As
filed with the Securities and Exchange Commission on August 12, 2016
Registration Statement
No. _________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
AMENDMENT
NO. 2
TO
REGISTRATION STATEMENT ON
FORM S-1
UNDER THE SECURITIES ACT OF 1933
__________________________
OPTEX SYSTEMS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
|
|
|
|
|
|
|
(State or other jurisdiction of incorporation or
organization)
|
|
(Primary Standard Industrial Classification Code
Number)
|
|
(I.R.S. Identification Number)
|
1420 Presidential
Drive
Richardson, TX 75081
(972) 764-5700
(Address, including zip code, and
telephone number, including area code, of registrant’s
principal executive offices)
Danny Schoening
Chief Executive Officer
1420 Presidential Drive
Richardson, TX 75081
(972) 764-5700
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
__________________________
with copies
to:
|
Jolie
Kahn, Esq.
2 Liberty Place, Suite 3401
Philadelphia, PA 19102
Telephone (215) 253-6645
|
|
Joseph
A. Smith
Ellenoff Grossman & Schole LLP
1345 Avenue of the Americas
New York, New York 10105
Telephone (212) 370-1300
|
__________________________
Approximate Date of
Commencement of Proposed Sale to the Public:
As soon as
practicable after the effective date hereof.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box.
x
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering.
¨
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
¨
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
¨
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer,” and
“small reporting company” in Rule 12b-2 of the Exchange
Act.
|
Large accelerated filer
¨
|
|
Accelerated filer
¨
|
|
Non-accelerated filer
¨
|
|
Smaller reporting company
x
|
|
(Do not check if a smaller reporting
company)
|
|
|
CALCULATION
OF REGISTRATION FEE
|
Title of each class of securities to be registered
|
|
Proposed
maximum
aggregate
offering price
(1)
|
|
|
Amount of
registration
fee(4)
|
|
|
Common stock, $.001 par value
(2)(3)
|
|
$
|
5,750,000
|
|
|
$
|
579.03
|
|
|
Warrants to purchase common stock
(2)
|
|
|
0
|
|
|
|
0
|
|
|
Shares of common stock underlying warrants
(2)(3)
|
|
$
|
7,187,500
|
|
|
$
|
723.78
|
|
|
Representative’s warrants
|
|
|
0
|
|
|
|
0
|
|
|
Shares of common stock underlying Representative’s
warrants
(3)
|
|
$
|
312,500
|
|
|
$
|
31.47
|
|
|
Total
|
|
$
|
13,250,000
|
|
|
$
|
1,334.28
|
|
____________
|
|
(1)
|
Estimated solely for the
purpose of calculating the registration fee under Rule 457(o) of the Securities Act.
|
|
|
(2)
|
Includes ______ shares of
common stock and warrants to purchase up to ______ shares of common stock which may be
issued upon exercise of a 45-day option granted to the underwriter to cover over-allotments,
if any. The over-allotment option may be used to purchase commons stock and/or warrants
in any combination thereof as determined by the underwriters.
|
|
|
(3)
|
Pursuant to Rule 416 under the Securities Act, the securities being registered hereunder include
such indeterminate number of additional shares of common stock as may be issued after the date hereof as a result of stock splits,
stock dividends or similar transactions.
|
|
|
(4)
|
Fee paid with the filing of the
original Registration Statement on Form S-1, filed on July 22, 2016.
|
THE REGISTRANT HEREBY
AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE
NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL
THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS
THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE
.
INFORMATION
CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY
NOT BE SOLD UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL AND IS NOT A SOLICITATION
OF AN OFFER TO BUY IN ANY STATE IN WHICH AN OFFER, SOLICITATION OR
SALE IS NOT PERMITTED.
|
PRELIMINARY
PROSPECTUS
|
|
SUBJECT
TO COMPLETION, DATED AUGUST 12, 2016
|
OPTEX SYSTEMS
HOLDINGS, INC.
We
are offering ________ shares of our common stock, $.001 par value per share, together with warrants to purchase an equal number
of shares of common stock (and the shares issuable from time to time upon exercise of the warrants) pursuant to this prospectus.
The shares and warrants will be separately issued, but the shares and warrants will be issued and sold to purchasers in equal
proportion. Each warrant will have an exercise price of $___ per share, will be exercisable upon issuance and will expire three
years from issuance.
Our common stock is currently traded
on the OTCQB Marketplace, operated by OTC Markets Group, Inc. under the symbol “OPXS”. On July 14, 2016, the last
reported sales price for our common stock was $2.08 per share. There is no established trading market for the warrants. The underwriters
have submitted an application to have the warrants trade on the OTCQB Marketplace under the ticker symbol “OPXSW”.
INVESTING
IN THE OFFERED SECURITIES INVOLVES RISKS, INCLUDING THOSE SET FORTH IN THE “RISK FACTORS” SECTION OF THIS PROSPECTUS
BEGINNING ON PAGE 9. INVESTORS SHOULD ONLY CONSIDER AN INVESTMENT IN THESE SECURITIES IF THEY CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT.
NEITHER THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
|
|
|
|
|
|
|
|
|
Public
offering price
|
|
$
|
|
$
|
|
$
|
|
Underwriting
discounts and commissions
(1)
|
|
$
|
|
$
|
|
$
|
|
Proceeds,
before expenses, to us
|
|
$
|
|
$
|
|
$
|
|
|
(1)
|
In addition to the underwriting
discount, we have agreed to the representative a non-accountable expense allowance of
1% of the aggregate gross proceeds of this offering and to reimburse the representative
up to $127,000 for its fees and expenses in connection with this offering, which includes
the fees and expenses of the representative’s counsel. We have agreed to issue
warrants to the representative of the underwriters. See “Underwriting” on
page 58 of this prospectus for a description of the compensation arrangements.
|
We have granted the underwriters a
45-day option to purchase up to _______ additional shares of common stock and/or additional warrants to purchase up to ______
shares of common stock (15 of the shares and 15% of the warrants issued in the offering), in any combination thereof, from us
at the offering price for each security, less underwriting discounts and commissions, to cover over-allotments, if any. The over-allotment
option may be used to purchase shares of common stock, warrants, or any combination thereof, as determined by the representative
of the underwriters. The shares and/or warrants issuable upon exercise of the over-allotment option are identical to those offered
by this prospectus. If the underwriters exercise this option in full, the total underwriting discounts and commissions payable
by us will be $_______________, and the total proceeds to us, before expenses, will be $_________. We estimate the total expenses
of this offering, excluding underwriting commissions and discounts, to be approximately $_____.
The underwriters are offering the shares
and warrants as set forth under the heading “Underwriting” beginning on page 58. The underwriters expect to deliver
our securities, against payment, on or about ______ __, 2016.
Joseph Gunnar
& Co.
The date of
this prospectus is __________, 2016.
TABLE OF
CONTENTS
You should rely only
on the information contained in this prospectus and any related
free writing prospectus that we may provide to you in connection
with this offering. We have not, and the underwriter has not,
authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not, and the
underwriter is not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should
assume that the information appearing in this prospectus is
accurate only as of the date on the front cover of this prospectus.
Our business, financial condition, results of operations and
prospects may have changed since that date.
For investors outside
the United States: neither we nor the underwriter have done
anything that would permit this offering or possession or
distribution of this prospectus or any free writing prospectus we
may provide to you in connection with this offering in any
jurisdiction where action for that purpose is required, other than
in the United States. You are required to inform yourselves about
and to observe any restrictions relating to this offering and the
distribution of this prospectus and any such free writing
prospectus outside of the United States.
i
PROSPECTUS SUMMARY
This summary
highlights important information about this offering and our
business. It does not include all information you should consider
before investing in our common stock. Please review this prospectus
in its entirety, including the risk factors and our financial
statements and the related notes, before you decide to
invest.
References in this prospectus to “we,”
“us,” and “our” refer to Optex Systems
Holdings, Inc. and its subsidiaries.
Our Company
We
manufacture optical sighting systems and assemblies, primarily for Department of Defense applications. Its products are installed
on various types of U.S. military land vehicles, such as the Abrams and Bradley fighting vehicles, light armored and armored security
vehicles and have been selected for installation on the Stryker family of vehicles. We also manufacture and deliver numerous
periscope configurations, rifle and surveillance sights and night vision optical assemblies. We have capabilities which include
machining, bonding, painting engraving and assembly and can perform both optical and environmental testing in-house. Our products
consist primarily of build-to-customer print products that are delivered both directly to the armed services and to other defense
prime contractors. We are both a prime and sub-prime contractor to the Department of Defense. Sub-prime contracts are typically
issued through major defense contractors such as General Dynamics Land Systems, Raytheon Corp., BAE, NorcaTec and others. We are
also a military supplier to foreign governments such as Israel, Australia and NAMSA and South American countries and as a subcontractor
for several large U.S. defense companies serving foreign governments.
Recent Orders
|
|
·
|
In
February 2016, we received a $1.2 million award from General Dynamics Land Systems.
|
|
|
|
|
|
|
·
|
In
April 2016, we received $841,000 in initial orders for advanced laser protected periscopes
from U.S. Army Contracting Command.
|
|
|
|
|
|
|
·
|
In
May 2016, we received a new $1.12 million purchase order from a domestic customer.
|
|
|
|
|
|
|
·
|
In
June 2016, we completed shipment of $518,000 of periscopes to Brazil.
|
|
|
|
|
|
|
·
|
In
July 2016, we secured a five-year contract with the Defense Logistics Agency with a value
of $5.99 million.
|
New Product Development
We continue to field new product opportunities
from both domestic and international customers. Given continuing unrest in multiple global hot spots, the need for precision
optics continues to increase. Most of these requirements are for observation and situational awareness applications; however,
we continue to see requests for higher magnification and custom reticles in various product modifications. The basic need
to protect the soldier while providing information about the mission environment continues to be the primary driver for these requirements.
We do not believe that the upcoming presidential election will
cause a major change in the direction of funding or product need for the U.S. military. Maintenance will still be required,
and the opportunities for us to upgrade existing systems with higher performing systems will continue to present themselves.
Spending levels may change, but given the mix between foreign spending, domestic/prime demand, and the more recent commercial opportunities,
we do not expect any negative trends arising from political domestic changes into fiscal 2017.
During the first six months of 2015, we
released a new digital spotting scope called Red Tail (patent pending). This device is targeted towards long range observation
and image recording used by military, border patrol, and select consumer/commercial applications. The device is designed to deliver
high definition images with military grade resolution, but at commercial “off the shelf” pricing. Using high grade
optics to deliver a 45X magnified image onto a 5 megapixel CMOS sensor, the Red Tail device then transmits this image via Wi-Fi
to the user’s smartphone or tablet. Digital still images or videos can then be captured and/or emailed using a custom Red
Tail app available for either iOS or Android devices. We demonstrated this device in April 2015 at the Border Security Expo in
Phoenix, Arizona and received positive feedback from U.S. border agents, police officers, and other Expo attendees.
On November 10, 2015, we entered into
a retail sales relationship with Cabela’s Inc., to distribute our Red Tail Digital Spotting Scope as well as our new Stabilized
Monocular. We are presently in negotiations to make these devices available via General Services Administration schedules for
government personnel.
1
Products
Our products are installed on various types
of U.S. military land vehicles, such as the Abrams and Bradley, and Stryker families of fighting vehicles, as well as light armored
and armored security vehicles. We also manufacture and deliver numerous periscope configurations, rifle and surveillance sights
and night vision optical assemblies. We deliver our products both directly to the federal government and to prime contractors.
We deliver high volume products, under
multi-year contracts, to large defense contractors and government customers. Increased emphasis in the past two years has been
on new opportunities to promote and deliver our products in foreign military sales, where U.S.-manufactured, combat and wheeled
vehicles, are supplied (and upgraded) in cooperation with the U.S. Department of Defense. We have a reputation for quality and
credibility with our customers as a strategic supplier. We also anticipate the opportunity to integrate some of our night vision
and optical sights products into commercial applications.
Specific product categories include:
|
|
·
|
Electronic
sighting systems
|
|
|
·
|
Mechanical
sighting systems
|
|
|
·
|
Laser
protected plastic and glass periscopes
|
|
|
·
|
Non-laser
protected plastic and glass periscopes
|
|
|
·
|
Howitzer
sighting systems
|
|
|
·
|
M36
Thermal Day/Night Periscopes
|
|
|
·
|
M17
Day/Thermal Periscopes
|
|
|
·
|
Replacement
optics (e.g. filters, mirrors)
|
|
|
·
|
Optical
assemblies and laser filters
|
|
Product Line
|
|
Product
Category
|
|
Periscopes
|
|
Laser & Non Laser Protected Plastic & Glass Periscopes, Electronic M17 Day/Thermal
Periscopes, Vision Blocks
|
|
|
|
|
|
Sighting Systems
|
|
Back Up Sights, Digital Day and Night Sighting Systems (DDAN), M36 Thermal Periscope,
Unity Mirrors
|
|
|
|
|
|
Howitzers
|
|
M137 Telescope, M187 Mount, M119 Aiming Device
|
|
|
|
|
|
Other
|
|
Muzzle Reference Systems (MRS), Binoculars, Collimators, Optical Lenses & Elements,
Windows
|
|
|
|
|
|
Applied Optics Center
|
|
ACOG Laser filter, Laser Filter Interface, Optical Assemblies
|
We also anticipate the opportunity to
integrate some of our night vision and optical sights products into commercial applications and have taken steps in fiscal 2016
to market our products in the commercial (nonmilitary) areas.
2
Recent Events
Reverse
Stock Split
On October 6, 2015, 20 calendar days had
passed since the mailing to our shareholders of the Definitive Schedule 14C filed on September 11, 2015 regarding the approval
by our Board of Directors and shareholders of a reverse stock split of our common stock, in a ratio to be determined by our board
of directors, of not less than 1-for-400 nor more than 1-for-1000 and on October 7, 2015, we effected a 1-for-1000 reverse split
of our common stock. All warrant, option, share and per share information in this prospectus gives retroactive effect for a 1-for-1000
split. All numbers in this prospectus gives effect to all financial information as if the reverse split had occurred on the date
reported, except as otherwise noted.
Resignation of Directors
Effective November 3, 2015, Stanley Hirschman retired as one
of our directors. In recognition of his service, all of his unvested stock options were deemed to vest immediately, and the termination
date of all of his stock options was extended to December 31, 2019. On May 26, 2016, Kerry Craven resigned as one of our
directors.
Compensation Changes
On January 21, 2016, our Board of Directors Compensation Committee
held a meeting and approved the following compensation changes:
•
A
base salary increase of 10% for Danny Schoening, CEO, and Karen
Hawkins, CFO.
•
A
bonus payment of $7.5 thousand awarded to Karen Hawkins for 2015
performance.
•
A
$10 thousand monthly director fee for Peter Benz, Chairman,
effective for calendar 2016.
Credit Facility — Avidbank
On April 20, 2016, we amended our revolving credit facility with
Avidbank. The new renewable revolving maturity date is January 22,
2018. The facility provides up to $2 million in financing against
eligible receivables and is subject to meeting certain covenants
including an asset coverage ratio test for up to twenty months. The
material terms of the amended revolving credit facility are as
follows:
•
The interest rate for all advances shall be the then in effect
prime rate plus 2.5% and is subject to a minimum interest payment
requirement per six-month period of $10,000.
•
Interest shall be paid monthly in arrears.
•
A
facility fee of (0.5%) of the revolving line ($10,000) was due (and
paid) on May 22, 2016 and each anniversary thereof for so long as
the revolving credit facility is in effect.
•
The loan period is from April 20 through January 22, 2018 at which
time any outstanding advances, and accrued and unpaid interest
thereon, will be due and payable.
•
Our obligations to Avidbank are secured by a first lien on all of
its assets (including intellectual property assets should it have
any in the future) in favor of Avidbank.
•
The facility contains customary events of default. Upon the
occurrence of an event of default that remains uncured after any
applicable cure period, Avidbank’s commitment to make further
advances may terminate, and Avidbank would also be entitled to
pursue other remedies against us and the pledged collateral.
•
Pursuant to a guaranty executed by Optex Systems Holdings in favor
of Avidbank, Optex Systems Holdings has guaranteed all obligations
of Optex Systems, Inc. to Avidbank.
3
Investor
Relations — IRTH Communications
On April 6, 2016, we executed an investor relations services
agreement with IRTH Communications. The material terms of the
agreement are as follows:
•
An
initial retainer of $7,500, followed by 11 consecutive monthly
payments of $7,500.
•
A
single one-time retainer payment of 40,000 shares of our common
stock; which shares shall be “Restricted Securities”
pursuant to the provisions of Rule 144, as promulgated under the
Securities Act of 1933, as amended.
•
Reimbursement of any reasonable out-of-pocket cost and expenses,
approved by us in advance.
•
The term of the agreement is 12 months, expiring on April 5, 2017,
and shall automatically renew for an additional 12-month term on
each yearly anniversary date unless we give notice to IRTH of an
intention to terminate at the expiration of the original term.
•
Continued payments of $7,500 per month plus a one-time payment of
$100,000 worth of retainer shares of our common stock on renewal;
which shares shall be “Restricted Securities” pursuant
to the provisions of Rule 144.
On
April 29, 2016, we issued 40,000 common “restricted” shares at a market price of $2.35 per share ($94,000) in support
of the IRTH Communications agreement in a transaction exempt from registration under Section 4(2) of the Securities Act of 1933.
2016 Restricted Stock Unit Plan
On June 14, 2016, our
Compensation Committee approved our 2016 Restricted Stock Unit
Plan. This plan provides for issuance of stock units
(“RSUs”) for up to 1,000,000 shares of our common
stock. Each RSU constitutes a right to receive one share of our
common stock, subject to vesting, which unless otherwise stated in
an RSU agreement, shall vest in equal amounts on the first, second
and third anniversary of the grant date. Shares of our common stock
underlying the number of vested RSUs will be delivered as soon as
practicable after vesting. During the period between grant and
vesting, the RSUs may not be transferred, and the grantee has no
rights as a shareholder until vesting has occurred. If the
grantee’s employment is terminated for any reason (other than
following a change in control of us or a termination of an officer
other than for cause), then any unvested RSUs under the award will
automatically terminate and be forfeited. If an officer
grantee’s employment is terminated by us without cause or by
the grantee for good reason, then, provided that the RSUs have not
been previously forfeited, the remaining unvested portion of the
RSUs will immediately vest as of the officer grantee’s
termination date. In the event of a change in control, our
obligations regarding outstanding RSUs shall, on such terms as may
be approved by the Committee prior to such event, immediately vest,
be assumed by the surviving or continuing company or cancelled in
exchange for property (including cash).
On
June 15, 2016, we issued 150,000 RSUs to our Chief Executive Officer, Danny Schoening, and 50,000 RSUs to our Chief Financial
Officer, Karen Hawkins. The RSUs issued to Mr. Schoening and Ms. Hawkins vest as follows: 34% on January 1, 2017, 33% on January
1, 2018 and 33% on January 1, 2019.
4
Risk
Factors
Investing
in our common stock is a speculative proposition, and we encourage you to review our Risk Factors section commencing on p.8 of
this prospectus.
These risks include, but are not limited to, the following:
•
our lack of market saturation for our products and our ability to
achieve full commercialization of our product ahead of our
competitors;
•
our ability to achieve market acceptance and to become
profitable;
•
our ability to engage and retain key personnel, for which we do not
carry key man insurance; and
•
the dilutive nature of this offering and the potential need to
raise further capital in the future, which will have a further
dilutive effect on our shareholders.
Corporate
Information
On March 30, 2009, Optex Systems Holdings, Inc. (formerly known as
Sustut Exploration, Inc.), a Delaware corporation, and Optex
Systems, Inc., a privately held Delaware corporation, entered into
a reorganization agreement, pursuant to which Optex Systems, Inc.
was acquired by Optex Systems Holdings in a share exchange
transaction. Optex Systems Holdings was the surviving corporation
and Optex Systems, Inc. became our wholly-owned subsidiary. At the
closing, we changed our name from Sustut Exploration, Inc. to Optex
Systems Holdings, Inc., and our year end changed from December 31
to a fiscal year ending on the Sunday nearest September 30.
Our principal executive office is located at 1420 Presidential
Drive, Richardson, TX 75081. Our telephone number is (972)
764-5700. Our website is
www.optexsys.com
.
Our website and the information contained on, or that can be
accessed through, our website will not be deemed to be incorporated
by reference in, and are not considered part of, this prospectus.
You should not rely on our website or any such information in
making your decision whether to purchase our common stock.
We do not intend the use or display of other companies’
trademarks and trade names to imply a relationship with, or
endorsement or sponsorship of us by, any other companies.
5
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize the consolidated
financial data for our business. You should read this summary financial data in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes,
all incorporated by reference elsewhere in this prospectus.
We derived the consolidated statements
of operations data for the year ended September 27, 2015, from our audited consolidated financial statements referenced elsewhere
in this prospectus. The unaudited consolidated statements of operations data for the nine months ended June 26, 2016 and June
28, 2015, and the unaudited consolidated balance sheet data as of March 27, 2016, are derived from our unaudited consolidated
financial statements included elsewhere in this prospectus. We have prepared the unaudited information on the same basis as the
audited consolidated financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring
adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. Our
historical results are not necessarily indicative of the results to be expected in the future. All numbers are in thousands except
share numbers.
Pro forma basic net income (loss) per
share has been calculated assuming the conversion of all outstanding shares of our preferred stock into ______ shares of common
stock upon the completion of this offering. The balance sheet data as of June 26, 2016, is presented:
|
|
•
|
on a pro
forma basis to reflect the automatic conversion of all outstanding shares of our preferred
stock into _________ shares of common stock in connection with the completion of this
offering; and
|
|
|
•
|
on a pro
forma as adjusted basis to reflect the pro forma adjustments and the sale by us of shares
of common stock offered by this prospectus at an assumed initial public offering price
of $ per share
after deducting underwriting discounts and commissions and estimated offering expenses
payable by us.
|
|
|
|
Year ended September
27, 2015
|
|
|
Nine months ended
June 26,
2016
|
|
|
Nine months ended
June 28,
2015
|
|
|
|
|
(Unaudited)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
13,003
|
|
|
$
|
11,773
|
|
|
$
|
7,814
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
11,617
|
|
|
|
9,708
|
|
|
|
7,723
|
|
|
General and Administrative Expense
|
|
|
2,826
|
|
|
|
2,394
|
|
|
|
2,237
|
|
|
Operating Loss
|
|
|
(1,440
|
)
|
|
|
(329
|
)
|
|
|
(2,146
|
)
|
|
Other Income and Expense
|
|
|
1,931
|
|
|
|
(28
|
)
|
|
|
1,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
491
|
|
|
|
(357
|
)
|
|
|
(202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes (benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
491
|
|
|
$
|
(357
|
)
|
|
$
|
(202
|
)
|
|
Preferred stock dividend premium
|
|
|
(6,441
|
)
|
|
|
-
|
|
|
|
(6,441
|
)
|
|
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS
|
|
|
(5,950
|
)
|
|
|
(357
|
)
|
|
|
(6,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share
|
|
$
|
(19.06
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(21.33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
312,219
|
|
|
|
756,321
|
|
|
|
311,336
|
|
|
|
|
As of June 26, 2016
|
|
|
|
|
Actual
|
|
|
Pro
Forma
|
|
|
Pro Forma
as Adjusted
|
|
|
|
|
(Unaudited)
|
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
9,056
|
|
|
$
|
4,500
|
|
|
$
|
13,556
|
|
|
Property and equipment, net
|
|
|
1,745
|
|
|
|
-
|
|
|
|
1,745
|
|
|
Other assets
|
|
|
121
|
|
|
|
-
|
|
|
|
121
|
|
|
Total assets
|
|
|
10,922
|
|
|
|
4,500
|
|
|
|
15,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,009
|
|
|
|
-
|
|
|
|
3,009
|
|
|
Stockholders’ equity
|
|
|
7,913
|
|
|
|
4,500
|
|
|
|
12,413
|
|
|
Total liabilities and stockholders' equity
|
|
|
10,922
|
|
|
|
4,500
|
|
|
|
15,422
|
|
6
Summary of the
Offering
|
Securities
offered:
|
|
_____
shares of our common stock and _____ warrants.
|
|
|
|
|
|
Common stock outstanding before the
offering(*):
|
|
1,730,436
|
|
|
|
|
|
Common stock to be outstanding after the
offering(*):
|
|
______
2
shares
(or ____________ shares if the underwriters exercise in full their
option to purchase additional shares).
|
|
|
|
|
|
Underwriters option
|
|
We have granted to the underwriters an option
for a period of 45 days from the date of this prospectus supplement
to purchase up to ____________ additional shares, in any
combination thereof, and/or warrants to purchase up to
_____________ additional shares to cover
over-allotments.
|
|
|
|
|
|
Estimate of Proceeds:
|
|
$5,000,000
|
|
|
|
|
|
Use
of proceeds
3
:
|
|
We intend to use the net proceeds from this
offering for the following purposes:
|
|
|
|
Proceeds:
|
|
|
|
|
|
|
|
Gross
Proceeds
|
|
$
|
5,000,000
|
|
|
|
|
Underwriter
Discount, Fees and Expenses
|
|
|
|
|
|
|
|
Net
Proceeds
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uses:
|
|
|
|
|
|
|
|
Working
Capital & Operating Expenses
|
|
|
|
|
|
|
|
Sales,
Marketing & Business Development
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
|
|
|
|
|
Total
Uses
|
|
$
|
|
|
•
52,850 shares of common stock issuable upon the exercise of vested options outstanding as of July 11, 2016, at a weighted average
exercise price of $10.00 per share;
•
17,150 shares of common stock reserved for future grant or issuance as of July 14, 2016 under all of our 2009 Stock Option Plan;
•
1,000,000 shares of common stock reserved for future grant or issuance as of July 14, 2016 under our 2016 Restricted Stock Unit
Plan
•
____ shares of common stock issuable upon exercise of the warrants issued to the public in connection with this offering; and
•
___________ shares of common stock issuable upon exercise of the warrants to be received by the underwriter in connection with
this offering.
|
|
2
|
Includes conversion of 546 shares
of Series A Preferred Stock and 801.6 shares of Series B Preferred Stock into shares
of common stock
at a price of
$___ per share (the public offering price per share)
which adds an additional ____ shares to shares of common stock
outstanding, which conversion
is
a condition to the obligations of the underwriters in this offering.
