewed by us in connection with the rendering of the opinion and no undisclosed prior waiver of any right or remedy contained in any of the documents; (xi) the truthfulness of each statement as to all factual matters contained in any document reviewed by us in connection with this opinion; (xii) the accuracy on the date of the opinion as well as on the date stated in all governmental certifications of each statement as to each factual matter contained in such governmental certifications;  (xiii) that with respect to the Transaction Documents, there has been no mutual mistake of fact and there exists no fraud or duress; (xiv) the constitutionality and validity of all relevant laws, regulations and agency actions; (xv) that the UCC Financing Statement contains the correct name of the Company and all other information which is contained in the UCC Financing Statement and required for filing by Section 9-516 of the Delaware UCC is true and correct; and (xvi) that the Company has the power to transfer rights in the Article 9 Collateral (as hereinafter defined) and value (as described in Section 9-203(2) of the New York UCC) has been given.

 

For purposes of this opinion, “to our knowledge” or “known to us” means the actual current conscious awareness of those attorneys in our firm who have given substantive attention to the transactions contemplated by the Transaction Documents, without independent investigation to determine the existence or absence of any facts or circumstances.

 

Based on the foregoing, and subject to the qualifications, assumptions and limitations set forth herein, we are of the opinion that:

 

1.                                        The Company is a corporation incorporated and in good standing under the laws of the State of Delaware.

 

2.                                        Except for any obligations, rights, or other matters that are contingent upon or dependent on the completion of the Charter Amendment Approval/Filing (as that term is defined below), the Company has all requisite corporate power and authority to execute, deliver and perform the Transaction