Except as
otherwise indicated herein, all information in this prospectus assumes the underwriter
does not sell any common stock or warrants contained in the over-allotment option and
the warrants offered hereby are not exercised.
|
|
|
3
|
Without over allotment. Blank numbers to be filled in
by pre-effective amendment.
|
7
RISK
FACTORS
Investing in our common stock involves a high degree of risk.
Prospective investors should carefully consider the risks described
below, together with all of the other information included or
referred to in this annual report, before purchasing shares of our
common stock. There are numerous and varied risks, known and
unknown, that may prevent us from achieving our goals. The risks
described below are not the only risks we will face. If any of
these risks actually occurs, our business, financial condition or
results of operations may be materially adversely affected. In such
case, the trading price of our common stock could decline and
investors in our common stock could lose all or part of their
investment. The risks and uncertainties described below are not
exclusive and are intended to reflect the material risks that are
specific to us, material risks related to our industry and material
risks related to companies that undertake a public offering or seek
to maintain a class of securities that is registered or traded on
any exchange or over-the-counter market.
Risks Related to our Business
We expect that we may need to raise additional capital in the
future beyond any cash flow from our existing business; additional
funds may not be available on terms that are acceptable to us, or
at all.
We anticipate we may have to raise additional capital in the future
to service our debt and to finance our future working capital
needs. We cannot assure you that any additional capital will be
available on a timely basis, on acceptable terms, or at all. Future
equity or debt financings may be difficult to obtain. If we are not
able to obtain additional capital as may be required, our business,
financial condition and results of operations could be materially
and adversely affected.
We anticipate that our capital requirements will depend on many
factors, including:
•
our ability to fulfill backlog;
•
our ability to procure additional production contracts;
•
our ability to control costs;
•
the timing of payments and reimbursements from government and other
contracts, including but not limited to changes in federal
government military spending and the federal government procurement
process;
•
increased sales and marketing expenses;
•
technological advancements and competitors’ response to our
products;
•
capital improvements to new and existing facilities;
•
our relationships with customers and suppliers; and
•
general economic conditions including the effects of future
economic slowdowns, acts of war or terrorism and the current
international conflicts.
Even if available, financings may involve significant costs and
expenses, such as legal and accounting fees, diversion of
management’s time and efforts, and substantial transaction
costs. If adequate funds are not available on acceptable terms, or
at all, we may be unable to finance our operations, develop or
enhance our products, expand our sales and marketing programs, take
advantage of future opportunities or respond to competitive
pressures.
Current economic conditions may adversely affect our ability to
continue operations.
Current economic conditions may continue to cause a decline in
business and consumer spending and capital market performance,
which could adversely affect our business and financial
performance. Our ability to raise funds, upon which we are fully
dependent to continue to conduct and expand our operations, may be
adversely affected by current and future economic conditions, such
as a reduction in the availability of credit, financial market
volatility and economic recession.
8
Our ability to fulfill our backlog may have an effect on our long
term ability to procure contracts and fulfill current
contracts.
Our ability to fulfill our backlog may be limited by our ability to
devote sufficient financial and human capital resources and limited
by available material supplies. If we do not fulfill our backlog in
a timely manner, we may experience delays in product delivery which
would postpone receipt of revenue from those delayed deliveries.
Additionally, if we are consistently unable to fulfill our backlog,
this may be a disincentive to customers to award large contracts to
us in the future until they are comfortable that we can effectively
manage our backlog.
Our historical operations depend on government contracts and
subcontracts. We face risks related to contracting with the federal
government, including federal budget issues and fixed price
contracts.
Future general political and economic conditions, which cannot be
accurately predicted, may directly and indirectly affect the
quantity and allocation of expenditures by federal agencies. Even
the timing of incremental funding commitments to existing, but
partially funded, contracts can be affected by these factors.
Therefore, cutbacks or re-allocations in the federal budget could
have a material adverse impact on our results of operations. Given
the continued adverse economic conditions, the federal government
has slowed its pace with regard to the release of orders for the
U.S. military. Since we depend on orders for equipment for the U.S.
military for a significant portion of our revenues, this slower
release of orders will continue to have a material adverse impact
on our results of operations. Obtaining government contracts may
also involve long purchase and payment cycles, competitive bidding,
qualification requirements, delays or changes in funding, budgetary
constraints, political agendas, extensive specification
development, price negotiations and milestone requirements. In
addition, our government contracts are primarily fixed price
contracts, which may prevent us from recovering costs incurred in
excess of budgeted costs. Fixed price contracts require us to
estimate the total project cost based on preliminary projections of
the project’s requirements. The financial viability of any
given project depends in large part on our ability to estimate such
costs accurately and complete the project on a timely basis. Some
of those contracts are for products that are new to our business
and are thus subject to unanticipated impacts to manufacturing
costs. Given the current economic conditions, it is also possible
that even if our estimates are reasonable at the time made, that
prices of materials are subject to unanticipated adverse
fluctuation. In the event our actual costs exceed fixed contractual
costs of our product contracts, we will not be able to recover the
excess costs which could have a material adverse effect on our
business and results of operations. We examine these contracts on a
regular basis and accrue for anticipated losses on these contracts,
if necessary. As of June 26, 2016, we had a loss provision of
$6 thousand accrued as a result of cost overruns on small
contracts that will complete during fiscal year 2016.
Approximately 95% of our contracts contain termination clauses for
convenience. In the event these clauses should be invoked by our
customer, future revenues against these contracts could be
affected, however these clauses allow for a full recovery of any
incurred contract costs plus a reasonable fee up through and as a
result of the contract termination. We are currently unaware of any
pending terminations on our existing contracts.
In some cases, contract awards may be issued that are subject to
renegotiation at a date (up to 180 days) subsequent to the initial
award date. Generally, these subsequent negotiations have had an
immaterial impact (zero to 5%) on the contract price of the
affected contracts. Currently, none of our awarded contracts are
subject to renegotiation.
We have sought to mitigate the adverse impact from the slower pace
of U.S. military orders on our results of operations by seeking to
obtain foreign military orders as well as new commercial business.
We do not expect these markets to completely mitigate the negative
impact of lower U.S. defense spending.
There
is further uncertainty which arises from the sequestration in early 2013 which may continue to affect business opportunities at
the federal government level.
Military spending has been negatively
impacted by the Budget Control Act of 2011, which was passed in August 2011. The Budget Control Act mandated a $917.0 billion
reduction in discretionary spending over the next decade, and $1.2 trillion in automatic spending cuts over a nine-year period
to be split between defense and non-defense programs beginning in January 2013.
9
On November 2, 2015 Congress passed the Bipartisan Budget Act of 2015 which sets federal spending through the 2016 and 2017
fiscal years, and eases strict caps on spending set forth in the 2011 sequestration. The plan lifted caps on the appropriated
spending each year by $50 billion in 2016 and $30 billion in 2017, evenly divided between defense and domestic programs with
an additional $16 billion added each year in the form of inflated war spending, evenly split between the Defense and State
departments. The agreed budget framework for the fiscal 2016 and 2017 budget years combined with the increased spending
limits provides the needed stability for the defense agencies to plan the required programs over the next two years. On
November 10, 2015, Congress passed the National Defense Authorization Act 2016, which is the comprehensive legislation to
authorize the budget authority of the Department of Defense and the national security programs of the Department of Energy.
The bill authorizes $607 billion in defense funding for fiscal year 2016, a 3.9% increase from the authorized funding of $584
billion in fiscal year 2015. As of July 14, 2016 the National Defense Authorization funding for fiscal year 2017 has not yet
been approved by Congress. The preliminary estimates on the fiscal year 2017 spending are up slightly from 2016 levels to
$611 billion. We are unable to tie the budget increase to any specific military vehicle and as such, the impact of the
funding increase to our company is unknown as of July 14, 2016.
If we fail to scale our operations appropriately in response to
growth and changes in demand, we may be unable to meet competitive
challenges or exploit potential market opportunities, and our
business could be materially and adversely affected.
Our past growth has placed, and any future growth in our historical
business is expected to continue to place, a significant strain on
our management personnel, infrastructure and resources. To
implement our current business and product plans, we will need to
continue to expand, train, manage and motivate our workforce, and
expand our operational and financial systems and our manufacturing
and service capabilities. All of these endeavors will require
substantial management effort and additional capital. If we are
unable to effectively manage our expanding operations, we may be
unable to scale our business quickly enough to meet competitive
challenges or exploit potential market opportunities, and our
current or future business could be materially and adversely
affected.
We do not have employment agreements with our key personnel, other
than our Chief Executive Officer, and our management has very
minimal unencumbered equity ownership in us. If we are not able to
retain our key personnel or attract additional key personnel as
required, we may not be able to implement our business plan and our
results of operations could be materially and adversely
affected.
We depend to a large extent on the abilities and continued
participation of our executive officers and other key employees.
The loss of any key employee could have a material adverse effect
on our business. We currently have only one employment agreement,
with our Chief Executive Officer which renews on an annual basis
and currently expires on December 1, 2016, and we do not presently
maintain “key man” insurance on any key employees. Our
management also has minimal unencumbered ownership interest in us,
thus limiting their direct stake in our outcome. We believe that as
our activities increase and change in character, additional,
experienced personnel will be required to implement our business
plan. Competition for such personnel is intense, and we cannot
assure you that they will be available when required, or that we
will have the ability to attract and retain them. In addition, due
to our small size, we do not presently have depth of staffing in
our executive, operational and financial management areas in order
to have an effective succession plan should the need arise. Thus,
in the event of the loss of one or more of our management
employees, our results of operations could be vulnerable to
challenges associated with recruiting additional key personnel, if
such recruiting efforts are not successful in a timely manner.
Certain of our products are dependent on specialized sources of
supply that are potentially subject to disruption which could have
a material, adverse impact on our business.
We have selectively single-sourced some of our material components
in order to mitigate excess procurement costs associated with
significant tooling and startup costs. Furthermore, because of the
nature of government contracts, we are often required to purchase
selected items from U.S. government approved suppliers, which may
further limit our ability to utilize multiple supply sources for
these key components.
To
the extent any of these single sourced or government approved suppliers may have disruptions in deliveries due to production,
quality, or other issues, we may also experience related production delays or unfavorable cost increases associated with retooling
and qualifying alternate suppliers. The impact of delays resulting from disruptions in supply for these items could negatively
impact our revenue, our reputation with our customers, and our results of operations. In addition, significant price increases
from single-source suppliers could have a negative impact on our profitability to the extent that we are unable to recover these
cost increases on our fixed price contracts.
10
Each contract has a specific quantity of material which needs to be
purchased, assembled, and shipped. Prior to bidding a contract, we
contact potential sources of material and receive qualified
quotations for this material. In some cases, the entire volume is
given to a single supplier and in other cases; the volume might be
split between several suppliers. If a contract has a single source
supplier and that supplier fails to meet their obligations (e.g.,
quality, delivery), then we would find an alternate supplier and
bring this information back to the final customer. Contractual deliverables would then be re-negotiated (e.g., specifications,
delivery, price). As of July 14, 2016, approximately 24% of our material requirements are single-sourced across 7 suppliers representing
approximately 11% of our active supplier orders. Single-sourced component requirements span across all of our major product lines.
The vast majority of these single-sourced components could be provided by another supplier with minimal interruption in schedule
(supply delay of 3 months or less) or minimally increased costs. We do not believe these single sourced materials to pose any
significant risk to us as other suppliers are capable of satisfying the purchase requirements in a reasonable time period with
minimal increases in cost. Of these single sourced components, we have contracts (purchase orders) with firm pricing and delivery
schedules in place with each of the suppliers to supply parts in satisfaction of our current contractual needs.
We
consider only those specialized single source suppliers where a disruption in the supply chain would result in a period of three
months or longer for us to identify and qualify a suitable replacement to present a material financial or schedule risk. In the
table below, we identify only those specialized single source suppliers and the product lines supported by those materials utilized
by us as of July 14, 2016.
|
Product
Line
|
|
Supplier
|
|
Supply
Item
|
|
Risk
|
|
Purchase
Orders
|
|
Sighting Systems
M36 DDAN
|
|
Raytheon EO Innovations
|
|
Digital camera system
|
|
Alternative source would take in excess of six months to qualify
|
|
Current firm fixed price & quantity purchase orders are in place with the supplier to
meet all contractual requirements. Supplier is on schedule.
|
|
|
|
|
|
|
|
|
|
|
|
Sighting Systems
M36 DDAN
|
|
Libra Industries
|
|
Digital camera system
|
|
Alternative source would take in excess of six months to qualify
|
|
New supplier is the designated replacement for Raytheon on M36 DDAN video system boards.
One P.O. is currently in place to drive the transfer from Raytheon.
|
|
|
|
|
|
|
|
|
|
|
|
Sighting Systems
M36 DDAN
|
|
L3 Comm Corp Warrior Systems.
|
|
Image Intensifier
|
|
Requires specialized, equipment. Alternative source would take
six months or more to qualify
|
|
Firm fixed price & quantity purchase orders are in place with the supplier to meet all
contractual requirements. Supplier is on schedule.
|
|
|
|
|
|
|
|
|
|
|
|
Periscopes
|
|
Harbor Castings
|
|
Steel castings
|
|
Alternative source would take six months to qualify
|
|
Firm fixed price & quantity purchase orders are in place with the supplier to meet all
contractual requirements.
|
|
|
|
|
|
|
|
|
|
|
|
Periscopes
|
|
Optical
Security LLC
|
|
Block Assembly
|
|
Alternative source would take six months to qualify
|
|
Firm fixed price & quantity purchase orders are in place with the supplier to meet all
contractual requirements.
|
|
|
|
|
|
|
|
|
|
|
|
Applied Optics Center
Optical Assemblies
|
|
Outback Manufacturing
|
|
Erector Tube
|
|
Item is source directed by our customer. Alternative source
would take in excess of six months to qualify.
|
|
Firm fixed price & quantity purchase orders are in place with the supplier to meet all
contractual requirements. Supplier is on schedule.
|
|
|
|
|
|
|
|
|
|
|
|
Applied Optics Center
ACOG Laser Filter Unit
|
|
Armament Technology
|
|
Anti-Reflective Device
|
|
No alternative source, item is source directed by U.S. Govt.
|
|
Firm fixed price & quantity purchase orders are in place with the supplier to meet all
contractual requirements. Supplier is on schedule.
|
11
The defense technology supply industry is subject to technological
change and if we are not able to keep up with our competitors
and/or they develop advanced technology as response to our
products, we may be at a competitive disadvantage.
The market for our products is generally characterized by
technological developments, evolving industry standards, changes in
customer requirements, frequent new product introductions and
enhancements, short product life cycles and severe price
competition. Our competitors could also develop new, more advanced
technologies in reaction to our products. Currently accepted
industry standards may change. Our success depends substantially on
our ability, on a cost-effective and timely basis, to continue to
enhance our existing products and to develop and introduce new
products that take advantage of technological advances and adhere
to evolving industry standards. An unexpected change in one or more
of the technologies related to our products, in market demand for
products based on a particular technology or of accepted industry
standards could materially and adversely affect our business. We
may or may not be able to develop new products in a timely and
satisfactory manner to address new industry standards and
technological changes, or to respond to new product announcements
by others. In addition, new products may or may not achieve market
acceptance.
As a result of our November 2014 acquisition of the Applied Optics
Center from L-3, we believe we have incurred the following
additional risks, which may have a material adverse effect on our
business results as we integrate the operations.
As a result of the purchase and integration of the Applied Optics
Center from L-3 with our traditional business lines, the combined
businesses are subject to some additional risks which were not
formerly present.
•
AOC has a substantial fixed cost base that is inflexible in the
short term to changes in market conditions. This is due to the
highly skilled and specialized workforce with established benefits
for severance and vacation accruals that may exceed 6 months. In
the short term, we may not be able to generate sufficient business
revenue to cover these costs, so there will likely be increased
cash flow requirements that exceed our availability and would
entail our raising additional funds to cover cash flow.
•
The manufacturing process entails use of coating equipment chambers
which require utilization of high amounts of electrical power and
are thus highly sensitive to changes in energy costs. Current
energy rates are locked in through May 28, 2018; however, if energy
costs or usage increase significantly, it would have a material
impact on future financials if AOC were unable to successfully
incorporate the increases into priced contracts. Further,
significant interruptions or surges in the electrical power supply
could result in equipment damage, repair expenses and machine down
time.
•
Above and beyond the normal risks to retain skilled personnel,
there may be an inability to retain the specialized work force of
AOC as a result of the changed corporate climate and the difference
in corporate values of L-3 and us. A failure to retain such
personnel could result in a material adverse ability to produce the
traditional AOC products or cause delays and additional costs as we
would need to train new personnel.
Unexpected warranty and product liability claims could adversely
affect our business and results of operations.
The possibility of future product failures could cause us to incur
substantial expense to repair or replace defective products. Some
of our customers require that we warrant the quality of our
products to meet customer requirements and be free of defects for
twelve to fifteen months subsequent to delivery. As of June
26, 2016, approximately 80% of our current contract deliveries were
covered by these warranty clauses. We establish reserves for
warranty claims based on our historical rate of less than one
percent of returned shipments against these contracts. There can be
no assurance that this reserve will be sufficient if we were to
experience an unexpectedly high incidence of problems with our
products. Significant increases in the incidence of such claims may
adversely affect our sales and our reputation with consumers. Costs
associated with warranty and product liability claims could
materially affect our financial condition and results of
operations.
We derive almost all of our revenue from three customers and the
loss of any of these customers could have a material adverse effect
on our revenues.
For
the year ended September 27, 2015, we derived approximately 83% of our gross operating revenue from four customers: 32.0% from
the U.S. Government (primarily USACC — Warren), 26.4% from General Dynamics Land Systems Divisions, 14.1% from L3 Communications,
Inc. and 11.1% from Nightforce Optics Inc. Procuring new customers and contracts may partially mitigate this risk. In particular,
a decision by either General Dynamics Land System Divisions or USACC-Warren to cease issuing contracts to us could have a significant
material impact on our business and results of operations given that they represent 58.4% of our gross business revenue. There
can be no assurance that we could replace these customers on a timely basis or at all.
12
We
have approximately 80 discrete contracts with General Dynamics Land System Division and the U.S. Government (primarily USACC-Warren),
and other prime contractors. If they choose to terminate these contracts, we are entitled to fully recover all contractual costs
and reasonable profits incurred up to or as a result of the terminated contract.
We only possess two patents and one patent license and rely
primarily on trade secrets to protect our intellectual
property.
We utilize several highly specialized and unique processes in the
manufacture of our products, for which we rely solely on trade
secrets to protect our innovations. We cannot assure you that we
will be able to maintain the confidentiality of our trade secrets
or that our non-disclosure agreements will provide meaningful
protection of our trade secrets, know-how or other proprietary
information in the event of any unauthorized use, misappropriation
or other disclosure. The non-disclosure agreements that are
designed to protect our trade secrets could be breached, and we
might not have adequate remedies for the breach.
It is also possible that our trade secrets will otherwise become
known or independently developed by our competitors, many of which
have substantially greater resources than us, and these competitors
may have applied for or obtained, or may in the future apply for or
obtain, patents that will prevent, limit or interfere with our
ability to make and sell some of our products. Although based upon
our general knowledge (and we have not conducted patent searches),
we believe that our products do not infringe on the patents or
other proprietary rights of third parties; however, we cannot
assure you that third parties will not assert infringement claims
against us or that such claims will not be successful.
We have one outstanding patent application. While we are optimistic
that our application will be approved, we cannot guarantee that
this patent application will ever result in an actual patent being
awarded. The application was based on technology which is believed
to be unique; however, there are many companies and many patents
already awarded in this space. Further, the time frame for the US
Patent and Trademark Office to review the patent application and
engage in negotiations cannot be guaranteed.
In the future, we may look to acquire other businesses in our
industry and the acquisitions will require us to use substantial
resources.
In the future, we may decide to pursue acquisitions of other
businesses in our industry. In order to successfully acquire other
businesses, we would be forced to spend significant resources for
both acquisition and transactional costs, which could divert
substantial resources in terms of both financial and personnel
capital from our current operations. Additionally, we might assume
liabilities of the acquired business, and the repayment of those
liabilities could have a material adverse impact on our cash flow.
Furthermore, when a new business is integrated into our ongoing
business, it is possible that there would be a period of
integration and adjustment required which could divert resources
from ongoing business operations.
Conversion
of our Series A and Series B preferred stock could cause substantial dilution to our existing common stock holders, and certain
other rights of the preferred stock holders present other risks to our existing common stock holders.
As of July 14, 2016, we had 1,730,436
shares of our common stock issued and outstanding. The outstanding shares of Series A preferred stock are currently
convertible into 1,498,228 shares of our common stock, and the outstanding shares of Series B preferred stock are currently
convertible into 522,345 shares of our common stock, which represents 53.9% of our outstanding common stock assuming a
conversion of the Series A and Series B preferred stock into shares of our common stock. This would greatly dilute the
holdings of our existing common stockholders. In addition, prior to any conversion, the preferred shareholders vote on an
as-converted-to-common stock, one-to-one basis with our common shareholders.
Furthermore, in the event of liquidation,
the holders of our Series A preferred stock and Series B preferred stock would receive priority liquidation payments before payments
to common shareholders equal to the amount of the stated value of the preferred stock before any distributions would be made to
our common shareholders. The total stated value of our preferred stock is $5,051,425, so the preferred shareholders would be entitled
to receive the amount of the stated value before any distributions could be made to common shareholders. The liabilities on our
balance sheet exceed the liquidation value of our assets; therefore, upon liquidation, there would be no assets remaining for
distribution to common shareholders.
The preferred shareholders also have the right, by majority vote of
the shares of preferred stock, to generally approve any issuances
by us of equity and/or indebtedness, other than trade indebtedness
in the ordinary course. Therefore, the preferred shareholders can effectively prevent us from entering into a
transaction which they feel is not in their best interests, even if
the transaction might otherwise be in the best interests of us and
our common shareholders.
13
The
Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a shareholder’s
ability to buy and sell our stock.
FINRA has adopted rules that require that in recommending an
investment to a customer, a broker-dealer must have reasonable
grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low priced securities
to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer’s
financial status, tax status, investment objectives and other
information. Under interpretations of these rules, FINRA believes
that there is a high probability that speculative low priced
securities will not be suitable for at least some customers. FINRA
requirements make it more difficult for broker-dealers to recommend
that their customers buy our common stock, which may limit your
ability to buy and sell our stock and have an adverse effect on the
market for our shares.
The elimination of monetary liability against our directors,
officers and employees under Delaware law and the existence of
indemnification rights to our directors, officers and employees may
result in substantial expenditures by us and may discourage
lawsuits against our directors, officers and
employees
.
We provide indemnification to our directors and officers to the
extent provided by Delaware law. The foregoing indemnification
obligation could result in our incurring substantial expenditures
to cover the cost of settlement or damage awards against directors
and officers, which we may be unable to recoup. These provisions
and resultant costs may also discourage us from bringing a lawsuit
against directors and officers for breaches of their fiduciary
duties and may similarly discourage the filing of derivative
litigation by our stockholders against our directors and officers
even though such actions, if successful, might otherwise benefit us
and our stockholders.
Risks Related to Our
Common Stock
We
have issued a large number of shares of preferred stock, warrants and options, which if converted or exercised would substantially
increase the number of common shares outstanding.
On July 14, 2016, we had 1,730,436 shares
of common stock outstanding, and (a) we have options outstanding to purchase common stock that, if fully exercised, would generate
proceeds of $528,500 and result in the issuance of an additional 52,850 shares of common stock, and (b) we have 546 shares of
Series A preferred stock and 801.6 shares of Series B preferred stock that, if fully converted, would result in the issuance of
an additional 2,020,573 shares of common stock. Future sales of our common stock, warrants, options and Series A and Series B
preferred stock may also adversely affect our stock price and our ability to raise funds in new offerings.
As a key component of our growth strategy we have provided and
intend to continue offering compensation packages to our management
and employees that emphasize equity-based compensation and would
thus cause further dilution.
Historically, we have not paid dividends on our common stock, and
we do not anticipate paying any cash dividends in the foreseeable
future.
We have never paid cash dividends on our common stock. We intend to
retain our future earnings, if any, to fund operational and capital
expenditure needs of our business, and we do not anticipate paying
any cash dividends in the foreseeable future. As a result, capital
appreciation, if any, of our common stock will be the sole source
of gain for our common stockholders in the foreseeable future.
Our stock price is speculative and there is a risk of
litigation.
The trading price of our common stock has in the past and may in
the future be subject to wide fluctuations in response to factors
such as the following:
•
revenue or results of operations in any quarter failing to meet the
expectations, published or otherwise, of the investment
community;
•
speculation in the press or investment community;
14
•
wide fluctuations in stock prices, particularly with respect to the
stock prices for other defense industry companies;
•
announcements of technological innovations by us or our
competitors;
•
new products or the acquisition of significant customers by us or
our competitors;
•
changes in investors’ beliefs as to the appropriate
price-earnings ratios for us and our competitors;
•
changes in management;
•
sales of common stock by directors and executive officers;
•
rumors or dissemination of false or misleading information,
particularly through Internet chat rooms, instant messaging, and
other rapid-dissemination methods;
•
conditions and trends in the defense industry generally;
•
the announcement of acquisitions or other significant transactions
by us or our competitors;
•
adoption of new accounting standards affecting our industry;
•
general market conditions;
•
domestic or international terrorism and other factors; and
•
the other factors described in this section.
Fluctuations in the price of our common stock may expose us to the
risk of securities class action lawsuits. Although no such lawsuits
are currently pending against us and we are not aware that any such
lawsuit is threatened to be filed in the future, there is no
assurance that we will not be sued based on fluctuations in the
price of our common stock. Defending against such suits could
result in substantial cost and divert management’s attention
and resources. In addition, any settlement or adverse determination
of such lawsuits could subject us to significant liability.
Future sales of our common stock could depress our stock
price.
Sales
of a large number of shares of our common stock, or the availability of a large number for sale, could materially adversely affect
the per share market price of our common stock and could impair our ability to raise funds in addition offering of our debt or
equity securities. In the event that we propose to register shares of common stock under the Securities Act for our own account,
certain shareholders are entitled to include their shares in the registration, subject to limitations described in the agreements
granting these rights.
If you are not an institutional investor, you may
purchase securities in this offering only if you reside within the states in which we will apply to have the securities registered
or are exempt from registration, and, if required, meet any requisite suitability standards.
Because our common stock is quoted
on the OTCQB Marketplace and not listed on a national securities exchange, this offering must be registered, or be exempt from
registration, in any state in which the securities are to be offered or sold. We will apply to register the securities, or will
seek to obtain an exemption from registration, only in certain states. If you are not an “institutional investor,”
you must be a resident of these jurisdictions to purchase our securities in the offering. The definition of an “institutional
investor” varies from state to state, but generally includes financial institutions, broker-dealers, banks, insurance companies
and other qualified entities. If you are not an institutional investor, you may purchase securities in this offering only if you
reside in the jurisdictions where there is an effective registration or an available exemption, and, if required, meet any requisite
suitability standards.
Cautionary Note
Regarding Forward-Looking Information
This prospectus, in particular the “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” appearing herein, contains certain
“forward-looking statements” within the meaning of
Section 27A of the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, as amended (“Exchange
Act”). These forward-looking statements represent our
expectations, beliefs, intentions or strategies concerning future
events, including, but not limited to, any statements regarding our
assumptions about financial performance; the continuation of
historical trends; the sufficiency of our cash balances for future
liquidity and capital resource needs; the expected impact of
changes in accounting policies on our results of operations,
financial condition or cash flows; anticipated problems and our
plans for future operations; and the economy in general or the
future of the electrical storage device industry, all of which are
subject to various risks and uncertainties.
When used in this prospectus as well as in reports, statements, and
information we have filed with the Securities and Exchange
Commission, in our press releases, presentations to securities
analysts or investors, in oral statements made by or with the
approval of an executive officer, the words or phrases
“believes,” “may,” “will,”
“expects,” “should,”
“continue,” “anticipates,”
“intends,” “will likely result,”
“estimates,” “projects” or similar
expressions and variations thereof are intended to identify such
forward-looking statements. However, any statements contained in
this prospectus that are not statements of historical fact may be
deemed to be forward-looking statements. We caution that these
statements by their nature involve risks and uncertainties, certain
of which are beyond our control, and actual results may differ
materially depending on a variety of important factors.
15
USE
OF PROCEEDS
We estimate that we will receive up to
$5,000,000 in gross proceeds from the sale of common stock and warrants (and a potential additional $750,000 if the entire overallotment
is exercised) in this offering, based on a price of $____ per combination of share of common stock and warrant, which is the closing
price of our common stock on ____ __, 2016, and corresponding warrant and after deducting estimated underwriter fees and estimated
offering expenses payable by us. If the underwriters exercise their over-allotment option in full, we estimate that the net proceeds
from this offering will be approximately $4,500,000, excluding the proceeds, if any, from the exercise of any warrants issued
in the over-allotment option.
We
intend to use the net proceeds from this offering for the following purposes:
|
Proceeds:
|
|
|
|
|
|
Gross Proceeds without over allotment
|
|
$
|
5,000,000
|
|
|
Underwriter Discount, Fees and Expenses
|
|
|
(500,000
|
)
|
|
Net Proceeds
|
|
$
|
4,500,000
|
|
|
|
|
|
|
|
|
Uses:
|
|
|
|
|
|
Working Capital & Operating Expenses
|
|
|
750,000
|
|
|
Sales, Marketing & Business Development
|
|
|
750,000
|
|
|
Acquisitions
|
|
|
3,000,000
|
|
|
Total Uses
|
|
$
|
4,500,000
|
|
The allocation of the net proceeds of the offering set forth above
represents our estimates based upon our current plans and
assumptions regarding industry and general economic conditions, our
future revenues and expenditures.
With respect to the portion of the use of proceeds to be utilized
for acquisitions, we have identified specific businesses as
potential acquisitions, thus we are in negotiations regarding any
such acquisitions, and we seek to commence active searches for such
businesses on an ongoing basis. The nature of businesses sought are
smaller divisions of major defense industry manufacturers which
will provide accretive and compatible businesses to our core
business, much as our Applied Optics Product Line acquisition in
November 2014. We seek to acquire businesses which manufacture
products which are compatible with our main night vision products
for the defense and commercial industries to either or both provide
supply of main components of our products and/or expand our product
offerings.
The amounts and timing of our actual expenditures will depend upon
numerous factors, including market conditions, cash generated by
our operations, business developments and related rate of growth.
We may find it necessary or advisable to use portions of the
proceeds from this offering for other purposes.
Circumstances that may give rise to a change in the use of proceeds
and the alternate purposes for which the proceeds may be used
include:
•
the existence of other opportunities or the need to take advantage
of changes in timing of our existing activities;
•
the need or desire on our part to accelerate, increase or eliminate
existing initiatives due to, among other things, changing market
conditions and competitive developments; and/or
•
if
strategic opportunities of which we are not currently aware present
themselves, including acquisitions, joint ventures, licensing and
other similar transactions.
From time to time, we evaluate these and other factors and we
anticipate continuing to make such evaluations to determine if the
existing allocation of capital, including the proceeds of this
offering, is being optimized. Pending such uses, we intend to
invest the net proceeds of this offering in direct and guaranteed
obligations of the United States, interest-bearing,
investment-grade instruments or certificates of deposit.
16
DILUTION
If
you purchase securities in this offering, your interest will be diluted immediately to the extent of the difference between the
public offering price of $___ per share, based upon the closing price of our common stock on ____ __, 2016 of $__, and the as
adjusted net tangible book value per share of our common stock immediately following this offering.
Our net tangible book value as of March
27, 2016 was $7,545, or approximately $0.0048 per share. Net tangible book value per share represents our total tangible assets
less total liabilities, divided by the number of shares of common stock outstanding as of March 27, 2016.
Net tangible book value dilution per share
of common stock to new investors represents the difference between the amount per share paid by purchasers in this offering and
the as adjusted net tangible book value per share of common stock immediately after completion of this offering. After giving
effect to our sale of _____ shares in this offering at a public offering price of $___ per share, and after deducting the underwriter
commissions and estimated offering expenses, our as-adjusted net tangible book value as of March 27, 2016 would have been $___
million, or $___ per share. This represents an immediate increase in net tangible book value of $___ per share to existing stockholders
and an immediate dilution in net tangible book value of $___ per share to purchasers of shares in this offering, as illustrated
in the following table:
|
Public offering price per share
|
|
$
|
|
|
Net tangible book value per share as of March 27, 2016
|
|
$
|
0.0048
|
|
Increase in net tangible book value per share attributable to new investors
|
|
$
|
|
|
Adjusted net tangible book value per share as of March 27, 2016, after giving effect to the offering
|
|
$
|
|
|
Dilution per share to new investors in the offering
|
|
$
|
|
The total
number of shares of our common stock outstanding after this offering is based on 1,730,436 shares outstanding as of July 14, 2016
and excludes as of that date, the following:
•
52,850 shares of common stock issuable upon the exercise of vested options outstanding as of July 11, 2016, at a weighted average
exercise price of $10.00 per share;
•
17,150 shares of common stock reserved for future grant or issuance as of July 14, 2016 under all of our 2009 Stock Option Plan;
•
1,000,000 shares of common stock reserved for future grant or issuance as of July 14, 2016 under our 2016 Restricted Stock Unit
Plan
•
____ shares of common stock issuable upon exercise of the warrants issued to the public in connection with this offering; and
•
___________ shares of common stock issuable upon exercise of the warrants to be received by the underwriter in connection with
this offering.
Except as otherwise indicated herein,
all information in this prospectus assumes the underwriter does not sell any common stock contained in the over-allotment option.
17
DIVIDEND
POLICY
We have never declared or paid any cash dividends on our common
stock. We currently anticipate that we will retain all future
earnings for the expansion and operation of our business and do not
anticipate paying cash dividends in the foreseeable future.
Otherwise, the payment of dividends on common stock, if any, in the
future is within the discretion of our Board and will depend on its
earnings, capital requirements and financial condition and other
relevant facts.
18
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
our capitalization as of June 26, 2016:
•
on
an actual basis; and
•
on
a pro forma basis, based upon an offering price of $__ per share of
common stock and corresponding warrant, to give effect to the sale
of ______ shares of common stock in this offering, after deducting
the estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
Based
on the offering price of $_ per share of common stock and corresponding warrant, which is based upon the closing price of our
common stock on ____ __, 2016, we allocated the $5 million aggregate consideration to common stock. The pro forma information
below is only for illustrative purposes and our capitalization following the completion of this offering will be adjusted based
on the actual offering price and other terms of this offering determined at pricing. The pro forma information below is only for
illustrative purposes and our capitalization following the completion of this offering will be adjusted based on the actual offering
price and other terms of this offering determined at pricing. You should read this table in conjunction with “Use of Proceeds”
above as well as our “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and financial statements and the related notes appearing elsewhere in this prospectus.
|
|
|
June 26, 2016
|
|
|
|
|
Unaudited
Actual
|
|
|
Unaudited
Pro
Forma
|
|
|
|
|
(in thousands except share amounts)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash & Cash Equivalents
|
|
$
|
601
|
|
|
$
|
5,101
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Credit Facility
|
|
|
730
|
|
|
|
730
|
|
|
Total Liabilities
|
|
$
|
730
|
|
|
$
|
730
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
|
Preferred Stock Series A ($.001 par 5,000 authorized,
546 and 546 Series A preferred shares issued and outstanding, respectively)
|
|
|
—
|
|
|
|
—
|
|
|
Preferred Stock Series B ($.001 par 1,010 authorized,
969 and 969 Series B preferred shares issued and outstanding, respectively)
|
|
|
—
|
|
|
|
—
|
|
|
Common Stock – (par $.001, 2,000,000,000 authorized,
1,621,145 and __________ shares issued and outstanding, respectively)
|
|
|
2
|
|
|
|
4
|
|
|
Additional Paid-in-capital
|
|
|
26,504
|
|
|
|
31,002
|
|
|
Retained Earnings (Deficit)
|
|
|
(18,593
|
)
|
|
|
(18,593
|
)
|
|
Total Stockholders’
Equity
|
|
|
7,913
|
|
|
|
12,413
|
|
|
Capitalization
|
|
$
|
8,643
|
|
|
$
|
13,143
|
|
The
total number of shares of our common stock outstanding in the table above is based on 1,621,145 shares
outstanding as of June 26, 2016 and excludes as of that date, the following:
•
52,850 shares of common stock issuable upon the exercise of vested options outstanding as of June 26, 2016, at a
weighted average exercise price of $10.00 per share;
•
17,150 shares of common stock reserved for future grant or issuance as of June 26, 2016 under all of our 2009 Stock Option Plan;
19
Except as otherwise indicated herein, all information in this
prospectus assumes the underwriter does not sell any common stock
contained in the over-allotment option.
A $1.00 increase (decrease) in the offering price of $__ per share
of common stock would increase (decrease) cash and cash equivalents
and total stockholders’ equity by $___ million, assuming that
the number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same, and after deducting the
estimated underwriting commissions and estimated offering expenses
payable by us.
20
MARKET FOR
REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market
information
Our
common stock is currently quoted on the OTCQB Marketplace under the symbol “OPXS”. Trading in our common stock has
historically lacked consistent volume, and the market price has been volatile.
The following table shows the range of
high and low bid prices for our common stock as reported by the OTCQB Marketplace. The quotations reflect inter-dealer prices,
without retail markup, markdown or commission and may not represent actual transactions.
|
|
|
|
|
|
|
Fourth
Quarter 2013
|
|
$
|
20.00
|
|
$
|
8.00
|
|
First
Quarter 2014
|
|
$
|
9.00
|
|
$
|
8.00
|
|
Second
Quarter 2014
|
|
$
|
30.00
|
|
$
|
30.00
|
|
Third
Quarter 2014
|
|
$
|
10.00
|
|
$
|
10.00
|
|
Fourth
Quarter 2014
|
|
$
|
20.00
|
|
$
|
10.00
|
|
First
Quarter 2015
|
|
$
|
10.00
|
|
$
|
10.00
|
|
Second
Quarter 2015
|
|
$
|
10.00
|
|
$
|
8.00
|
|
Third
Quarter 2015
|
|
$
|
7.00
|
|
$
|
5.00
|
|
Fourth
Quarter 2015
|
|
$
|
8.00
|
|
$
|
8.00
|
|
First
Quarter 2016
|
|
$
|
7.30
|
|
$
|
2.60
|
|
Second
Quarter 2016
|
|
$
|
3.50
|
|
$
|
2.00
|
|
Third
Quarter 2016
|
|
$
|
2.60
|
|
$
|
1.75
|
On
July 14, 2016, the closing price for our common stock as reported on the OTCQB was $2.08 per share.
Securities outstanding and holders of record
On July 14, 2016, there were approximately
80 shareholders of record for our common stock and 1,730,436 shares of our common stock issued and outstanding.
Dividends
We have never paid dividends. We currently anticipate that we will
retain all future earnings for the expansion and operation of our
business and do not anticipate paying cash dividends in the
foreseeable future.
21
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The
Management’s Discussion and Analysis of Financial Condition and Results of Operations for the period ended September 27,
2015 is hereby incorporated by reference in their entirety from our Form 10-K for the year ended September 27, 2015, filed with
the SEC on December 15, 2015
3
. The Management’s Discussion and Analysis of Financial Condition and Results of
Operations for the periods ended December 27, 2015, March 27, 2016 and June 26, 2016 are hereby incorporated by reference in their
entirety from our Form 10-Qs for the quarters ended December 27, 2015, March 27, 2016 and June 26, 2016, filed with the SEC on
February 16, 2016, May 11, 2016 and August 8, 2016, respectively.
22
FINANCIAL
STATEMENTS FOR THE YEAR ENDED SEPTEMBER 27, 2015 AND SEPTEMBER 28, 2014 AND THE QUARTERS ENDED DECEMBER 27, 2015 AND DECEMBER
28, 2014, MARCH 27, 2016 AND MARCH 28, 2015 AND JUNE 26, 2016 AND JUNE 28, 2015.
Our
audited financial statements for the years ended September 27, 2015 and September 28, 2014, and the quarters ended December 27,
2015 and December 28, 2014, March 27, 2016 and March 28, 2015 and June 26, 2016 and June 28, 2015, respectively, are hereby incorporated
by reference in their entirety from our Form 10-K for the year ended September 27, 2015, filed with the SEC on December 15, 2015
and our Form 10-Qs for the quarters ended December 27, 2015, March 27, 2016 and June 26, 2016, filed with the SEC on February
16, 2016, May 11, 2016 and August 8, 2016, respectively.
23
BUSINESS
Background
Prior History —
Sustut Exploration, Inc.
Sustut Exploration, Inc. was a Delaware corporation formed on April
11, 2006 to search for available mining properties in North Central
British Columbia. It entered into an option agreement in 2006 to
purchase a mineral claim, and the option expired in May 2008
without any payment being made. Thus, as of May 2008, Sustut had no
operating business.
As a result of the reorganization on March 30, 2009, which is
described below, Optex Systems Holdings changed its name from
Sustut Exploration Inc. to Optex Systems Holdings, Inc.
Reorganization
On March 30, 2009, a reorganization occurred whereby the then
existing shareholders of Optex Systems, Inc., a private Delaware
corporation (“Optex Systems, Inc. (Delaware)”),
exchanged their shares of Optex Systems, Inc. (Delaware) common
stock with the shares of common stock of us as follows (all on a
pre-split basis due to the historical context): (i) the outstanding
85,000,000 shares of Optex Systems, Inc. (Delaware) common stock
were exchanged for 113,333,282 shares of our common stock, (ii) the
outstanding 1,027 shares of Optex Systems, Inc. (Delaware) Series A
preferred stock were exchanged for 1,027 shares of Series A
preferred stock and (iii) the 8,131,667 shares of Optex Systems,
Inc. (Delaware) common stock purchased in the private placement
were exchanged for 8,131,667 (presplit) shares of us common stock.
Optex Systems, Inc. (Delaware) has remained our wholly-owned
subsidiary. As a result of the reorganization, Sileas Corporation
currently beneficially owns approximately 69.5% of our issued and
outstanding common stock and Alpha Capital Anstalt owns
approximately 12.2% of our issued and outstanding common stock.
Current Line of
Business
We manufacture optical sighting systems and assemblies, primarily
for Department of Defense applications. Our products are installed
on various types of U.S. military land vehicles, such as the Abrams
and Bradley fighting vehicles, light armored and armored security
vehicles and have been selected for installation on the Stryker
family of vehicles. We also manufacture and deliver numerous
periscope configurations, rifle and surveillance sights and night
vision optical assemblies. Our products consist primarily of
build-to-customer print products that are delivered both directly
to the armed services and to other defense prime contractors. Less
than 1% of today’s revenue is related to the resale of
products substantially manufactured by others. In this case, the
product would likely be a simple replacement part of a larger
system previously produced by us.
We continue to field new product opportunities from both domestic
and international customers. Given continuing unrest in multiple
global hot spots, the need for precision optics continues to
increase. Most of these requirements are for observation and
situational awareness applications; however, we continue to see
requests for higher magnification and custom reticles in various
product modifications. The basic need to protect the soldier while
providing information about the mission environment continues to be
the primary driver for these requirements.
We do not believe that the upcoming presidential election will
cause a major change in the direction of funding or product need
for the U.S. military. Maintenance will still be required, and the
opportunities for us to upgrade existing systems with higher
performing systems will continue to present themselves. Spending
levels may change, but given the mix between foreign spending,
domestic/prime demand, and the more recent commercial
opportunities, we do not expect any negative trends arising from
political domestic changes into fiscal 2017.
Recent
Events
Reverse Stock Split
On October 6, 2015, 20 calendar days had passed since the mailing
to our shareholders of the Definitive Schedule 14C filed on
September 11, 2015 regarding the approval by our Board of Directors
and shareholders of a reverse stock split of our common stock, in a
ratio to be determined by our board of directors, of not less than
1-for-400 nor more than 1-for-1000 and on October 7, 2015, we
effected a 1-for-1000 reverse split of our common stock.
24
Resignations
of Directors
Effective November 3, 2015, Stanley Hirschman retired as one of our
directors. In recognition of his service, all of his unvested stock
options were deemed to vest immediately, and the termination date
of all of his stock options was extended to December 31, 2019. On
May 26, 2016, Kerry Craven resigned as one of our directors.
Compensation Changes
On January 21, 2016, our Board of Directors Compensation Committee
held a meeting and approved the following compensation changes:
•
A
base salary increase of 10% for Danny Schoening, CEO, and Karen
Hawkins, CFO.
•
A
bonus payment of $7.5 thousand awarded to Karen Hawkins for 2015
performance.
•
A
$10 thousand monthly director fee for Peter Benz, Chairman,
effective for calendar 2016.
Credit Facility — Avidbank
On April 20, 2016, we amended our revolving credit facility with
Avidbank. The new renewable revolving maturity date is January 22,
2018. The facility provides up to $2 million in financing against
eligible receivables and is subject to meeting certain covenants
including an asset coverage ratio test for up to twenty months. The
material terms of the amended revolving credit facility are as
follows:
•
The interest rate for all advances shall be the then in effect
prime rate plus 2.5% and is subject to a minimum interest payment
requirement per six month period of $10,000.
•
Interest shall be paid monthly in arrears.
•
A
facility fee of (0.5%) of the revolving line ($10,000) was due (and
paid) on May 22, 2016 and each anniversary thereof for so long as
the revolving credit facility is in effect.
•
The loan period is from April 20 through January 22, 2018 at which
time any outstanding advances, and accrued and unpaid interest
thereon, will be due and payable.
•
Our obligations to Avidbank are secured by a first lien on all of
its assets (including intellectual property assets should it have
any in the future) in favor of Avidbank.
•
The facility contains customary events of default. Upon the
occurrence of an event of default that remains uncured after any
applicable cure period, Avidbank’s commitment to make further
advances may terminate, and Avidbank would also be entitled to
pursue other remedies against us and the pledged collateral.
•
Pursuant to a guaranty executed by Optex Systems Holdings in favor of Avidbank, Optex Systems Holdings has guaranteed all
obligations of Optex Systems, Inc. to Avidbank.
25
2016
Restricted Stock Unit Plan
On June 14, 2016, our
Compensation Committee approved our 2016 Restricted Stock Unit
Plan. This plan provides for issuance of stock units
(“RSUs”) for up to 1,000,000 shares of our common
stock. Each RSU constitutes a right to receive one share of our
common stock, subject to vesting, which unless otherwise stated in
an RSU agreement, shall vest in equal amounts on the first, second
and third anniversary of the grant date. Shares of our common stock
underlying the number of vested RSUs will be delivered as soon as
practicable after vesting. During the period between grant and
vesting, the RSUs may not be transferred, and the grantee has no
rights as a shareholder until vesting has occurred. If the
grantee’s employment is terminated for any reason (other than
following a change in control of us or a termination of an officer
other than for cause), then any unvested RSUs under the award will
automatically terminate and be forfeited. If an officer
grantee’s employment is terminated by us without cause or by
the grantee for good reason, then, provided that the RSUs have not
been previously forfeited, the remaining unvested portion of the
RSUs will immediately vest as of the officer grantee’s
termination date. In the event of a change in control, our
obligations regarding outstanding RSUs shall, on such terms as may
be approved by the Committee prior to such event, immediately vest,
be assumed by the surviving or continuing company or cancelled in
exchange for property (including cash).
On June 15, 2016, we issued 150,000 RSUs to our Chief Executive
Officer, Danny Schoening, and 50,000 RSUs to our Chief Financial
Officer, Karen Hawkins. The RSUs issued to Mr. Schoening and Ms.
Hawkins vest as follows: 34% on January 1, 2017, 33% on January 1,
2018 and 33% on January 1, 2019.
New Product Development
During the first six months of 2015, we released a new digital
spotting scope called Red Tail (patent pending). This device is
targeted towards long range observation and image recording used by
military, border patrol, and select consumer/commercial
applications. The device is designed to deliver high definition
images with military grade resolution, but at commercial “off
the shelf” pricing. Using high grade optics to deliver a 45X
magnified image onto a 5 megapixel CMOS sensor, the Red Tail device
then transmits this image via Wi-Fi to the user’s smartphone
or tablet. Digital still images or videos can then be captured
and/or emailed using a custom Red Tail app available for either iOS
or Android devices. We demonstrated this device in April 2015 at
the Border Security Expo in Phoenix, Arizona and received positive
feedback from U.S. border agents, police officers, and other Expo
attendees.
On November 10, 2015, we entered into a retail sales relationship
with Cabela’s Inc., to distribute our Red Tail Digital
Spotting Scope as well as our new Stabilized Monocular. We are
presently in negotiations to make these devices available via
General Services Administration schedules for government
personnel.
Products
Our
products are installed on various types of U.S. military land vehicles, such as the Abrams and Bradley, and Stryker families of
fighting vehicles, as well as light armored and armored security vehicles. We also manufacture and deliver numerous periscope
configurations, rifle and surveillance sights and night vision optical assemblies. We deliver our products both directly to the
federal government and to prime contractors.
26
We deliver high volume products, under multi-year contracts, to large defense contractors and government customers.
Increased emphasis in the past two years has been on new opportunities to promote and deliver our products in foreign
military sales, where U.S.-manufactured, combat and wheeled vehicles, are supplied (and upgraded) in cooperation with the
U.S. Department of Defense. We have a reputation for quality and credibility with our customers as a strategic supplier. We
also anticipate the opportunity to integrate some of our night vision and optical sights products into commercial
applications.
Specific product categories include:
•
Electronic sighting systems
•
Mechanical sighting systems
•
Laser protected plastic and glass periscopes
•
Non-laser protected plastic and glass periscopes
•
Howitzer sighting systems
•
M36 Thermal Day/Night Periscopes
•
M17 Day/Thermal Periscopes
•
Ship binoculars
•
Replacement optics (e.g. filters, mirrors)
•
Optical assemblies and laser filters
|
|
|
|
|
Periscopes
|
|
Laser & Non Laser Protected Plastic &
Glass Periscopes, Electronic M17 Day/Thermal Periscopes, Vision
Blocks
|
|
|
|
|
|
Sighting Systems
|
|
Back Up Sights, Digital Day and Night Sighting
Systems (DDAN), M36 Thermal Periscope, Unity Mirrors
|
|
|
|
|
|
Howitzers
|
|
M137 Telescope, M187 Mount, M119 Aiming
Device
|
|
|
|
|
|
Other
|
|
Muzzle Reference Systems (MRS), Binoculars,
Collimators, Optical Lenses & Elements, Windows
|
|
|
|
|
|
Applied Optics Center
|
|
ACOG Laser filter, Laser Filter Interface,
Optical Assemblies
|
Location
and Facility
We are headquartered in Richardson, TX and lease approximately
93,733 combined square feet of facilities including Richardson,
Texas and Dallas, Texas. As of December 11, 2015, we had 92 full
time equivalent employees. We operate with a single shift, and
capacity could be expanded by adding a second shift. Our
proprietary processes and methodologies provide barriers to entry
for other competing suppliers. In many cases, we are the sole
source provider or one of only two providers of a product. We have
capabilities which include machining, bonding, painting, tracking,
engraving and assembly and can perform both optical and
environmental testing in-house. We renewed the lease on our 49,100
square foot, Richardson, Texas facility, effective as of December
10, 2013, with a lease expiration of March 31, 2021. As of December
11, 2015, the Richardson facility operates with 58 full time
equivalent employees in a single shift operation.
In November 2014, we also acquired a business unit from L-3
Communications, Inc., which is described herein below under
“Recent Events — Acquisition”. The acquisition,
Applied Optics Center, is located in Dallas, Texas with leased
premises consisting of approximately 56,633 square feet of space,
of which 12,000 square feet is currently subleased to L3 Mobile
Vision. As of December 11, 2015, the Applied Optics Center operates
with 34 full time equivalent employees in a single shift
operation.
27
Contracts
Many of our contracts allow for government
contract financing in the form of contract progress payments pursuant to Federal Acquisition Regulation 52.232-16, “Progress
Payments”. As a small business, and subject to certain limitations, this clause provides for government payment of
up to 90% of incurred program costs prior to product delivery. To the extent our contracts allow for progress payments, we
intend to utilize this benefit, thereby minimizing the working capital impact on us for materials and labor required to complete
the contracts.
Our
contracts allow for Federal Acquisition Regulation 52.243-1 which entitles the contractor to an “equitable adjustment”
to the contract if the contract changes result in a change in contract costs or time of performance. In essence, an
equitable price adjustment request is a request for a contract price modification (generally an increase) that allows for the
contractor to be “made whole” for additional costs incurred which were necessitated by some modification of the contract
effort. This modification may come from an overt change in U.S. Government requirements or scope, or it may come from
a change in the conditions surrounding the contract (e.g., differing site conditions or late delivery of U.S. Government-furnished
property) which result in statement of work additions, deletions, part substitutions, schedule or other changes to the contract
which impact the contractor’s overall cost to complete.
During 2010, Optex Systems Holdings realized increased losses
against the Howitzer programs of $1.1 million of which $0.8 million related specifically to production issues encountered on our
Howitzer product line. Increased losses were primarily attributable to manufacturing issues on our U.S. government Howitzer
Aiming Circles culminating in higher material scrap and labor hours, combined with a reduction in total production volume in 2010
which further impacted production efficiencies across all product lines. Optex Systems Holdings requested an equitable adjustment
on this program due to significant design issues impacting the manufacturability of the product. As there was no guarantee
that the request would be granted in part or in full, we realized the entire loss in fiscal year 2010. The initial equitable
adjustment claim was formally rejected by the contracting agency on May 31, 2012; however, we appealed the decision with the Armed
Services Board of Contract Appeals (ASBCA). In September 2015, the U.S. Government agreed to a $0.9 million settlement against
the claim for the Aiming Circle contract number W52H09-06-D-0229. The settlement is the result of a negotiation and fact gathering
process managed through the Armed Services Contract Board of Appeals. A contract modification was issued on September 23, 2015
increasing the total contract price by the agreed amount. As the respective units were shipped complete in 2011, the contract
was essentially complete on execution of the modification and the entire amount was recorded as revenue for the twelve months
ended September 27, 2015.
Each contract with our customers has specific
quantities of material that need to be purchased, assembled, and then shipped. Prior to bidding a contract, we contact potential
sources of material and receive qualified quotations for each material. In some cases, the entire volume is given to a single
supplier and in other cases, the volume might be split between several suppliers. If a contract has a single source supplier and
that supplier fails to meet their obligations (e.g., quality, delivery), then we would attempt to find an acceptable alternate
supplier, and if successful, we would then renegotiate contractual deliverables (e.g., specifications, delivery, price). As of
June 26, 2016, approximately 24% of our material requirements are single-sourced across 7 suppliers representing approximately
11% of our active supplier orders. Single-sourced component requirements span across all of our major product lines. Of these
single sourced components, we have material contracts (purchase orders) with firm pricing and delivery schedules in place with
each of the suppliers to supply the parts necessary to satisfy our current contractual needs.
We are subject to, and must comply with, various governmental
regulations that impact, among other things, our revenue, operating
costs, profit margins and the internal organization and operation
of our business. The material regulations affecting our U.S.
government business are summarized in the table below.
|
|
|
|
|
Federal Acquisition Regulation
|
|
The principal set of rules in the Federal
Acquisition Regulation System. This system consists of sets of
regulations issued by agencies of the federal government of the
United States to govern what is called the “acquisition
process,” which is the process through which the government
acquires goods and services. That process consists of three phases:
(1) need recognition and acquisition planning, (2) contract
formation, and (3) contract administration. This system regulates
the activities of government personnel in carrying out that
process. It does not regulate the purchasing activities of private
sector firms, except to the extent that those activities involve
government solicitations and contracts by reference.
|
|
|
|
|
|
International Traffic in Arms
Regulations
|
|
United States government regulations that
control the export and import of defense-related articles and
services on the United States Munitions List. These regulations
implement the provisions of the Arms Export Control Act.
|
|
|
|
|
|
Truth in Negotiations Act
|
|
A public law enacted for the purpose of
providing for full and fair disclosure by contractors in the
conduct of negotiations with the government. The most significant
provision included is the requirement that contractors submit
certified cost and pricing data for negotiated procurements above a
defined threshold of $750,000. It requires contractors to provide
the government with an extremely broad range of cost or pricing
information relevant to the expected costs of contract performance,
and it requires contractors and subcontractors to submit cost or
pricing data to the government and to certify that, to the best of
their knowledge and belief, the data are current, accurate, and
complete.
|
We
are responsible for full compliance with the Federal Acquisition Regulation. Upon award, the contract may identify certain regulations
that we need to meet. For example, a contract may allow progress billing pursuant to specific Federal Acquisition Regulation clauses
incorporated into the contract. Other contracts may call for specific first article acceptance and testing requirements. The Federal
Acquisition Regulation will identify the specific regulations that we must follow based on the type of contract awarded. The Federal
Acquisition Regulation also contains guidelines and regulations for managing a contract after award, including conditions under
which contracts may be terminated, in whole or in part, at the government’s convenience or for default. These regulations
also subject us to financial audits and other reviews by the government of our costs, performance, accounting and general business
practices relating to our government contracts, which may result in adjustment of our contract-related costs and fees and, among
other things and impose accounting rules that define allowable and unallowable costs governing our right to reimbursement under
certain contracts.
28
First Article Testing and Acceptance requirements consist of
specific steps. For example, the first article testing associated
with Howitzer-type product is comprehensive and time consuming. The
dimensions and material specifications of each piece of the
assembly must be verified, and each product has in excess of 100
piece parts. Once the individual piece parts are verified to be compliant to the specification, the assembly processes are
documented and verified. A sample of the production (typically
three units) is verified to meet final performance specifications.
Once the units meet the final performance specification, they are
then subjected to accelerated life testing, a series of tests which
simulate the lifetime use of the product in the field. This
consists of exposing the units to thermal extremes, humidity,
mechanical shock, vibration, and other physical exposure tests.
Once completed, the units undergo a final verification process to
ensure that no damage has occurred as a result of the testing and
that they continue to meet the performance specification. All of
the information and data is recorded into a final first article
inspection and test report and submitted to the customer along with
the test units for final approval. First Article Acceptance and
Testing is generally required on new contracts/product awards but
may also be required on existing products or contracts where there
has been a significant gap in production, or where the product has
undergone significant manufacturing process, material, tooling,
equipment or product configuration changes.
We are also subject to laws, regulations and executive orders
restricting the use and dissemination of information deemed
classified for national security purposes and the exportation of
certain products and technical data as covered by the International
Traffic in Arms Regulation. In order to import or export items
listed on the U.S. Munitions List, we are required to be registered
with the Directorate of Defense Trade Controls office. The
registration is valid for one year, and the registration fees are
established based on the number of license applications submitted
the previous year. We currently have an approved and current
registration on file with the Directorate of Defense Trade Controls
office. Once the registration is approved, each import/export
license must be filed separately. License approval requires the
company to provide proof of need, such as a valid contract or
purchase order requirement for the specific product or technical
data requested on the license and requires a detailed listing of
the items requested for export/import, the end-user, the end-user
statement, the value of the items, consignees/freight forwarders
and a copy of a valid contract or purchase order from the end-user.
The approval process for the license can vary from several weeks to
six months or more. The licenses we currently use are the DSP-5
(permanent export), DSP-6 (license revisions) and DSP-73 (temporary
export).
The aforementioned licenses are valid for 48 months from date that
each such license is issued as set forth on the table below
(updated as of June 30, 2016).
|
DSP – 5 licenses
|
|
Issue
Date
|
|
Expiration
Date
(48 months
of issue)
|
|
50397890
|
|
8/8/2012
|
|
8/7/2016
|
|
50398181
|
|
8/10/2012
|
|
8/9/2016
|
|
50398178
|
|
8/10/2012
|
|
8/9/2016
|
|
50402338
|
|
8/29/2012
|
|
8/28/2016
|
|
50403055
|
|
9/6/2012
|
|
9/5/2016
|
|
50399603
|
|
9/18/2012
|
|
9/17/2016
|
|
50401835
|
|
9/12/2012
|
|
9/11/2016
|
|
50430589
|
|
1/25/2013
|
|
1/22/2017
|
|
50435218
|
|
3/7/2013
|
|
3/5/2017
|
|
50435219
|
|
3/7/2013
|
|
3/5/2017
|
|
50439431
|
|
3/7/2013
|
|
11/4/2017
|
|
50455029
|
|
6/10/2013
|
|
6/8/2017
|
|
50459204
|
|
6/28/2013
|
|
6/26/2017
|
|
50468553
|
|
7/29/2013
|
|
7/28/2017
|
|
50468550
|
|
8/30/2013
|
|
8/28/2017
|
|
50470855
|
|
9/9/2013
|
|
9/8/2017
|
|
50486913
|
|
11/20/2013
|
|
11/19/2017
|
|
50486760
|
|
12/5/2013
|
|
12/4/2017
|
|
50486727
|
|
12/6/2013
|
|
12/5/2017
|
|
50490381
|
|
12/11/2013
|
|
12/10/2017
|
|
50490628
|
|
1/3/2014
|
|
1/2/2018
|
|
50490371
|
|
1/14/2014
|
|
1/13/2018
|
|
50497324
|
|
2/1/2014
|
|
1/31/2018
|
|
50497307
|
|
2/12/2014
|
|
2/11/2018
|
29
|
DSP
– 5 licenses
|
|
Issue
Date
|
|
Expiration
Date
(48 months
of issue)
|
|
50497324
|
|
2/20/2014
|
|
2/19/2018
|
|
50497162
|
|
2/20/2014
|
|
2/19/2018
|
|
50501481
|
|
2/26/2014
|
|
2/25/2018
|
|
50504795
|
|
3/27/2014
|
|
3/26/2018
|
|
50511388
|
|
4/21/2014
|
|
4/20/2018
|
|
50510061
|
|
5/19/2014
|
|
5/18/2018
|
|
50521562
|
|
6/27/2014
|
|
6/26/2018
|
|
50521680
|
|
7/7/2014
|
|
7/6/2018
|
|
50521706
|
|
7/15/2014
|
|
7/14/2018
|
|
50521673
|
|
7/15/2014
|
|
7/14/2018
|
|
50521555
|
|
7/17/2014
|
|
7/16/2018
|
|
50530555
|
|
9/22/2014
|
|
9/21/2018
|
|
50537697
|
|
10/30/2014
|
|
10/29/2018
|
|
50539610
|
|
11/14/2014
|
|
11/13/2018
|
|
50486913
|
|
11/20/2014
|
|
11/19/2018
|
|
50537673
|
|
11/25/2014
|
|
11/24/2018
|
|
50546222
|
|
1/9/2015
|
|
1/8/2019
|
|
50549789
|
|
2/18/2015
|
|
2/17/2019
|
|
50549846
|
|
2/23/2015
|
|
2/22/2019
|
|
50549534
|
|
2/25/2015
|
|
2/24/2019
|
|
50549933
|
|
2/27/2015
|
|
2/26/2019
|
|
50549843
|
|
3/23/2015
|
|
3/22/2019
|
|
50553876
|
|
3/27/2015
|
|
3/26/2019
|
|
50553879
|
|
3/23/2015
|
|
3/22/2019
|
|
50560846
|
|
5/21/2015
|
|
5/20/2019
|
|
50560953
|
|
5/29/2015
|
|
5/28/2019
|
|
50560953
|
|
5/29/2015
|
|
5/28/2019
|
|
50561878
|
|
6/05/2015
|
|
6/4/2019
|
|
50562319
|
|
6/12/2015
|
|
6/11/2019
|
|
50568890
|
|
8/7/2015
|
|
8/6/2019
|
|
50565738
|
|
7/9/2015
|
|
7/8/2019
|
|
050566061
|
|
7/22/2015
|
|
7/21/2019
|
|
050561747
|
|
7/27/2015
|
|
7/26/2019
|
|
050565746
|
|
7/30/2015
|
|
7/29/2019
|
|
050568890
|
|
8/7/2015
|
|
8/6/2019
|
|
050570373
|
|
8/21/2015
|
|
8/20/2019
|
|
050571083
|
|
9/8/2015
|
|
9/7/2019
|
|
050574185
|
|
9/25/2015
|
|
9/24/2019
|
|
050573342
|
|
10/7/2015
|
|
10/6/2019
|
|
050573343
|
|
10/7/2015
|
|
10/6/2019
|
|
050581564
|
|
12/11/2015
|
|
12/10/2019
|
|
050581341
|
|
12/17/2015
|
|
12/16/2019
|
|
050582302
|
|
12/17/2015
|
|
12/16/2019
|
|
050581218
|
|
12/18/2015
|
|
12/17/2019
|
|
050581341
|
|
12/17/2015
|
|
12/16/2019
|
|
050582108
|
|
1/20/2016
|
|
1/19/2020
|
|
050586060
|
|
2/24/2016
|
|
2/23/2020
|
|
050598474
|
|
6/10/2016
|
|
6/9/2020
|
|
050596660
|
|
6/23/2016
|
|
6/22/2020
|
30
|
DSP – 6 licenses
|
|
Issue Date
|
|
Expiration Date
(48 months
of issue)
|
|
060046631
|
|
10/22/2015
|
|
10/20/2019
|
|
060046632
|
|
10/21/2015
|
|
10/20/2019
|
|
DSP – 73 Licenses
|
|
Date Issued
|
|
Expiration Date
(48 months
of issue)
|
|
730038918
|
|
8/13/2012
|
|
8/12/2016
|
|
730039701
|
|
9/26/2012
|
|
9/24/2016
|
|
730053549
|
|
7/29/2015
|
|
7/28/2019
|
Licenses are subject
to termination if a licensee is found to be in violation of the Arms Export Control Act or the International Traffic in Arms Regulations
requirements. If a licensee is found to be in violation, in addition to a termination of its licenses, it can be subject to fines
and penalties by the government.
Our contracts may also be governed by the Truth in Negotiation Act
requirements where certain of our contracts or proposals exceed the
$750,000 threshold and/or are deemed as sole source, or
non-competitive awards, covered under this act. For these
contracts, we must provide a vast array of cost and pricing data in
addition to certification that our pricing data and disclosure
materials are current, accurate and complete upon conclusion of the
negotiation. Due to the additional disclosure and certification
requirements, if a post contract award audit were to uncover that
the pricing data provided was in any way not current, accurate or
complete as of the certification date, we could be subjected to a
defective pricing claim adjustment with accrued interest.
Currently, we do not have any pending defective pricing claim
adjustments. Additionally, as a result of this requirement,
contract price negotiations may span from two to six months and can
result in undefinitized or not to exceed ceiling priced contracts
subject to future downward negotiations and price adjustments.
Currently, we do not have any undefinitized contracts subject to
further price negotiation.
Our failure to comply with applicable regulations, rules and
approvals or misconduct by any of our employees could result in the
imposition of fines and penalties, the loss of security clearances,
the loss of our U.S. government contracts or our suspension or
debarment from contracting with the U.S. government generally, any
of which could have a material adverse effect our business,
financial condition, results of operations and cash flows. We are
currently in compliance with all applicable regulations and do not
have any pending claims as a result of noncompliance.
The terms of our material contracts are as follows (updated as of
June 26, 2016):
|
Customer
|
|
Customer
PO/Contract
|
|
Contract
Type
(1)
|
|
Total
Award
Value
(2)
(millions)
|
|
|
Order
Period
Expiration
|
|
Remaining
Value
(3)
(millions)
|
|
|
Delivery
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GDLS – Canada
(4)
DDAN Sighting Systems
|
|
Subcontract
PO 35334144
|
|
FFPQ
|
|
$
|
8.7
|
|
|
N/A
|
|
$
|
1.6
|
|
|
Mid 2012 – Dec 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GDLS – Canada
(5)
DDAN Sighting Systems
|
|
Subcontract
PO 35419634
|
|
FFPQ
|
|
$
|
1.0
|
|
|
N/A
|
|
$
|
1.0
|
|
|
Sept 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USACC – Warren
(6)
ACOG Laser Filters (AOC)
|
|
Prime Contract W56HZV-15-C-0139
|
|
FFPQ
PP
|
|
$
|
1.3
|
|
|
July 7, 2016
|
|
$
|
0.6
|
|
|
Dec 2015 – Aug 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USACC – Warren
(7)
Plastic Periscopes
|
|
Prime Contract W56HZV-16-C-0091
|
|
FFPQ
PP
|
|
$
|
1.1
|
|
|
April 13, 2017
|
|
$
|
1.1
|
|
|
Oct 2016 – Dec 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Dynamics
(8)
|
|
Subcontract
|
|
FFPQ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PO 40242047
|
|
|
|
$
|
1.3
|
|
|
N/A
|
|
$
|
1.3
|
|
|
Aug 2016 – Oct 2017
|
____________
31
(6)
New prime U.S. government contract award on July 7, 2015 for $1.3 million. The awarded contract includes a 100%, 1 year option
quantity, up to an additional $1.3 million from the base award.
(7)
New prime U.S. government contract award on April 13, 2016 for $0.84 million. The awarded contract includes a 100%, one year option
quantity, up to an additional $0.84 million from the base award. As of July 12, 2016 $0.22 million in option quantity values had
been awarded.
(8)
New contract award quantity awarded on January 24, 2016.
The impact on us of U.S. congressionally mandated defense spending
reductions is reflected in the lower annual sales and based on the
most recent U.S. Budget projections. The projected spending will
approximate or decline slightly from the current reduced spending
levels through fiscal year 2020. The chart below was derived from
public government spending sources and depicts total U.S. military
spending from 2004 through 2014 and forecasted spending through
2020. It is difficult to directly tie this spending to any specific
military vehicles; however, we serve the U.S. armed forces, active
duty and reserves, plus various state national guards. The purpose
of including this chart is to provide the reader with actual trend
data showing U.S. military defense and procurement spending from
2004 through 2014. The total military spending increased from
$436.4 billion in 2004 and peaked at $678.1 billion in 2011
representing a total increase in military spending of 55.4% during
that period. As of fiscal year 2015 the total projected military
spending is projected to decline by 16.3% from the peak 2011 level.
However, the military procurement budget in the below chart depicts
a more significant decline through 2015 of 20.5% to $106.2 billion
from its peak level of $133.6 billion in 2010. The U.S. government
spending reductions have had a significant impact on our product
lines as our products directly support various types of U.S.
military land vehicle procurements. As a result of lower U.S.
government spending, the Company has continued to explore other
opportunities for manufacturing outside of our traditional product
lines for products which could be manufactured using our existing
lines in order to fully utilize our existing capacity. Further, we
continue to look for additional strategic businesses to acquire
that will strengthen our existing product line, expand our
operations, and enter new markets.
32
Source: Government
Printing Office, U.S. Budget Historical Tables, FY 2015, Table 3.2
Outlays by function and subfunction, 1962-2020
The following factors are important to the U.S. military:
•
Product reliability — failure can cost lives
•
Speed to delivery and adherence to delivery schedule
•
System life cycle extension
•
Low cost/best value
•
Visual aids for successful execution of mission objectives
•
Mission critical products specifically related to soldier
safety.
We focus on delivering products that satisfy these factors and
believes it is well positioned to continue to service U.S. and
foreign military needs.
Market
Opportunity — Foreign Military
Despite the downturn in U.S. military spending, foreign military
funding for products built in the United States for selected
foreign militaries has held to peak funding levels. Thus, we have
increased efforts to promote our proven military products, as well
as newly improved product solutions directly to foreign military
representatives. In 2014, we completed the first shipments of M17
Day/Thermal Periscope (NSN 6650-01-619-6545) to a country in South
America. This direct sales transaction allows us to directly serve
South American customers and affect influence into their future
procurements. Additionally, shipment of the new M17 Day/Thermal
Periscope validates our efforts to upgrade existing platforms with
new technology. The M17 Day/Thermal Periscope is a cost effective
upgrade to existing systems in that it provides both day and
thermal views specifically designed for driving armored vehicles. It can be installed in
vehicles which were originally designed without this technology and
may be used as a backup to existing systems. We anticipate our
efforts in South America will culminate in new orders for this
technology in the near term. We are now bidding on several
substantial government contracts to expand sales and production
beyond the current production and backlog. For example, we are
supporting General Dynamics Land Systems in their efforts related
to the production of the Israeli Namer Armored Personnel Carrier
(aka Merkava APC). We will continue to pursue international
opportunities through direct sales (e.g., General Dynamics Land
Systems — Canada) and through existing customers (e.g.,
General Dynamics Land Systems — Israeli Namer Project).
33
We
are also exploring possibilities to adapt some of our products for commercial use in those markets that demonstrate potential
for solid revenue growth, both domestically and internationally.
Market
Opportunity — Commercial
Our products are currently sold to military and related government
markets. We believe there may be opportunities to commercialize
various products we presently manufacture to address other markets.
Our initial focus will be directed in four product areas.
•
Big Eye Binoculars — While the military application we
produce is based on mature military designs, we own all castings,
tooling and glass technology. These large fixed mount binoculars
could be sold to cruise ships, personal yachts and
cities/municipalities. The binoculars are also applicable to fixed,
land based outposts for private commercial security as well as
border patrols and regional law enforcement.
•
Night Vision Sight — We have manufactured the optical system
for the NL-61 Night Vision Sight for the Ministry of Defense of
Israel. This technology could be implemented for commercial
applications.
•
Infrared Imaging Equipment — We manufacture and assemble
infrared imaging equipment and components for Raytheon’s
Thermal Imaging M36 Mount product and has recently added a
low-cost, uncooled, thin film, thermal imager through its
partnership with selective suppliers. This combined equipment and
technology has potential applications with the border patrol,
police and governmental or commercial security agencies.
•
Thin Film Coatings — The acquisition of the Applied Optics
Center (AOC) also creates a new sector of opportunity for
commercial products for us. Globally, commercial optical products
use thin film coatings to create product differentiation. These
coatings can be used for redirecting light (mirrors), blocking
light (laser protection), absorbing select light (desired
wavelengths), and many other combinations. They are used in
telescopes, rifle scopes, binoculars, microscopes, range finders,
protective eyewear, photography, etc. Given this broad potential,
the commercial applications are a key opportunity going
forward.
Customer
Base
We serve customers in four primary categories: as prime defense
contractor (TACOM Life Cycle Command, DLA (Defense Logistics
Agency) Warren, U.S. Army, Navy and Marine Corps), as defense
subcontractor (General Dynamics, L-3 Communications, BAE, and
NorcaTec) and also as a military supplier to foreign governments
(Israel, Australia and NAMSA) and a commercial optical assembly
supplier (Nightforce Optics, Cabela’s). During the nine months ended June 26, 2016, we derived approximately 83% of
our gross business revenue from four major customers: U.S.
government agencies (44%), General Dynamics (17%), Exelis (8%), Nightforce Optics, Inc. (14%). We have
approximately 80 discrete contracts for items that are utilized in
vehicles, product lines and spare parts. Due to the high percentage
of prime and subcontracted U.S. defense revenues, large customer
size and the fact that there are multiple contracts with each
entity, which are not interdependent, we are of the opinion that
this provides us with a fairly well diversified revenue pool.
34
Marketing
Plan
Potential Entrants — Low Risk to us. In order to enter this
market, potential competitors must overcome several barriers to
entry. The first hurdle is that an entrant would need to prove to
the government agency in question the existence of a government
approved accounting system for larger contracts. Second, the
entrant would need to develop the processes required to produce the
product. Third, the entrant would then need to produce the product
and then submit successful test requirements (many of which require
lengthy government consultation for completion). Finally, in many
cases, the customer has an immediate need and therefore cannot wait
for this qualification cycle and therefore must issue the contracts
to existing suppliers.
Historically, we competed with two other companies in different
spaces. First, we previously competed with Miller-Holzwarth in the
plastic periscope business. In July 2012, Miller-Holzwarth, Inc.
ceased operations apparently as a result of an inability to meet
its financial obligations combined with a decline in defense market
conditions. Second, we currently compete with Seiler Instruments
for fire control products. These contracts are higher value
products, but lower quantities. Given the expense of development
and qualification testing, the barrier to entry is high for new
competitors. During the last four years, overall plastic periscope
demand quantities have declined, while competition on the lower
level periscope products has significantly increased as new
contractors aggressively compete for market share amongst the
existing customer base and quantities.
Buyers — Medium Risk to us. In most cases the buyers (usually
government agencies or defense contractors) have two fairly strong
suppliers. It is in their best interest to keep at least two, and
therefore, in some cases, the contracts are split between
suppliers. In the case of larger contracts, the customer can
request an open book policy on costs and expects a reasonable
margin to have been applied.
Substitutes
— Low Risk to us. We have both new vehicle contracts and replacement part contracts for the exact same product. The U.S.
government has declared that the Abrams/Bradley base vehicles will be the ground vehicle of choice through 2040.
35
The Bradley vehicle has been in service for 28 years, the Abrams
for 27 years. In February 2008, the U.S. Army signed a multiyear
third party contract for the delivery of improved Abrams and
Bradleys. The contract is for up to 435 tanks and 540 Bradley
vehicles. These are the only production tanks currently in
production by the government. This, in conjunction with the 30-year life span, supports their continued use through 2040.
The Abrams is the principal battle tank of the United States Army
and Marine Corps, and the armies of Egypt, Kuwait, Saudi Arabia,
and since 2007, Australia. The new contract terms allow
efficiencies within the supply chain and a very long return on
investment on new vehicle proposals.
Suppliers — Low to Medium Risk to Optex Systems Holdings. The
suppliers of standard processes (e.g., casting, machining and
plating) need to be very competitive to gain and/or maintain
contracts. Those suppliers of products that use top secret
clearance processes are slightly better off; however, there
continues to be multiple avenues of supply and therefore only
moderate power.
Consistent with our marketing plan and business model, the AOC
acquisition strengthened our overall position by decreasing the
bargaining power of their suppliers through the backwards
integration of a key supplier and created additional barriers of
entry of potential competitors. Overall, the customer base and the
competition have seen the acquisition as creating a stronger
company.
The second model is a two by two matrix for products and
customers.
|
|
|
|
|
Chile
M17 Day/Thermal
|
|
|
|
USACC
Binoculars
|
|
Brazil
M17
Day/Thermal
|
|
New
Products
|
|
GDLS
DDAN
|
|
Israel
M17 Day/Thermal
|
|
|
|
Commercial
Optical
Lens
|
|
Commercial:
Optical Lens, Spotting
Scopes, Monocular Lens
|
|
|
|
|
|
|
|
|
|
USACC
Periscopes, Back Up Sights,
|
|
|
|
|
|
Binoculars,
Vision Blocks,
|
|
|
|
|
|
ACOG
Filter Units
|
|
Marines
Sighting Systems
|
|
|
|
GDLS
Periscopes, Collimators
|
|
Commercial:
Optical Lens, Spotting
|
|
Existing
Products
|
|
|
|
Scopes,
Monocular Lens
|
|
|
|
BAE
Periscopes
|
|
|
|
|
|
L3
-
Laser Interface Filters
|
|
|
|
|
|
DLA
Optical
Elements
|
|
|
|
|
|
|
|
|
|
|
|
Existing
Customers
|
|
New
Customers
|
This product/customer matrix sets forth our four basic
approaches:
1)
Sell
existing products to existing customers.
2)
Sell
existing products to new customers.
3)
Develop
new products to meet the needs of our existing customers.
4)
Develop
new products to meet the needs of new customers.
The product categories described in the above matrix are associated
with the product lines set forth below:
|
|
|
|
|
Periscopes
|
|
Laser & Non Laser Protected Plastic &
Glass Periscopes, Electronic M17 Day/Thermal Periscopes, Vision
Blocks
|
|
|
|
|
|
Sighting Systems
|
|
Back Up Sights, Digital Day and Night Sighting
Systems (DDAN), M36 Thermal Periscope, Unity Mirrors
|
|
|
|
|
|
Howitzers
|
|
M137 Telescope, M187 Mount, M119 Aiming
Device
|
|
|
|
|
|
Other
|
|
Muzzle Reference
Systems (MRS), Binoculars, Collimators, Optical Lenses &
Elements, Windows
|
|
|
|
|
|
Applied Optics Center
|
|
ACOG Laser filter, Laser Filter Interface,
Optical Assemblies
|
36
Operations
Plan
Our operations plan can be broken down into three distinct areas:
material management, manufacturing space planning and efficiencies
associated with economies of scale.
Materials Management
The largest portion of our costs is materials. We have completed
the following activities in order to demonstrate continuous
improvement:
-
Successful completion of annual surveillance audit for ISO
9001:2008 certificate, with no major nonconformance issues
-
Weekly cycle counts on inventory items
-
Weekly material review board meeting on non-moving piece parts
-
Kanban kitting on products with consistent ship weekly ship
quantities
-
Daily cross functional floor meetings focused on delivery, yields
and labor savings
-
Redesigned floor layout using tenant improvement funds
-
Daily review of yields and product velocity
-
Bill of material reviews prior to work order release
Future
continuous improvement opportunities include installation and training of shop floor control module within the ERP system and
organizational efficiencies of common procurement techniques among buyers.
Manufacturing Space Planning
We currently lease 93,733 square feet of manufacturing space (see
“Location and Facility”), including the additional
leased space in conjunction with our recent acquisition as
described under “Recent Events”. Our current facilities
are sufficient to meet our immediate production needs without
excess capacity. As our processes are primarily labor driven, we
are able to easily adapt to changes in customer demand by adjusting
headcounts, overtime schedules and shifts in line with production
needs. In the event additional floor space is required to
accommodate new contracts, Optex has the option to lease adjacent
floor space at the current negotiated lease cost per square foot.
Consistent with the space planning, we will drive economies of
scale to reduce support costs on a percentage of sales basis. These
cost reductions can then be either passed through directly to the
bottom line or used for business investment.
Our manufacturing process is driven by the use of six sigma
techniques and process standardization. Initial activities in this
area have been the successful six sigma projects in several
production areas which have led to improved output and customer
approval on the aesthetics of the work environment. In addition, we
use many tools including 5S programs, six sigma processes, and
define, measure, analyze, improve, control (DMAIC) problem solving
techniques to identify bottlenecks within the process flow, reduce
cost and improve product yields. Successful results can then be
replicated across the production floor and drive operational
improvements.
Economies of Scale
Plant efficiencies fluctuate as a function of program longevity,
complexity and overall production volume. Our internal processes
are primarily direct labor intensive and can be more easily adapted
to meet fluctuations in customer demand; however, our material
purchases, subcontracted operations and manufacturing support costs
are extremely sensitive to changes in volume. As our volume
increases, our support labor, material and scrap costs decline as a
percentage of revenue as we are able to obtain better material
pricing, and scrap, start up and support labor (fixed) costs and
they are spread across a higher volume base. On the contrary, as
production volumes decline, our labor and material costs per unit
of production generally increase. Additional factors that
contribute to economies of scale relate to the longevity of the
program. Long running, less complex programs (e.g., periscopes) do
not experience as significant of an impact on labor costs as
production volumes change, as the associated workforce is generally less skilled and can be ramped
quickly as headcounts shift. Our more complex thin laser filter
coatings, Howitzer and thermal day/night programs are more
significantly impacted by volume changes as they require a more
highly-skilled workforce and ramp time is longer as the training is
more complex. We continually monitor customer demand over a rolling
twelve-month window and in order to anticipate any changes in
necessary manpower and material which allows us to capitalize on
any benefits associated with increased volume and minimize any
negative impact associated with potential declines in product
quantities.
37
Intellectual
Property
We utilize several highly specialized and unique processes in the
manufacture of our products. While we believe that these trade
secrets have value, it is probable that our future success will
depend primarily on the innovation, technical expertise,
manufacturing and marketing abilities of our personnel. We cannot
assure you that we will be able to maintain the confidentiality of
our trade secrets or that our non-disclosure agreements will
provide meaningful protection of our trade secrets, know-how or
other proprietary information in the event of any unauthorized use,
misappropriation or other disclosure. The confidentiality
agreements that are designed to protect our trade secrets could be
breached, and we might not have adequate remedies for the breach.
Additionally, our trade secrets and proprietary know-how might
otherwise become known or be independently discovered by others. We
possess two patents and have applied for another in the US and in
foreign countries. While we are optimistic that our application
will be approved, we cannot guarantee that this patent application
will ever transpire into an awarded patent. The claims were based
on technology which is believed to be unique; however, there are
many companies and many patents already awarded in this space.
Further, the time frame for the US Patent and Trademark Office to
review the patent application and engage in negotiations cannot be
guaranteed.
Our competitors, many of which have substantially greater
resources, may have applied for or obtained, or may in the future
apply for and obtain, patents that will prevent, limit or interfere
with our ability to make and sell some of our products. Although we
believe that our products do not infringe on the patents or other
proprietary rights of third parties, we cannot assure you that
third parties will not assert infringement claims against us or
that such claims will not be successful.
In May 2015, we announced the issuance to us of U.S. Patent No.
13,792,297 titled “ICWS Periscope”. This invention
improves previously accepted levels of periscope performance that,
in turn, improve soldier’s safety.
In December 2013, Optex Systems, Inc. was issued U.S. Patent No.
23,357,802 titled “Multiple Spectral Single Image Sighting
System Using Single Objective Lens Set.” The technology
platform, designed for our DDAN program, is applicable to all
ground combat vehicles used by the US and foreign militaries. This
invention presents a single image to both day and night sensors
using precision optics, which in turn allows the user to
individually observe day, night, or day and night simultaneously.
In addition, it has proven to be especially useful in light
transition points experienced at dusk and dawn. We are in
production and currently delivering sighting systems with this
advanced technology, a significant upgrade in the goal of
supporting our customers as they modernize the worldwide inventory
of aging armored vehicles. This technology is applicable to many
sighting systems, and it has already been designed for
implementation on the Light Armored Vehicles, the Armored Security
Vehicle, the Amphibious Assault Vehicle, and the M60 Main Battle
Tank. Digital Day and Night technology has advanced the
capabilities of these installed weapon systems and is the first in
a series of patents we have applied for to protect our Intellectual
Property portfolio in support of the warfighters who use these
systems.
In May 2012, we purchased a perpetual, non-exclusive license, with
a single up front license fee of $200,000 to use Patent 7,880,792
“Optical and Infrared Periscope with Display Monitor”
owned by Synergy International Optronics, LLC. We believe the
purchase of the license agreement may allow us to extend and expand
our market potential for the M113APC vehicle type which has the
highest number of commonly used armored vehicles in the world. The
current estimated active M113 APC worldwide inventory is over
80,000 units. This licensing of this patent allows us to develop
additional products for this vehicle type, including the M17
Day/Thermal and M17 Day/Night periscopes. We are actively marketing
the new periscopes internationally and completed our first
international shipment utilizing this technology in March 2014. We
continue to prototype these products and demonstrate them to
potential customers.
Competition
The markets for our products are competitive. We compete primarily
on the basis of our ability to design and engineer products to meet
performance specifications set by our customers. Our customers
include military and government end users as well as prime
contractors that purchase component parts or subassemblies, which
they incorporate into their end products. Product pricing, quality,
customer support, experience, reputation and financial stability
are also important competitive factors.
38
There are a limited number of competitors in each of the markets
for the various types of products that we design, manufacture and
sell. At this time, we consider our primary competitors for the
Optex, Richardson site to be Seiler Instruments, Kent Periscopes
and Synergy International Optronics, LLC. The Applied Optics Center
thin film and laser coatings products compete primarily with
Materion-Barr, Artemis and Alluxa.
Our competitors are often well entrenched, particularly in the
defense markets. Some of these competitors have substantially
greater resources than we do. While we believe that the quality of
our technologies and product offerings provides us with a
competitive advantage over certain manufacturers, some of our
competitors have significantly more financial and other resources
than we do to spend on the research and development of their
technologies and for funding the construction and operation of
commercial scale plants.
We expect our competitors to continue to improve the design and
performance of their products. We cannot assure investors that our
competitors will not develop enhancements to, or future generations
of, competitive products that will offer superior price or
performance features, or that new technology or processes will not
emerge that render our products less competitive or obsolete.
Increased competitive pressure could lead to lower prices for our
products, thereby adversely affecting our business, financial
condition and results of operations. Also, competitive pressures
may force us to implement new technologies at a substantial cost,
and we may not be able to successfully develop or expend the
financial resources necessary to acquire new technology. We cannot
assure you that we will be able to compete successfully in the
future.
Employees
We had 89 full time equivalent employees as of June 26, 2016.
We also utilize small temporary work forces to handle peak loads as
needed. To the best of our knowledge, we are compliant with local
prevailing wage, contractor licensing and insurance regulations,
and has good relations with its employees, who are not currently
unionized.
Leases
We are headquartered in Richardson, TX and lease 93,733 combined
square feet of facilities including Richardson, Texas and Dallas,
Texas. We operate with a single shift, and capacity could be
expanded by adding a second shift. Our proprietary processes and
methodologies provide barriers to entry for other competing
suppliers. In many cases, we are the sole source provider or one of
only two providers of a product. We have capabilities which include
machining, bonding, painting, tracking, engraving and assembly and
can perform both optical and environmental testing in-house.
We renewed the lease on our 49,100 square foot, Richardson, Texas
facility, effective as of December 10, 2013 with a lease expiration
of March 31, 2021. As of June 26, 2016, the Richardson facility
operates with approximately 58 full time equivalent employees in a single shift
operation.
In November 2014, we also acquired a new business unit from L-3
Communications, Inc., which is described herein below under
“Recent Events — Acquisition”. The acquisition,
the Applied Optics Center, is located in Dallas, Texas with leased
premises consisting of approximately 56,633 square feet of space,
of which 12,000 square feet is currently subleased to L3 Mobile
Vision. The term of the lease expires September 30, 2016, and there
are four renewal options available to the tenant, and each renewal
term is five years in duration. The sublease term is for November,
2014 through September, 2016. As of June 26, 2016, Applied
Optics Center operates with approximately 34 full time equivalent employees in a
single shift operation.
Legal
Proceedings
From time to time, we are involved in lawsuits, claims,
investigations and proceedings, including pending opposition
proceedings involving patents that arise in the ordinary course of
business. There are no matters pending that we expect to have a
material adverse impact on our business, results of operations,
financial condition or cash flows.
39
MANAGEMENT
Our board of directors directs the management of the business and
affairs of our company as provided in our certificate of
incorporation, our by-laws and the General Corporation Law of
Delaware. Members of our board of directors keep informed about our
business through discussions with senior management, by reviewing
analyses and reports sent to them, and by participating in board
and committee meetings.
Our company is led by Danny Schoening, who has served as COO since
2009 and was appointed CEO in 2013, and Peter Benz who was
appointed as a Director by its Board of Directors and was also
elected as Chairman of the Board of Directors on November 19,
2014.
As of July 14, 2016, our board of directors consists of five active
directors which includes four independent directors and two
internal directors as discussed below.
Our board leadership structure is used by other smaller public companies in the United States, and we believe that
this leadership structure is effective for us. We believe that having a separate Chief Executive Officer (principal
executive officer) and Chairman is the correct form of leadership for us. We believe that due to our small size bifurcating
the leadership role provides for a second point of view and oversight rather than consolidating the role in one individual,
who is also tasked with our day to day affairs. We believe that our directors provide effective oversight of the risk
management function, especially through dialogue between the full board and our management. Our directors serve for a one
year term and if there is no election until their successors are elected and duly qualify. We intend to have our majority
holders re-elect the Board in fiscal 2016 as a formality.
We do not currently consider diversity in identifying nominees for
director. Due to our small size, the priority has been in
attracting qualified directors, and issues such as diversity have
not yet been considered.
Directors and Executive
Officers
The following table sets forth information regarding the members of
our board of directors and our executive officers and other
significant employees. All of our current officers and directors
were appointed on March 30, 2009, the closing date of the
reorganization, except as otherwise noted.
The following table sets forth certain information with respect to
our directors and executive officers:
|
|
|
|
|
|
|
Peter T. Benz
(2)
|
|
56
|
|
Chairman of the Board and Director
|
|
Stanley Hirschman
(4)
|
|
68
|
|
President
|
|
David Kittay
(3)
|
|
51
|
|
Director
|
|
Owen Naccarato
(3)
|
|
65
|
|
Director
|
|
Charles Trego
(3)
|
|
65
|
|
Director
|
|
Danny Schoening
|
|
51
|
|
Chief Executive Officer, Chief Operating Officer
and Director
|
|
Karen L. Hawkins
(1)
|
|
51
|
|
Chief Financial Officer
|
Peter T. Benz
. On November 19, 2014, Peter Benz was
appointed as one of our Directors and was also elected as our
Chairman of the Board of Directors. Mr. Benz serves as Chairman and
Chief Executive Officer of Viking Asset Management, LLC and is a
member of the Investment Committee. His responsibilities include
assuring a steady flow of candidate deals, making asset allocation
and risk management decisions and overseeing all business and
investment operations. He has more than 25 years of experience
specializing in investment banking and corporate advisory services
for small growth companies in the areas of financing,
merger/acquisition, funding strategy and general corporate
development. Prior to founding Viking in 2001, Mr. Benz founded Bi
Coastal Consulting Company where he advised hundreds of companies
regarding private placements, initial public offerings, secondary
public offerings and acquisitions. Mr. Benz currently serves as a
director for usell.com, Inc, Starboard Resources, Embark Holdings
and IDI, Inc. Prior to founding Bi Coastal Consulting, Mr. Benz was
responsible for private placements and investment banking activities at Gilford
Securities in New York, NY. Mr. Benz is a graduate of Notre Dame
University. The Board of Directors has determined that Mr. Benz is
suited to be a director because of his capital markets
experience.
40
David
Kittay,
is an experienced investment banker and asset manager. Mr. Kittay is Senior Vice President of North View Investment
Banking Group responsible for facilitating the investment banking activities of the firm including relationship cultivation, mergers
and acquisitions, capital formation, financial structuring and solutions. Additionally, he serves as Special Consultant to Beechwood
Re, a reinsurance company based in New York. In October 2008 he co-founded Summerline Asset Management, a specialty investment
firm, with which he has been involved on a continuous basis since 2008, which works with non-investment grade public and private
companies requiring financing ranging from $5 to $100 million. Mr. Kittay holds a Bachelors of Arts from Ithaca College, Ithaca,
New York and is a graduate of New York Law School holding his Juris Doctorate degree.
Our board of directors has determined that Mr. Kittay is suited to
sit on our Board because of his long term experience with the
capital markets.
Owen Naccarato, Esq., CPA and MBA,
has for the last sixteen
years been a practicing attorney, with his own firm, specializing
in corporate and securities law. Mr. Naccarato specializes in SEC
matters. Prior to practicing law, Mr. Naccarato has over twenty
years of experience holding various high level financial and
accounting positions with Fortune 500 and smaller firms in the
manufacturing, leasing, consumer/commercial financing and real
estate industries. Mr. Naccarato is a member of the ABA, the
California State Bar, the Los Angeles County Bar and the Orange
County Bar. Mr. Naccarato also earned a BS in Accounting from
Northern Illinois University, an MBA from DePaul University and was
a certified public accountant, having articulated in the State of
Illinois. Our board of directors has determined that Mr. Naccarato
is suited to sit on our Board because of his long standing capital
markets experience.
Charles R. Trego,
is currently a director (and former chief
financial officer) of Axion Power International, Inc., a battery
technology company based in New Castle, PA, and has served in
various positions with Axion since 2010. He most recently served as
Executive Vice President and Chief Financial Officer of Minrad
International, an Amex-listed pharmaceutical and medical device
company in Orchard Park, NY. Minrad was acquired by India’s
Piramal Healthcare in early 2009, and Trego was an integral part of
the acquisition strategy and managed the bridge financing through
the transition. He served as a consultant providing financial
management services to several companies from April 2009 to
February 2010. Prior to that, from 2005 to 2008, he was Senior Vice
President and Chief Financial Officer of Elmira NY-based Hardinge
Inc, a Nasdaq-listed global machine tool company ($327 million in
annual revenue), and from 2003 to 2005 he was Chief Financial
Officer and Treasurer of Latham NY-based Latham International ($180
million in annual revenue), a privately held manufacturer and
marketer of swimming pool components, His career began with a
position as Senior Auditor with Ernst & Whinney in Dayton, and
continued with financial officer positions with increasing
responsibility with Ponderosa Inc., Bojangles of America, Rich Sea
Pak, Rymer Foods and Rich Products Corporation. During his 14-year
tenure as Chief Financial Officer at Rich Products, revenue
increased from $650 million to more than $1.8 billion. He has over
30 years of experience as a financial officer of global middle
businesses across several industries and includes private (family),
public and private equity ownership structures. He has served as
the chief financial officer of startup, turnaround, restructuring
and growth businesses with revenue ranging from $25 million to $2
billion. Trego graduated from the University of Dayton in 1972 (BS
in Accounting) and in 1978 (MBA). He achieved his CPA designation
in 1973 from the State of Ohio. The Company has determined that Mr.
Trego should serve as a director due to his long term finance and
accounting experience.
Danny Schoening
. Mr. Schoening joined Optex Systems, Inc.
(Texas) in January 2008. Upon the acquisition of the assets of
Optex Systems, Inc. (Texas) by Optex Systems, Inc. (Delaware), Mr.
Schoening became the COO of Optex Systems, Inc. (Delaware) (as of
September 28, 2008) and he commenced service with Optex Systems
Holdings as its Chief Operating Officer as of the date of the
reorganization, March 30, 2009 and was appointed Chief Executive
Officer and as a Director in 2013. He has been instrumental in
establishing the systems and infrastructure required to continue
Optex System’s rapid growth. This activity was rewarded with
Optex System’s recent ISO 9001:2000 Certification. From
February 2004 to January 2008, Danny was the Vice President of
Operations for The Finisar Corporation AOC Division for 4 years
where he led a team of up to 200 employees to produce vertical
cavity lasers for the data communications industry at production
rates of hundreds of thousands of units per week. Prior to Finisar,
Danny was the Director of Operations for multiple divisions of
Honeywell International. Serving the Automotive, Medical,
Aerospace, and Consumer Commercial Markets. During this 17-year
period, Danny was recognized with Honeywell’s Lund Award,
their highest award for developing employee resources. Danny has a
broad experience level in the following technologies: Mechanical
Assembly Processes, Micro-Electronic Assembly Processes, Laser
Manufacturing, Plastic Molding, Metal Machining, Plating, Thick Film Printing, Surface
Mount Technology, Hall Effect Technology and MEMS based Pressure
Devices. Danny received a Bachelor’s of Science in
Manufacturing Engineering Technology from the University of
Nebraska, an MBA from Southern Methodist University, and holds
three U.S. patents. The Board of Directors has determined that Mr.
Schoening is suited to sit on our Board because of his industry
experience and as he is the CEO.
41
Karen
L. Hawkins
. On November 19, 2014, Karen Hawkins was appointed as our Chief Financial Officer. Ms. Hawkins had previously
served as our Vice President, Finance and Controller, since the date of the reorganization, March 30, 2009 and was the controller
of Optex Systems, Inc. (Delaware), effective September 28, 2009. She began her employment with Optex Systems, Inc. (Texas) in
April 2007. Ms. Hawkins has over 25 years’ experience in Financial Accounting and Management, primarily focused in the Defense
and Transportation Industries. She has a strong background in both Financial & Cost Accounting, with extensive Government
Pricing, Financial Analysis, and Internal Auditing experience. Her past history also includes Program Management, Materials Management
and Business Development. She brings over 18 years’ direct experience in Government Contracting with a strong knowledge
of Cost Accounting Standards Board and Federal Acquisition Regulation. Her previous employment includes General Dynamics —
Ordinance and Tactical Division, Garland (formerly known as Intercontinental Manufacturing) for over 13 years from November, 1994
through March, 2007. During her tenure there she served in the roles of Controller (Accounting & IT), Program Manager over
a $250M 3-year Army Indefinite Delivery/Indefinite Quantity (Indefinite Delivery/Indefinite Quantity) type contract, as well as
Materials Manager with oversight of Purchasing, Production Control & Warehousing functions. Prior to her employment at General
Dynamics, Ms. Hawkins served in various finance and accounting positions at Luminator, a Mark IV Industries Co, and Johnson Controls,
Battery Division - Garland. Karen received her Bachelor’s Degree in Business Administration in Accounting from Stephen F.
Austin State University in Texas in 1986 and became a Certified Public Accountant in 1992.
Stanley A. Hirschman
.
(Resigned as a director effective
November 3, 2015)
Mr. Hirschman served as a Director and
President of Optex Systems, Inc. (Delaware) since September 28,
2008 and assumed the same roles on behalf of us on March 30, 2009,
in which roles he is committed to providing Optex his management
experience and provides direction and oversight of other executive
officers and management. From 1997 to 2009, he was president of
CPointe Associates, Inc., a Plano, Texas consulting group, and
provided consulting and governance services to small public
companies. Since February 2009 he has been the majority beneficial
owner of Sileas Corp, our majority shareholder. During the past
five years, Mr. Hirschman has also sat on the Board of Directors of
Axion Power International, Inc. Prior to establishing CPointe
Associates, he was Vice President Operations, Software Etc., Inc.,
a 396 retail software store chain, from 1989 until 1996. He has
also held executive positions with T.J. Maxx, Gap Stores and Banana
Republic. Mr. Hirschman is a member of the National Association of
Corporate Directors, regularly participates in the KMPG Audit
Committee Institute and is a graduate of the Harvard Business
School Audit Committees in the New Era of Governance symposium. He
is active in community affairs and serves on the Advisory Board of
the Salvation Army Adult Rehabilitation Centers. Our Board has
determined that Mr. Hirschman is suitable for our Board due to his
long term management and corporate governance experience.
Family
Relationships
There are no family relationships among the officers and
directors.
Presiding
Director
Our Chairman, Merrick Okamoto, as Chairman, acted as the presiding
director at meetings of our board of directors during the fiscal
years ended 2014 and 2013. Effective as of November 19, 2014, Peter
Benz took over as the Chairman and presiding director of the board
meetings. In the event that the Chairman is unavailable to serve at
a particular meeting, responsibility for the presiding director
function will rotate among the directors in attendance.
Corporate
Governance
Our board of directors believes that sound governance practices and
policies provide an important framework to assist them in
fulfilling their duty to stockholders. Our board of directors
actively supports management’s adoption and implementation of
many “best practices” in the area of corporate
governance, including annual review of internal control changes,
compensation practices, executive management and auditor retention.
In 2015 and 2014, all directors attended a minimum of 75% of the meetings of
the board of directors.
42
Code of
Ethics
Our board of directors has adopted a Code of Ethics which has been
distributed to all directors, and executive officers, and will be
distributed to employees and will be given to new employees at the
time of hire. The Financial Code of Ethics contains a number of
provisions that apply principally to our Principal Executive
Officer, Principal Financial Officer and other key accounting and
financial personnel. A copy of our Code of Business Conduct and
Ethics can be found under the “Investor Relations”
section of our website (
www.optexsys.com
)
under the section for corporate governance. We also intend to
disclose any amendments or waivers of our Code on our website.
Board
Meetings
We are incorporated under the laws of the State of Delaware. The
interests of our stockholders are represented by the board of
directors, which oversees our business and management.
The board of directors meets regularly during the year and holds
special meetings and acts by unanimous written consent whenever
circumstances require. The board held two meetings (including
special meetings) and took action by unanimous written consent four
times during our fiscal year ended September 27, 2015.
Board
Committees
On July 14, 2015, our board of directors confirmed the appointment
of the following independent directors to serve on the following
committees of our board of directors:
Audit Committee: Charles Trego (Chair)
and David Kittay
Compensation Committee: Owen Naccarato
(Chair) and David Kittay
Nominating Committee: David Kittay
(Chair), Owen Naccarato and Charles Trego.
Kerry Craven, who was a member of the
Board of Directors and a member of the Audit Committee, Compensation Committee and Nominating Committee, resigned from the Board
of Directors on May 26, 2016.
The
board also acknowledged the charters for each committee which are approved.
Mr. Trego has also been determined to be the Audit Committee
financial expert, a position for which he qualifies as a long time
chief financial officer of public reporting companies. Due to Ms.
Craven’s resignation on May 26, 2016, the Committees remain
the same although each has one less member.
Board
nominations
Stockholders wishing to bring a nomination for a director candidate
before a stockholders meeting must give written notice to our
Corporate Secretary, either by personal delivery or by United
States mail, postage prepaid. The stockholder’s notice must
be received by the Corporate Secretary not later than (a) with
respect to an Annual Meeting of Stockholders, 90 days prior to the
anniversary date of the immediately preceding annual meeting, and
(b) with respect to a special meeting of stockholders for the
election of directors, the close of business on the tenth day
following the date on which notice of the meeting is first given to
stockholders. The stockholder’s notice must set forth all
information relating to each person whom the stockholder proposes
to nominate that is required to be disclosed under applicable rules
and regulations of the SEC, including the written consent of the
person proposed to be nominated to being named in the proxy
statement as a nominee and to serving as a director if elected. The
stockholder’s notice must also set forth as to the
stockholder making the nomination (i) the name and address of the
stockholder, (ii) the number of shares held by the stockholder,
(iii) a representation that the stockholder is a holder of record
of stock of the Optex Systems Holdings, entitled to vote at the
meeting and intends to appear in person or by proxy at the meeting
to nominate the person named in the notice, and (iv) a description
of all arrangements or understandings between the stockholder and
each nominee.
Stockholder
Communications with the Board of Directors
Stockholders may communicate directly with the board of directors
or any board member by writing to them at Optex Systems Holdings,
Inc., 1420 Presidential Drive, Richardson, TX 75081. The outside of
the envelope should prominently indicate that the correspondence is
intended for the board of directors or for a specific director. The
secretary will forward all such written communications to the
director to whom it is addressed or, if no director is specified,
to the entire board of directors.
43
Director Attendance at
Annual Meetings of Stockholders
Directors are encouraged to attend annual meetings, although such
attendance is not required.
Board
Independence
Our board of directors has
determined that four of our directors would meet the independence
requirements of the Nasdaq Capital Market, if such standards
applied to the Company. In reaching its conclusions, the board of
directors considered all relevant facts and circumstances with
respect to any direct or indirect relationships between the Company
and each of the directors, including those discussed under the
caption “Certain Relationships and Related
Transactions” below. Our board of directors determined that
any relationships that exist or existed in the past between the
Company and each of the independent directors were immaterial on
the basis of the information set forth in the above-referenced
sections.
Director
Compensation
See table below under “Executive Compensation —
Director Compensation.”
Executive
Compensation
The board of directors administers our option compensation plan.
Our Principal Executive Officer and other members of management
regularly discuss our compensation issues with the Board of
Directors. Subject to Board review, modification and approval, Mr.
Hirschman typically makes recommendations respecting bonuses and
equity incentive awards for the other members of the executive
management team. The Board establishes all bonus and equity
incentive awards for Mr. Hirschman in consultation with other
members of the management team.
Summary Compensation
Table
The
following table sets forth, for the years indicated, all compensation paid, distributed or accrued for services, including salary
and bonus amounts, rendered in all capacities by our principal executive officer, principal financial officer and all other executive
officers who received or are entitled to receive remuneration in excess of $100,000 during the stated periods. These officers
are referred to herein as the “named executive officers.” Except as provided below, none of our executive officers
received annual compensation in excess of $100,000 during the last two fiscal years.
|
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
(1)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
Stanley A. Hirschman,
|
|
2015
|
|
$
|
61,084
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
14,971
|
|
|
$
|
—
|
|
|
$
|
76,055
|
|
|
President
|
|
2014
|
|
|
61,033
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,766
|
|
|
|
—
|
|
|
|
76,799
|
|
|
|
|
2013
|
|
|
79,334
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,968
|
|
|
|
—
|
|
|
|
87,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Danny Schoening,
|
|
2015
|
|
$
|
213,754
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
29,941
|
|
|
$
|
—
|
|
|
$
|
243,695
|
|
|
CEO
|
|
2014
|
|
|
225,261
|
|
|
|
42,375
|
|
|
|
—
|
|
|
|
31,531
|
|
|
|
—
|
|
|
|
299,167
|
|
|
|
|
2013
|
|
|
218,856
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,115
|
|
|
|
—
|
|
|
|
223,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karen Hawkins
|
|
2015
|
|
$
|
162,571
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
14,971
|
|
|
$
|
—
|
|
|
$
|
177,542
|
|
|
CFO
|
|
2014
|
|
|
160,422
|
|
|
|
11,931
|
|
|
|
—
|
|
|
|
15,766
|
|
|
|
—
|
|
|
|
188,119
|
|
|
|
|
2013
|
|
|
160,178
|
|
|
|
7,839
|
|
|
|
—
|
|
|
|
16,636
|
|
|
|
—
|
|
|
|
184,653
|
|
____________
44
Option Grants in Last
Fiscal Year
On December 19, 2013, our Board of Directors authorized an
amendment to our Stock Option Plan to increase the number of
issuable shares from 50,000 to 75,000 and authorized the grant of
20,000 options to three board members and a grant of 5,000 to an
officer. The options are exercise prices of $10 per share with each
grant to vest 25% per year over four years for each year with which
the grantee is still employed by or serving as a director of us,
Inc. (with all unvested options automatically expiring on the date
of termination of employment by or service as a director of us,
Inc.) and all unvested options immediately vesting upon a change of
control due to a merger or acquisition of us. There were no other
plan based awards made to our named executive officers during the
fiscal year ended September 28, 2015 or for the fiscal year ended
September 29, 2014.
Employment
Agreements - Danny Schoening
We entered into an employment agreement with Danny Schoening dated
December 1, 2008. The term of the agreement commenced as of
December 1, 2008 and the current term has automatically renewed
through December 1, 2016. The term of the agreement shall be
automatically extended for successive 18 month periods, unless we
shall provide a written notice of termination at least ninety (90)
days, or Mr. Schoening shall provide a written notice of
termination at least 90 days, prior to the end of the initial term
or any extended term, as applicable. During the first eighteen
months of the term of the agreement, we paid to Schoening a base
salary at the annual rate of $190,000, and his base salary for the
first renewal term has continued at the same rate. On December 9,
2011, the Board of Directors authorized a six percent increase in
Schoening’s base salary effective January 1, 2012. On
December 19, 2013, the Board of Directors of us authorized a five
percent increase in Schoening’s base salary effective January
1, 2014. Schoening was paid a one-time bonus of $10,000 at the
commencement of the employment agreement in December 2008 and was
granted 1,415 options to purchase common stock at an exercise price
of $150 per share at the time of the closing of the
reorganization.
On each subsequent renewal date of the commencement of employment,
Schoening’s base salary shall be reviewed by the Board and
may be increased to such rate as the Board, in its sole discretion,
may hereafter from time to time determine. During the term of the
agreement, Schoening shall be entitled to receive bonuses of up to
30% of his base salary per year at the discretion of our Board of
Directors pursuant to performance objectives to be determined by
the Board of Directors. Any bonuses shall be payable in cash and
shall be paid within ninety (90) days of any year anniversary of
the date of the agreement. Upon closing of the reorganization, we
granted Schoening stock options equal to 1% of the issued and
outstanding shares immediately after giving effect to the
reorganization, with 34% of the options having vested on March 30,
2010, and 33% of the options having vested on March 31, 2011 and
33% of the options having vested on March 31, 2012.
The employment agreement events of termination consist of: (i)
death of Mr. Schoening; (ii) termination by us for cause (including
conviction of a felony, commission of fraudulent acts, willful
misconduct by Mr. Schoening, continued failure to perform duties
after written notice, violation of securities laws and breach of
the employment agreement), (iii) termination without cause by us
and (iv) termination by Mr. Schoening for good reason (including
breach by us of its obligations under the agreement, the
requirement for Mr. Schoening to move more than 100 miles away for
his employment without consent, and merger or consolidation that
results in more than 66% of the combined voting power of the then
outstanding securities of us or our successor changing ownership or
a sale of all or substantially all of our assets, without the
surviving entity assuming the obligations under the agreement). For
a termination by us for cause or upon death of Mr. Schoening, Mr.
Schoening shall be paid salary and bonus earned through the date of
termination. For a termination by us without cause or by Mr.
Schoening with good reason, Mr. Schoening shall also be paid six
months’ base salary in effect and all granted stock options
shall remain exercisable for a period of two years after such
termination, with all unvested stock options immediately vesting.
The agreement contains a standard non-solicitation and non-compete
agreement that extends for one year subsequent to termination
thereof.
•
On
December 19, 2013, pursuant to the compensation bonus agreement in
the Board of Directors Resolution dated January 3, 2013, Danny
Schoening, CEO, was awarded an executive compensation incentive
bonus payout in the sum of $42 thousand.
•
On
December 19, 2013, our Board of Directors approved a
performance based compensation bonus agreement for Danny Schoening,
CEO, for the fiscal year ending September 28, 2013 with payout
milestones from 5% to 25% for achieved revenues of $13 million
through $20 million and EBITDA targets of $0 to $800 thousand.
•
On
December 19, 2013 the Board of Directors authorized salary increase
of 5% to Danny Schoening, CEO, effective January 1, 2014.
45
On August 4, 2016, our Board of Directors
approved an employment agreement for Karen Hawkins, Chief Financial Officer, dated as of August 1, 2016. This agreement has the
following salient terms:
|
|
·
|
The term of the agreement
commenced on August 1, 2016 and expires on January 31, 2018 and automatically renews for subsequent 18 month periods unless
Ms. Hawkins or we give notice of termination at least 90 days before the end of the term then in effect.
|
|
|
·
|
The base salary thereunder
is $178,496, and Ms. Hawkins is entitled to annual bonuses of up to 30% of her base salary as approved by the Board.
|
|
|
·
|
Ms. Hawkins is entitled
to 15 days’ vacation and all other benefits accorded to our other senior executives.
|
|
|
·
|
The employment agreement
events of termination consist of: (i) death of Ms. Hawkins; (ii) termination by us for cause (including conviction of a felony,
commission of fraudulent acts, willful misconduct by Ms. Hawkins, continued failure to perform duties after written notice,
violation of securities laws and breach of the employment agreement), (iii) termination without cause by us and (iv) termination
by Ms. Hawkins for good reason (including breach by us of its obligations under the agreement, the requirement for Ms. Hawkins
to move more than 100 miles away for her employment without consent, and merger or consolidation that results in more than
66% of the combined voting power of the then outstanding securities of us or our successor changing ownership or a sale of
all or substantially all of our assets, without the surviving entity assuming the obligations under the agreement). For a
termination by us for cause or upon death of Ms. Hawkins, Ms. Hawkins shall be paid salary and bonus earned through the date
of termination. For a termination by us without cause or by Ms. Hawkins with good reason, Ms. Hawkins shall also be paid six
months’ base salary in effect and all granted stock options shall remain exercisable for a period of two years after
such termination, with all unvested stock options immediately vesting. The agreement contains a standard non-solicitation
and non-compete agreement that extends for one year subsequent to termination thereof.
|
We do not have any other employment agreements with our executive
officers and directors.
Equity Compensation Plan
Information
We currently have an option compensation plan covering the issuance
of both incentive and nonstatutory options, determined at the time
of grant, for the purchase of up to 75,000 shares, which was
increased from 50,000 shares on December 19, 2013. The purpose of
the Plan is to assist us in attracting and retaining highly
competent employees and to act as an incentive in motivating
selected officers and other employees of us and our subsidiaries,
and directors and consultants of us and our subsidiaries, to
achieve long-term corporate objectives. There are 75,000, shares of
common stock reserved for issuance under this Plan. As of September
27, 2015, we had issued 73,752 share options under this Plan of
which 5,894 shares had forfeited and 45,266 shares had vested, and
5,000 shares had been exercised as of September 27, 2015. On
December 19, 2013, the Board of Directors authorized the grant of
20,000 options to three board members and a grant of 5,000 to an
officer.
The outstanding options include 51,608 options that are currently
vested and exercisable as of December 11, 2015, and 3,750 options
that will vest within 60 days (on December 18, 2015). The vested
options represent potential future cash proceeds to our company of
$901,900. There are no additional options that will become vested
and exercisable within 60 days. The remaining options will vest and
become exercisable over the next year. The following table provides
summary information on our outstanding options as of December 11,
2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FY2009 Employee & officer plan
options
|
|
2,488
|
|
$
|
150.00
|
|
$
|
373,200
|
|
—
|
|
$
|
150.00
|
|
$
|
—
|
|
FY2012 Employee & officer plan
options
(1)
|
|
10,370
|
|
|
10.00
|
|
|
103,700
|
|
—
|
|
|
10.00
|
|
$
|
—
|
|
FY2012 Directors plan options
(1)
|
|
25,000
|
|
|
10.00
|
|
|
250,000
|
|
—
|
|
|
10.00
|
|
|
—
|
|
FY2014 Directors plan options
(2)
|
|
15,000
|
|
|
10.00
|
|
|
150,000
|
|
5,000
|
|
|
10.00
|
|
|
50,000
|
|
FY2014 Employee & officer plan
options
(2)
|
|
2,500
|
|
|
10.00
|
|
|
25,000
|
|
2,500
|
|
|
10.00
|
|
|
25,000
|
|
Non-plan options to consultants and
employees
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
55,358
|
|
$
|
16.29
|
|
$
|
901,900
|
|
7,500
|
|
$
|
10.00
|
|
$
|
75,000
|
The holders of options are not required to exercise their rights at
any time and we are unable to predict the amount and timing of any
future option exercises. We reserve the right to temporarily reduce
the exercise prices of our options from time to time in order to
encourage the early exercise of the options.
46
Outstanding Equity
Awards as of September 27, 2015
|
|
|
|
|
|
|
|
|
Number
of shares underlying unexercised options
|
|
|
|
|
|
|
|
Equity
Incentive Plan
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Danny
Schoening
|
|
1,415
|
|
—
|
|
1,415
|
|
150.00
|
|
3/29/2016
|
|
(1)
|
|
|
|
7,500
|
|
2,500
|
|
10,000
|
|
10.00
|
|
12/8/2018
|
|
(3)
|
|
|
|
2,500
|
|
7,500
|
|
10,000
|
|
10.00
|
|
12/19/2020
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karen
Hawkins
|
|
250
|
|
|
|
250
|
|
150.00
|
|
5/13/2016
|
|
(2)
|
|
|
|
3,750
|
|
1,250
|
|
5,000
|
|
10.00
|
|
12/8/2018
|
|
(3)
|
|
|
|
1,250
|
|
3,750
|
|
5,000
|
|
10.00
|
|
12/19/2020
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stan
Hirschman
|
|
3,750
|
|
1,250
|
|
5,000
|
|
10.00
|
|
12/8/2018
|
|
(3)
|
|
|
|
1,250
|
|
3,750
|
|
5,000
|
|
10.00
|
|
12/19/2020
|
|
(4)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merrick
Okamato
|
|
5,000
|
|
—
|
|
5,000
|
|
10.00
|
|
12/8/2018
|
|
(3)
|
|
|
|
5,000
|
|
—
|
|
5,000
|
|
10.00
|
|
12/19/2020
|
|
(4)(5)
|
47
We had no non-qualified deferred compensation plans during year
ended September 27, 2015.
Post-Termination
Compensation
We have not entered into change in control agreements with any of
our named executive officers or other members of the executive
management team other than the provision with respect to Mr.
Schoening described above. No awards of equity incentives under our
2009 Stock Option Plan provide for immediate vesting upon a change
in control. However, our Board of Directors has the full and
exclusive power to interpret the plans, including the power to
accelerate the vesting of outstanding, unvested awards. A
“change in control” is generally defined as (1) the
acquisition by any person of 66% or more of the combined voting
power of our outstanding securities or (2) the occurrence of a
transaction requiring stockholder approval and involving the sale
of all or substantially all of our assets or the merger of us with
or into another corporation.
Director
Compensation
The following table provides information regarding compensation paid to directors for services rendered during the year
ended September 27, 2015.
|
|
|
Fees
Earned or Paid in Cash
($)
|
|
|
|
|
|
Non-Equity Incentive Plan Compensation
($)
|
|
Nonqualified Deferred Compensation Earnings
($)
|
|
All
Other Compensation ($)
|
|
|
|
Stanley A. Hirschman
(2)
|
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Merrick Okamoto
(1)
|
|
5,000
|
|
—
|
|
57,495
|
|
—
|
|
—
|
|
—
|
|
62,495
|
|
Danny Schoening
(2)
|
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Peter Benz
(4)
|
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Chuck Trego
(3)
|
|
4,000
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
4,000
|
|
David Kittay
(3)
|
|
4,000
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
4,000
|
|
Owen Naccarato
(3)
|
|
3,500
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
3,500
|
|
Kerry Craven
(3)
|
|
3,500
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
3,500
|
48
The members of our board of
directors are actively involved in various aspects of our business
ranging from relatively narrow board oversight functions to
providing hands-on guidance to our executives and scientific staff
with respect to matters within their personal experience and
expertise. We believe that the active involvement of all directors
in our principal business and policy decisions increases our board
of directors’ understanding of our needs and improves the
overall quality of our management decisions.
With
the exception of Peter Benz, Stan Hirschman and Danny Schoening, our directors are compensated separately for service as members
of our board of directors. As of February 1, 2010, Mr. Hirschman was paid a salary from Optex Systems Holdings as disclosed in
the executive compensation table above.
49
Certain Relationships and Related Transactions, and Director
Independence
Relationship between Optex Systems, Inc. (Texas), Irvine Sensors
Corporation and Longview and Alpha
Longview and Alpha were owed certain debt
by Irvine Sensors Corporation including debt evidenced by (i) a December 29, 2006 Term Loan and Security Agreement executed by
Irvine Sensors Corporation and Longview and Alpha, and (ii) a series of secured promissory notes purchased by them and issued
to them on December 29, 2006, July 19, 2007 and November 28, 2007. As of August 24, 2008, the total amount due under all of the
described notes was approximately $18.4 million. Optex Systems, Inc. (Texas), which was and is a wholly owned subsidiary of Irvine
Sensors Corporation, was a guarantor of all of those notes, and pursuant to related security agreements Longview and Alpha had
a validly perfected, fully enforceable security interest in all personal property of Optex Systems, Inc. (Texas). On September
19, 2008, pursuant to an Assignment and Stock/Note Issuance Agreement, Alpha and Longview transferred and assigned to Optex Systems,
Inc. (Delaware) which assumed, $15 million of their respective interests and rights in the aforesaid notes and obligations to
Optex Systems, Inc. (Delaware) in exchange for $9 million of equity and $6 million of debt.
Acquisition of Assets of Optex Systems, Inc. (Texas) by Optex
Systems, Inc. (Delaware) on October 14, 2008
On October 14, 2008, in a purchase transaction that was consummated
via public auction, Optex Systems, Inc. (Delaware) purchased all of
the assets of Optex Systems, Inc. (Texas) in exchange for $15
million of Irvine Sensors Corporation debt owned by it and the
assumption of approximately $3.8 million of certain Optex Systems,
Inc. (Texas) liabilities. The $15 million of Irvine Sensors
Corporation debt was contributed by Longview and Alpha to Optex
Systems, Inc. (Delaware) in exchange for a $6 million note payable
from Optex Systems, Inc. (Delaware) and a $9 million equity
interest in Optex Systems, Inc. (Delaware). Longview and Alpha
owned Optex Systems, Inc. (Delaware) until February 20, 2009, when
Longview sold 100% of its interests in Optex Systems, Inc.
(Delaware) to Sileas, as discussed below. In referring to these
transactions, Optex Systems, Inc. (Delaware) is considered to be
the successor entity to Optex Systems, Inc. (Texas), the
predecessor entity.
Secured Promissory Notes and Common Shares Issued in connection
with Purchase by Optex Systems, Inc. (Delaware)
In connection with the public sale of the Optex Systems, Inc.
(Texas) assets to Optex Systems, Inc. (Delaware), Optex Systems,
Inc. (Delaware) delivered to each of Longview and Alpha a Secured
Promissory Note due September 19, 2011 in the principal amounts of
$5,409,762 and $540,976, respectively. Each Note bears simple
interest at the rate of 6% per annum, and the interest rate upon an
event of default increases to 8% per annum. After 180 days from the
issue date, the principal amount of the Notes and accrued and
unpaid interest thereon may be converted into Optex Systems, Inc.
(Delaware) common stock at a conversion price of $1.80 per share
(pre-split and pre-reorganization price). The Notes may be redeemed
prior to maturity at a price of 120% of the then outstanding
principal amount plus all accrued and unpaid interest thereon. The
obligations of Optex Systems, Inc. (Delaware) under the Notes are
secured by a lien against all of the assets of Optex Systems, Inc.
(Delaware) in favor of Longview and Alpha. In addition, Optex
Systems, Inc. (Delaware) issued common stock to each of Longview
and Alpha in the quantities of 45,081,350 and 4,918,650,
respectively (pre reverse split numbers as historical). On October
30, 2008, Alpha sold its Optex Systems, Inc. (Delaware) common
stock to Arland Holding, Ltd. On February 20, 2009, Longview sold
its Note to Sileas (see below).
Acquisition by Sileas of Longview’s Interests in Optex
Systems, Inc. (Delaware) on February 20, 2009
On February 20, 2009, Sileas purchased 100% of the equity and debt
interest held by Longview, representing 90% of Optex Systems, Inc.
(Delaware), in a private transaction. The primary reason for the
acquisition was to eliminate shareholder control of us by Longview
and to limit any perception of control over the day-to-day
operations of us, whether or not such control actually existed.
While Longview makes investments in a variety of companies, it
strives to invest passively and leave the day-to-day operations of
the companies in its investment portfolio to the management teams
of those companies. In addition, the acquisition allowed Optex
Systems Holdings to avoid potential conflicts of interest or other
related business issues that might have adversely affected our
operations as a result of Longview’s investments in other
companies.
The purchase price for the acquisition was $13,524,405. Sileas
issued a purchase money note to Longview for the full amount of the
purchase price in exchange for 45,081,350 (pre-split as historical)
shares of common stock of us (representing 90% of the outstanding
shares) and transfer to Sileas of a note dated December 2, 2008,
issued by us to Longview in the principal amount of $5,409,762. No
contingent consideration is due the seller in the transaction. The
obligations of Sileas under the Note are secured by a security
interest in our common and preferred stock owned by Sileas that was
granted to Longview pursuant to a Stock Pledge Agreement delivered by Sileas to Longview and also by a lien
on all of the assets of Sileas. On March 27, 2009, Sileas and Alpha
(which owned the balance of the $6,000,000 of the notes) exchanged
the $6,000,000 aggregate principal amount of notes, plus accrued
and unpaid interest thereon, for 1,027 shares of Optex Systems,
Inc. (Delaware) Series A preferred stock.
50
Sileas
has no operations or business activities other than holding the stock and notes described above and has no revenues, and it holds
no assets other than the stock and notes described above. The management of Sileas believes that the value of its common stock
and preferred stock holdings in Optex Systems Holdings will increase over time. Sileas plans to repay Longview, no later than
the maturity date, through some combination of a recapitalization of Sileas equity and debt and partial or full liquidation of
its interests in Optex Systems Holdings. Sileas will be limited by the extent of our stock price and limitations on ability to
resell the stock it owns in Optex Systems Holdings.
Secured Promissory Note Due February 20, 2016/Longview Fund,
LP
As a result of the transaction described above between Sileas and
Longview on February 20, 2009, Sileas, the new majority owner of
Optex Systems, Inc. (Delaware), executed and delivered to Longview,
a Secured Promissory Note due February 20, 2012 in the principal
amount of $13,524,405. The Note bears simple interest at the rate
of 4% per annum, and the interest rate upon an event of default
increases to 10% per annum. In the event that a Major Transaction
occurs prior to the maturity date resulting in the Borrower
receiving Net Consideration with a fair market value in excess of
the principal and interest due under the terms of this Secured
Note, then in addition to paying the principal and interest due,
Sileas shall also pay an amount equal to 90% of the consideration.
“Major Transaction” refers to a transaction whereby
Optex Systems, Inc. (Delaware) would consolidate or merge into or
sell or convey all or substantially all of its assets to a third
party entity for more than nominal consideration, and “Net
Consideration” refers to the fair market value of the
consideration received in connection with a Major Transaction less
all outstanding liabilities of Optex Systems, Inc. (Delaware).
On November 22, 2011 Sileas Corp and Longview Fund, LP entered into
an amendment to the Secured Promissory Note that extended the
maturity date for an additional two-year period ending on February
20, 2014. In exchange for the extension, Sileas Corp agreed to pay
Longview Fund an extension fee equal to 2% of the principal amount
of this Secured Note. As a result of the agreement, the principal
amount of the Note was increased $270 thousand to $13.8 million as
of November 22, 2011.
On November 27, 2013 Sileas Corp. and the Longview Fund, LP entered
into an amendment to the Secured Promissory Note that extended the
maturity date for an additional two-year period ending on February
20, 2016. In exchange for the extension, Sileas Corp. agreed to pay
the Longview Fund an extension fee equal to 2% of the principal
amount of this Secured Note. As a result of the amendment, the
principal amount of the Note was increased by $275 thousand to
$14.1 million as of November 27, 2013, 2013.
On June 5, 2015, Sileas Corp. amended its Secured Note, with
Longview Fund, L.P., as lender, as follows:
•
The principal amount was increased to $18,022,329 to reflect the
original principal amount plus all accrued and unpaid interest to
date, and the Secured Note ceased to bear interest as of that
date;
•
The maturity date of the note was extended to May 29, 2021; and
•
A
conversion feature was added to the Secured Note by which the
principal amount of the Secured Note can be converted into our
Series A preferred stock, which is owned by Sileas, at the stated
value of our Series A preferred stock.
Simultaneously therewith,
Sileas entered into a Blocker Agreement with us pursuant to which
the Series A preferred stock shall not be convertible by Sileas
into our common stock, and we shall not effect any conversion of
the Series A Stock or otherwise issue any shares of our common
stock pursuant hereto, to the extent (but only to the extent) that
after giving effect to such conversion or other share issuance
hereunder Sileas (together with its affiliates) would beneficially
own in excess of 9.99% our common stock. Sileas also agreed to not
vote any of its shares of Series A preferred stock in excess of
9.99% of our common stock.
Alpha Capital Anstalt
Stock Purchase and Preferred Shares Conversions
On
February 22, 2012, Alpha Capital Anstalt bought 5,000 shares of our restricted common stock at a purchase price of $10.00
per share for a total purchase price of $50,000. On August 13, 2012, Alpha Capital Anstalt converted 3.64 preferred shares at
a stated value of $6,860 into 2,500 shares of common stock at a conversion price of $10.00 per share for a total converted
value of $25,000. The Common Stock was purchased or converted by Alpha in private transactions exempt from registration under
Section 4(2) of the Securities Act of 1934 and is restricted from resale and the stock certificate issued bears the
appropriate restrictive legend. On March 19, 2013, Alpha Capital Anstalt converted 7.29 shares of Series A preferred stock at
a stated value of $6,860 into 5,000 shares of its Common Stock at a conversion price of $10.00 per share for a total
converted value of $50,000.
51
Reorganization/Share
Exchange
On March 30, 2009, a reorganization occurred whereby the then
existing shareholders of Optex Systems, Inc. (Delaware) exchanged
their shares of common stock with the shares of common stock of us
as follows: (i) the outstanding 85,000,000 shares of Optex Systems,
Inc. (Delaware) common stock were exchanged by Optex Systems
Holdings for 113,333,282 shares (pre-split as historical) of us
common stock, (ii) the outstanding 1,027 shares of Optex Systems,
Inc. (Delaware) Series A preferred stock were exchanged by Optex
Systems Holdings for 1,027 shares of our Series A preferred stock
and (iii) the 8,131,667 shares (pre-split as historical) of Optex
Systems, Inc. (Delaware) common stock purchased in the private
placement, which also occurred on March 30, 2009, were exchanged by
Optex Systems Holdings for 8,131,667 shares of the Company’s
common stock. The per share price in the private placement was
$0.15 per share of common stock, and the closing date was March 30,
2009. Optex Systems, Inc. (Delaware) remains a wholly-owned
subsidiary of us.
At the time of the reorganization (all numbers are pre split due to
historical context), 25,000,000 shares owned by Andrey Oks, the
former CEO, were cancelled. Immediately prior to the closing,
17,449,991 shares of our common stock were outstanding. The
17,449,991 shares derives from the 17,999,995 shares outstanding as
of December 31, 2008 plus the 26,999,996 shares issued in
conjunction with the 2.5:1 forward stock split authorized by the
Sustut Board and shareholders and effected on February 27, 2009
less retirement of Andrey Oks’ 25,000,000 shares and
cancellation of 3,800,000 shares previously issued to Newbridge
Securities Corporation, shares plus issuance of 1,250,000 shares in
payment for two investor relations agreements. The total
outstanding common shares of us subsequent to the closing of the
reorganization is as follows (1):
|
Existing Sustut Shareholders
|
|
17,449,991
|
|
|
Optex Systems, Inc. (Delaware) shares
exchanged
|
|
113,333,282
|
|
|
Optex Systems, Inc. (Delaware) Private Placement
shares exchanged
|
|
8,131,667
|
|
|
Total Shares after reorganization
|
|
138,914,940
|
|
|
|
|
|
|
|
Cancellation of shares – American Capital
Ventures
|
|
(700,000
|
)
|
|
Private placement – June 29,
2009
|
|
750,000
|
|
|
Issuance of shares as consideration – ZA
Consulting
|
|
480,000
|
|
|
Shares Outstanding on September 27,
2009
|
|
139,444,940
|
|
Rule 409(b) states: “(b) The registrant shall include a
statement either showing that unreasonable effort or expense would
be involved or indicating the absence of any affiliation with the
person within whose knowledge the information rests and stating the
result of a request made to such person for the
information.”
We made requests of counsel representing Sustut’s directors
and officers to obtain additional information into the principles
behind their determination that the securities of the registrant
issued in the March 30, 2009 share exchange represented “fair
market value” to acquire the business operations of Optex
Systems, Inc. (Delaware), and they were not able to provide any
information. We confirm that we have no affiliation with
Sustut’s former counsel, Anslow & Jacklin, who was our
only source of information regarding the prior history of Sustut
and that the result of our request was that they stated they had no
information and were not able to obtain further information on this
issue.
We have not been able to provide further background as to how the
merger consideration was determined beyond the fact that it was
determined by negotiation between Sustut and Optex Systems, Inc.
(Delaware). Thus, we have invoked Rule 409(b) which states:
“(b) The registrant shall include a statement either showing
that unreasonable effort or expense would be involved or indicating
the absence of any affiliation with the person within whose
knowledge the information rests and stating the result of a request
made to such person for the information.”
Transactions with
Executive Management
See the “Executive Compensation” section for a
discussion of the material elements of compensation awarded to,
earned by or paid to our named executive officers. Other than as
stated in the “Executive Compensation” section, we have
not entered into any transactions with executive management.
52
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
On July 14, 2016, we had 1,730,436 shares
of common stock, 546 shares of Series A preferred stock and 801.6 shares of Series B Preferred Stock issued and outstanding. The
following table sets forth certain information with respect to the beneficial ownership of our securities as of July 11, 2016,
for (i) each of our directors and executive officers; (ii) all of our directors and executive officers as a group (not noting
our four new directors who have not yet been issued any stock or options which have vested); and (iii) each person who we know
beneficially owns more than 5% of our common stock.
Beneficial ownership data in the table has been calculated based on
Commission rules that require us to identify all securities that
are exercisable or convertible into shares of our common stock
within 60 days of July 11, 2016 and treat the underlying stock as
outstanding for the purpose of computing the percentage of
ownership of the holder.
Except as indicated by the footnotes following the table, and
subject to applicable community property laws, each person
identified in the table possesses sole voting and investment power
with respect to all capital stock held by that person. The address
of each named executive officer and director, unless indicated
otherwise by footnote, is c/o our corporate headquarters.
Except as otherwise set forth below, the address of each of the
persons listed below is our address.
|
|
|
|
|
|
|
Preferred Conversion
(1)(4)
|
|
|
|
Percentage
of Outstanding Shares
|
|
5% Holders
|
|
Alpha Capital
(1)
|
|
6,923
|
|
457,795
|
|
464,778
|
|
12.2
|
%
|
|
|
|
Sileas Corporation
(2)(3)
|
|
1,352,185
|
|
1,291,070
|
|
2,643,255
|
|
69.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Officers
|
|
Danny Schoening
(5)(7)
|
|
1,367,185
|
|
1,291,070
|
|
2,658,255
|
|
69.9
|
%
|
|
|
|
Karen Hawkins
(8)
|
|
7,500
|
|
—
|
|
7,500
|
|
0.2
|
%
|
|
|
|
Peter Benz
(Longview Fund)
(6)
|
|
1,350
|
|
—
|
|
1,350
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and officers as a
group (3 Individuals)
|
|
|
|
1,376,035
|
|
1,291,070
|
|
2,667,105
|
|
70.1
|
%
|
53
54
DESCRIPTION
OF SECURITIES
Optex Systems Holdings is authorized to
issue 2,000,000,000 shares of common stock and 5,000 shares of preferred stock of which 1,027 shares are designated as Series
A preferred stock, and 1,010 shares are designated as Series B preferred stock. As of July 11, 2016, there were 1,730,436 shares
of common stock issued and outstanding, 546 shares of Series A preferred stock issued and outstanding and 801.6 shares of Series
B preferred stock issued and outstanding.
Common Stock
The
holders of common stock are entitled to one vote per share. The holders of common stock are entitled to receive ratably such dividends,
if any, as may be declared by the board of directors out of legally available funds. However, the current policy of the board
of directors is to retain earnings, if any, for operations and growth. Upon liquidation, dissolution or winding-up, the holders
of common stock are entitled to share ratably in all assets that are legally available for distribution. The holders of common
stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of
common stock are subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock, which
may be designated solely by action of the board of directors and issued in the future.
Warrants Issued in this Offering
The warrants issued in this offering
entitle the holder to purchase one share of our common stock at an exercise price equal to $_____ per share, or 125% of the offering
price per share, at any time commencing upon consummation of this offering and terminating at 5:00 p.m., New York City time, on
the three year anniversary of the date of issuance.
Pursuant to a warrant agreement between
us and Equity Stock Transfer, LLC, as warrant agent, the warrants will be issued in book-entry form and shall initially be represented
only by one or more global warrants deposited with the warrant agent, as custodian on behalf of The Depository Trust Company,
or DTC, and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC. The material provisions
of the warrants are set forth herein but are only a summary and are qualified in their entirety by the provisions of the warrant
agreement that has been filed as an exhibit to the registration statement of which this prospectus forms a part.
The exercise price and number of shares
of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock
splits, stock dividend, extraordinary dividend on or recapitalization, reorganization, merger or consolidation. For one year following
the issuance date of the warrants, the exercise price of the warrants will also be adjusted for issuances of common stock at a
price below their exercise price, on the date of issuance of any option to purchase, or sell or grant any right to reprice, or
otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any common stock
or common stock equivalents, at an effective price per share less than the exercise price then in effect. Under such adjustment,
the exercise price of the warrants shall be reduced to that lower issuance price per share. Under the terms of the Warrants, there
can only be one such price reset during the term of the warrant.
Under the terms of the warrant agreement,
we have agreed to use our best efforts to maintain the effectiveness of the registration statement and current prospectus relating
to common stock issuable upon exercise of the warrants until the expiration of the warrants. During any period we fail to have
maintained an effective registration statement covering the shares underlying the warrants, the warrant holder may exercise the
warrants on a cashless basis. The warrant holders do not have the rights or privileges of holders of common stock and any voting
rights until they exercise their warrants and receive shares of common stock, except as set forth in the warrants. After the issuance
of shares of common stock upon exercise of the warrants, each holder will be entitled to one vote for each share held of record
on all matters to be voted on by stockholders.
Subject to limited exceptions, a holder
of warrants will not have the right to exercise any portion of its warrants if the holder (together with such holder’s affiliates,
and any persons acting as a group together with such holder or any of such holder’s affiliates) would beneficially own a
number of shares of common stock in excess of 4.99% (or, at the election of the holder, 9.99%) of the shares of our common stock
then outstanding after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however,
that, upon notice to the Company, the holder may increase or decrease the Beneficial Ownership Limitation, provided that in no
event shall the Beneficial Ownership Limitation exceed 9.99% and any increase in the Beneficial Ownership Limitation will not
be effective until 61 days following notice of such increase from the holder to us.
No fractional shares of common stock will
be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional
interest in a share, we will, upon exercise, round up to the nearest whole number of shares of common stock to be issued to the
warrant holder. If multiple warrants are exercised by the holder at the same time, we will aggregate the number of whole shares
issuable upon exercise of all the warrants. There is no established trading market for the warrants. The underwriters intend to
submit an application to have the warrants trade on the OTCQB; however, no assurances can be given that such application will
be approved.
In the event of a fundamental transaction
(as defined in warrant), then the Company or any successor entity will pay at the holder’s option, exercisable at any time
concurrently with or within 30 days after the consummation of the fundamental transaction, an amount of cash equal to the value
of the remaining unexercised portion of the warrants on the date of consummation of the fundamental transaction as determined
in accordance with the Black Scholes option pricing model.
Preferred
Stock
Series A preferred
stock
On March 24, 2009, Optex Systems Holdings filed a Certificate of
Designation with the Secretary of State of the State of Delaware
authorizing a series of preferred stock, under its articles of
incorporation, known as “Series A preferred stock”.
This Certificate of Designation was approved by Our Board of
Directors and Shareholders at a Board Meeting and Shareholders
Meeting held on February 25, 2009. The Certificate of Designation
originally set forth the following terms for the Series A preferred
stock as described in the table below.
|
Authorized Shares:
|
|
1,027
|
|
Per Share Stated Value:
|
|
$6,860.34
|
|
Liquidation Preference:
|
|
Per share stated value
|
|
Conversion Price into common stock:
|
|
$2.50 per share, as adjusted on a pro rata basis
for stock splits, dividends, combinations or reclassifications and
on a full ratchet basis for equity issuances at a price less than
the then in effect exercise price
|
|
Voting Rights:
|
|
The Series A preferred shares shall vote along
with the common stock on an as converted basis and shall have one
vote per share.
|
55
Our preferred shareholders have agreed to waive our obligation to
pay future dividends on their shares of preferred stock after the
date of effectiveness of this registration statement and in
conjunction with the reduction in their per share conversion price
to $0.01 as of the date of effectiveness, in accordance with the
terms of the preferred conversion feature of the Series A preferred
stock and in exchange for waiver of payment of accrued dividends
through July 15, 2011 through an offsetting increase in the stated
value of the Series A preferred stock. To date, the accrued
dividends on Series A preferred stock total $883,569, which when
divided by the 1027 shares of Series A preferred stock outstanding
equals an increase in the stated value of the shares to $6,860.34
per share. Our calculations are set forth below:
100%
Total for Shares Owned by Both Sileas Corp.
and Alpha Capital Anstalt
|
|
Regarding
Shares Owned by Sileas Corp.
|
|
Regarding
Shares Owned by Alpha Capital Anstalt
|
|
1,027
shares
|
|
926
|
|
|
101
|
|
|
100%
|
|
90.2%
|
|
|
9.8%
|
|
|
$883,569
in dividends accrued
|
|
$796,979
|
|
|
$86,590
|
|
|
$883,569
total increase in total value, which
is $860.34 per share
|
|
New
stated value of $6,860.34 per Share
|
|
|
New
stated value of $6,860.34 per share
|
|
Series B Preferred
Stock
On March 26, 2015, we filed a Certificate of Designation with
respect to its Certificate of Incorporation to authorize a series
of preferred stock known as “Series B Preferred Stock”
under Article FOURTH thereof, with 1010 shares of Series B
preferred stock issuable thereunder. The amendment was approved by
our Board of Directors under Article FOURTH of its Certificate of
Incorporation, as amended. The Certificate of Designation sets
forth the following terms of the Series B preferred stock as
described in the table below:
|
Authorized Shares:
|
|
1010
|
|
Per Share Stated Value:
|
|
$1,629.16
|
|
Liquidation Preference:
|
|
Per share stated value to other classes of
equity except to Series A preferred stock
|
|
Conversion Price into Common Stock:
|
|
$2.50 per share
|
|
Voting Rights:
|
|
Additionally, the holders of the Series B
preferred stock are entitled to vote together with the common stock
and the Series A preferred stock on an “as-converted”
basis.
|
Stock
Options
As of the date of this prospectus, we
have 52,850 outstanding stock options that represent potential future cash proceeds to our company of $528,500. On December 9,
2011, our Board of Directors authorized an amendment to its Stock Option Plan to increase the number of issuable shares from 6,000
to 50,000 and authorize the grant of 10,000 options to two board members and a total of 36,070 to our employees including 20,000
options to executive officers, at an exercise price of $10.00 per share with each grant to vest 25% per year over four years for
each year with which the grantee is still employed by or serving as our director (with all unvested options automatically expiring
on the date of termination of employment by or service as a director) and all unvested options immediately vesting upon a change
of control due to a merger or acquisition of us. On December 19, 2013, the Board of Directors of Optex Systems Holdings, Inc.
authorized an amendment to its Stock Option Plan to increase the number of issuable shares from 50,000 to 75,000 and authorized
the grant of 20,000 options to three board members and a grant of 5,000 to an Optex Systems Holdings officer. The options have
an exercise price of $10.00 per share with each grant to vest 25% per year over four years for each year with which the grantee
is still employed by or serving as a director of Optex Systems Holdings, Inc. (with all unvested options automatically expiring
on the date of termination of employment by or service as a director of Optex Systems Holdings, Inc.) and all unvested options
immediately vesting upon a change of control due to a merger or acquisition of the Company. The holders of options are not required
to exercise their rights at any time and we are unable to predict the amount and timing of any future option exercises. We reserve
the right to temporarily reduce the exercise prices of our options from time to time in order to encourage the early exercise
of the options. As of the date of this prospectus, 57,850 of the stock options had vested and 5,000 were exercised.
56
Delaware Anti-takeover
Statute
We are subject to the provisions of section 203 of the Delaware
General Corporation Law regulating corporate takeovers. In general,
those provisions prohibit a Delaware corporation from engaging in
any business combination with any interested stockholder for a
period of three years following the date that the stockholder
became an interested stockholder, unless:
—
the transaction is approved by the board of directors before the
date the interested stockholder attained that status;
—
upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced;
or
—
on
or after the date the business combination is approved by the board
of directors and authorized at a meeting of stockholders by at
least two-thirds of the outstanding voting stock that is not owned
by the interested stockholder.
Section 203 defines “business combination” to include
the following:
—
any merger or consolidation involving the corporation and the
interested stockholder;
—
any sale, transfer, pledge or other disposition of 10% or more of
the assets of the corporation involving the interested
stockholder;
—
subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
—
any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested
stockholder; or
—
the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
In general, Section 203 defines an interested stockholder as any
entity or person beneficially owning 15% or more of the outstanding
voting stock of the corporation and any entity or person affiliated
with or controlling or controlled by any of these entities or
persons.
A Delaware corporation may opt out of this provision either with an
express provision in its certificate of incorporation or bylaws
approved by its stockholders. However, we have not opted out, and
do not currently intend to opt out, of this provision. The statute
could prohibit or delay mergers or other takeover or change in
control attempts and, accordingly, may discourage attempts to
acquire us.
Certificate of
Incorporation and By-laws
Our Certificate of Incorporation and by-laws include provisions
that may have the effect of delaying or preventing a change of
control or changes in our management. These provisions include:
—
the right of the board of directors to elect a director to fill a
vacancy created by the resignation of a director or the expansion
of the board of directors;
—
the requirement for advance notice for nominations of candidates
for election to the board of directors or for proposing matters
that can be acted upon at a stockholders’ meeting (as set
forth in Article II Section IV of the Bylaws which require notice
to be given least ten (10) and not more than sixty (60) days prior
to each meeting, and notice of each special meeting shall also
state the purpose or purposes for which it has been called);
and
—
the right of our board of directors to alter our bylaws without
stockholder approval.
Also pursuant to the reorganization, we amended our bylaws which
provided for a fiscal year end on December 31 to a fiscal year
ending on the Sunday nearest September 30.
Transfer
Agent
Our transfer agent is Equity Stock Transfer of New York, NY.
57
UNDERWRITING
We have entered into an underwriting
agreement with Joseph Gunnar & Co., LLC (the “representative”) acting as the representative for the underwriters
named below. Subject to the terms and conditions of the underwriting agreement and other than the shares and/or warrants covered
by the over-allotment option described below, the underwriters named below have agreed to purchase, and we have agreed to sell
to the underwriters, the number of shares of common stock and number of warrants to purchase shares of common stock at the public
offering price, less the underwriting discounts and commissions, as set forth on the cover page of this prospectus and as indicated
below:
|
|
|
Number
of Shares
|
|
|
|
Joseph
Gunnar & Co., LLC
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
The
underwriters are committed to purchase all of the shares and warrants offered by this prospectus if any such shares and warrants
are taken, other than those shares covered by the over-allotment option described below. The obligations of the underwriters may
be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore, pursuant to the underwriting
agreement, the underwriters’ obligations are subject to customary conditions, representations and warranties contained in
the underwriting agreement, such as receipt by the underwriters of officers’ certificates and legal opinions.
The representative has advised us that
the underwriters propose to offer the shares and warrants directly to the public at the public offering price set forth on the
cover of this prospectus. In addition, the underwriters may offer some of the shares to other securities dealers at such price
less a concession of up to $_________ per share and warrant. After the offering to the public, the offering price and other selling
terms may be changed by the representative without changing our proceeds from the underwriters’ purchase of the shares.
The following table summarizes the public offering price,
underwriting discounts and commissions and proceeds before expenses
to us assuming both no exercise and full exercise of the
underwriters’ option to purchase additional shares and
warrants.
|
|
|
|
|
Per
Warrant
|
|
Total
Without
Over-Allotment
|
|
Total
With Over-
Allotment
|
|
Public
Offering price
|
|
|
|
|
|
|
|
|
|
Underwriting
discounts and commissions
|
|
|
|
|
|
|
|
|
|
Proceeds,
before expenses, to us
|
|
|
|
|
|
|
|
|
In addition, we have agreed to pay to the representative a non-accountable
expense allowance equal to 1% of the aggregate gross proceeds of this offering. In addition, we have agreed to reimburse the representative
for fees and expenses of legal counsel to the representative in an amount not to exceed $75,000, fees and expense related to use
of Ipreo’s book building, prospectus tracking and compliance software for the offering in the amount of $29,500, up to $2,500
for the costs associated with bound volumes of the public offering materials as well as commemorative mementos, and out-of-pocket
fees and expenses of the representative for marketing and roadshows for the offering not to exceed $20,000, of which $2,500 has
been advanced prior to the date hereof, subject to compliance with FINRA Rule 5110(f)(2)(D)(i).
We
estimate that the total expenses of the offering, including registration, filing and listing fees, printing fees and legal and
accounting expenses, but excluding underwriting discounts and commissions, will be approximately $_________, all of which are
payable by us.
Over-Allotment
Option
We have granted to the underwriters
an option, exercisable no later than 45 calendar days after the date of the underwriting agreement to purchase up to _____ shares
of common stock and/or warrants to purchase ___ shares of common stock (15% of the shares and 15% of the warrants sold in this
offering) at a price of $__________ per share and $ ____ per warrant, less underwriting discount, to cover over-allotments. The
over-allotment option may be used to purchase shares of common stock and/or warrants in any combination thereof, as determined
by the representative. The underwriters may exercise this option only to cover over-allotments, if any, made in connection with
this offering. To the extent the option is exercised and the conditions of the underwriting agreement are satisfied, we will be
obligated to sell to the underwriters, and the underwriters will be obligated to purchase, these additional shares of common stock
and/or warrants to purchase common stock.
58
Underwriters’
Warrants
We have agreed to issue to the representative
common stock purchase warrants (the “Representative Warrants”) to purchase up to an aggregate number of shares of
our common stock equal to five percent (5%) of the shares of common stock sold in the offering (excluding shares sold upon exercise
of overallotment option and excluding shares upon exercise of any warrants sold in this offering). The Representative Warrants
and the shares underlying the Representative Warrants will be registered on this registration statement. The Underwriter Warrants
shall have an exercise price equal to $_______ per share, which is 125% of the public offering price per share, and shall have
a term of four years commencing one year from the effective date of this offering (which period shall not extend further than
five years from the effective date of this offering in compliance with FINRA Rule 5110(f)(2)(G)), and otherwise have the same
terms as the warrants sold in this offering except that the warrants will not contain an anti-dilution provision and, pursuant
to FINRA Rule 5110(g)(1), neither the Representative Warrants nor any shares of common stock issued upon exercise of the Representative
Warrants may be sold, transferred, assigned, pledged, or hypothecated, or be subject to any hedging, short sale, derivative, put,
or call transaction that would result in the effective economic disposition of such securities by any person for a period of 180
days immediately following the date of effectiveness or commencement of sales of this offering, except the transfer of any security
(i) by operation of law or by reason of reorganization, (ii) to any FINRA member firm participating in the offering and the officers
and partners thereof, if all securities so transferred remain subject to the lock-up restriction described above for the remainder
of the time period, (iii) if the aggregate amount of our securities held by the holder of the Representative Warrant or related
persons does not exceed 1% of the securities being offered, (iv) that is beneficially owned on a pro-rata basis by all equity
owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund, and
participating members in the aggregate do not own more than 10% of the equity in the fund, or (v) the exercise or conversion of
any security, if all securities received remain subject to the lock-up restriction set forth above for the remainder of the time
period.
Lock-Up
Agreements
We and each of our officers and directors and
certain shareholders have agreed, subject to certain exceptions, not to offer, issue, sell, contract to sell, encumber, grant any
option for the sale of or otherwise dispose of any shares of our common stock or other securities convertible into or exercisable
or exchangeable for shares of our common stock for a period of 180 days after the effective date of the registration statement
of which this prospectus is a part without the prior written consent of the representative.
Price Stabilization, Short Positions
and Penalty Bids
In connection with this offering, the
underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-covering transactions, penalty bids
and purchases to cover positions created by short sales.
|
|
•
|
Stabilizing
transactions permit bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum and are engaged
in for the purpose of preventing or retarding a decline in the market price of the shares while the offering is in progress.
|
|
|
•
|
Over-allotment
transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated
to purchase. This creates a syndicate short position which may be either a covered short position or a naked short position.
In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares
that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than
the number of shares in the over-allotment option. The underwriters may close out any short position by exercising their over-allotment
option and/or purchasing shares in the open market.
|
|
|
•
|
Syndicate
covering transactions involve purchases of shares in the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will
consider, among other things, the price of shares available for purchase in the open market as compared with the price at
which they may purchase shares through exercise of the over-allotment option. If the underwriters sell more shares than could
be covered by exercise of the over-allotment option and, therefore, have a naked short position, the position can be closed
out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are
concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely
affect investors who purchase in the offering.
|
|
|
•
|
Penalty
bids permit the Representative to reclaim a selling concession from a syndicate member when the shares originally sold by
that syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.
|
These stabilizing transactions, syndicate
covering transactions and penalty bids may have the effect of raising or maintaining the market price of our shares of common
stock or preventing or retarding a decline in the market price of our shares of common stock. As a result, the price of our common
stock in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters
make any representation or prediction as to the effect that the transactions described above may have on the price of our common
stock. These transactions may be effected in the over-the-counter market or otherwise and, if commenced, may be discontinued at
any time.
In connection with this offering, underwriters
and selling group members may engage in passive market making transactions in our common stock on the OTCQB in accordance with
Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the shares and
extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of
the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s
bid, then that bid must then be lowered when specified purchase limits are exceeded.
59
Other Terms
In
addition, we have granted a right of first refusal to the representative to act as sole investment bank, book-runner or placement
agent for any public or private equity, equity-linked or debt offering by us or any subsidiary during the twelve months following
the consummation of this offering.
We have previously paid an aggregate
fee of $8,500 to the representative for advisory services on our capital markets strategy, the listing of our common stock on
a national securities exchange, and non-deal roadshows to introduce us to institutional investors, sell-side research firms and
retail investment firms pursuant to an advisory agreement, dated May 23, 2016, between us and the representative.
The
underwriters and their affiliates may in the future provide various investment banking and other financial services for us, for
which they may receive, in the future, customary fees.
Indemnification
We have agreed to indemnify the underwriters against liabilities
relating to the offering arising under the Securities Act, the
Exchange Act and liabilities arising from breaches of some or all
of the representations and warranties contained in the underwriting
agreement. We have also agreed to contribute to payments that the
underwriters may be required to make for these liabilities.
Electronic
Distribution
A prospectus in electronic format may
be made available on the websites maintained by one or more of the underwriters or selling group members. The Representative may
agree to allocate a number of shares to underwriters and selling group members for sale to its online brokerage account holders.
Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on
the same basis as other allocations.
Other than the prospectus in electronic
format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration
statement of which this prospectus forms a part, has not been approved or endorsed by us, and should not be relied upon by investors.
60
Offer Restrictions Outside the United
States
Other than in the United States, no
action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus
in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or
sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the
offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result
in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes
are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus.
This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus
in any jurisdiction in which such an offer or a solicitation is unlawful.
Australia
This prospectus is not a disclosure
document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments
Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian
Corporations Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful
to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set
out in section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons
as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer,
the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian
Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months
after its transfer to the offeree under this prospectus.
Canada
The securities may be sold in Canada
only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National
Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined
in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities
must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable
securities laws.
Securities legislation in certain provinces
or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment
thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within
the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer
to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these
rights or consult with a legal advisor.
Pursuant to section 3A.3 of National
Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements
of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
China
The information in this document does
not constitute a public offer of the securities, whether by way of sale or subscription, in the People’s Republic of China
(the “PRC”) (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative
Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other
than directly to “qualified domestic institutional investors.”
European Economic Area — Belgium,
Germany, Luxembourg and Netherlands
The information in this document has
been prepared on the basis that all offers of securities will be made pursuant to an exemption under the Directive 2003/71/EC
(“Prospectus Directive”), as implemented in Member States of the European Economic Area (each, a “Relevant Member
State”), from the requirement to produce a prospectus for offers of securities.
61
An offer to the public of securities
has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the
Prospectus Directive as implemented in that Relevant Member State:
|
|
(a)
|
to
legal entities that are authorized or regulated to operate in the financial markets or,
if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
|
|
|
(b)
|
to
any legal entity that has two or more of (i) an average of at least 250 employees during
its last fiscal year; (ii) a total balance sheet of more than €43,000,000 (as shown
on its last annual unconsolidated or consolidated financial statements) and (iii) an
annual net turnover of more than €50,000,000 (as shown on its last annual unconsolidated
or consolidated financial statements);
|
|
|
(c)
|
to
fewer than 100 natural or legal persons (other than qualified investors within the meaning
of Article 2(1)(e) of the Prospectus Directive) subject to obtaining the prior consent
of the Company or any underwriter for any such offer; or
|
|
|
(d)
|
in
any other circumstances falling within Article 3(2) of the Prospectus Directive, provided
that no such offer of securities shall result in a requirement for the publication by
the Company of a prospectus pursuant to Article 3 of the Prospectus Directive.
|
France
This document is not being distributed
in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning
of Article L.411-1 of the French Monetary and Financial Code (Code monétaire et financier) and Articles 211-1 et seq. of
the General Regulation of the French Autorité des marchés financiers (“AMF”). The securities have not
been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.
This document and any other offering
material relating to the securities have not been, and will not be, submitted to the AMF for approval in France and, accordingly,
may not be distributed or caused to distributed, directly or indirectly, to the public in France.
Such offers, sales and distributions
have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their own account,
as defined in and in accordance with Articles L.411-2-II-2° and D.411-1 to D.411-3, D.744-1, D.754-1 and D.764-1 of the French
Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle
restreint d’investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2°
and D.411-4, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.
Pursuant to Article 211-3 of the General
Regulation of the AMF, investors in France are informed that the securities cannot be distributed (directly or indirectly) to
the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the
French Monetary and Financial Code.
Ireland
The information in this document does
not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish
regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within
the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The securities
have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public
offering, except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100
natural or legal persons who are not qualified investors.
Israel
The securities offered by this prospectus
have not been approved or disapproved by the Israeli Securities Authority (the “ISA”), nor have such securities been
registered for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent
the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with the offering or publishing
the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered
an opinion as to the quality of the securities being offered. Any resale in Israel, directly or indirectly, to the public of the
securities offered by this prospectus is subject to restrictions on transferability and must be effected only in compliance with
the Israeli securities laws and regulations.
62
Italy
The offering of the securities in the
Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Societ — $$ — Aga
e la Borsa, “CONSOB”) pursuant to the Italian securities legislation and, accordingly, no offering material relating
to the securities may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within
the meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:
|
|
•
|
to
Italian qualified investors, as defined in Article 100 of Decree No. 58 by reference
to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999 (“Regulation no.
1197l”) as amended (“Qualified Investors”); and
|
|
|
•
|
in
other circumstances that are exempt from the rules on public offer pursuant to Article
100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 as amended.
|
Any offer, sale or delivery of the
securities or distribution of any offer document relating to the securities in Italy (excluding placements where a Qualified Investor
solicits an offer from the issuer) under the paragraphs above must be:
|
|
•
|
made
by investment firms, banks or financial intermediaries permitted to conduct such activities
in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended),
Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable
laws; and
|
|
|
•
|
in
compliance with all relevant Italian securities, tax and exchange controls and any other
applicable laws.
|
Any subsequent distribution of the
securities in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No.
58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may
result in the sale of such securities being declared null and void and in the liability of the entity transferring the securities
for any damages suffered by the investors.
Japan
The securities have not been and will
not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as
amended (the “FIEL”), pursuant to an exemption from the registration requirements applicable to a private placement
of securities to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and
the regulations promulgated thereunder). Accordingly, the securities may not be offered or sold, directly or indirectly, in Japan
or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional
Investor who acquires securities may not resell them to any person in Japan that is not a Qualified Institutional Investor, and
acquisition by any such person of securities is conditional upon the execution of an agreement to that effect.
Portugal
This
document is not being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários)
in Portugal, within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários).
The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal.
This document and any other offering material relating to the securities
have not been, and will not be, submitted to the
Portuguese Securities Market Commission (Comissão do Mercado de Valores Mobiliários) for approval in Portugal and,
accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under
circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions
of securities in Portugal are limited to persons who are “qualified investors” (as defined in the Portuguese Securities
Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any
other person.
63
Sweden
This document has not been, and will
not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document
may not be made available, nor may the securities be offered for sale in Sweden, other than under circumstances that are deemed
not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella
instrument). Any offering of securities in Sweden is limited to persons who are “qualified investors” (as defined
in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the
information contained in it to any other person.
Switzerland
The securities may not be publicly
offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or
regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance
prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses
under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland.
Neither this document nor any other offering material relating to the securities may be publicly distributed or otherwise made
publicly available in Switzerland.
Neither this document nor any other
offering material relating to the securities have been or will be filed with or approved by any Swiss regulatory authority. In
particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market
Supervisory Authority.
This document is personal to the recipient
only and not for general circulation in Switzerland.
United Arab Emirates
Neither this document nor the securities
have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates or any other governmental
authority in the United Arab Emirates, nor has the Company received authorization or licensing from the Central Bank of the United
Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the securities within the United
Arab Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. No services relating
to the securities, including the receipt of applications and/or the allotment or redemption of such shares, may be rendered within
the United Arab Emirates by the Company.
No offer or invitation to subscribe
for securities is valid or permitted in the Dubai International Financial Centre.
United Kingdom
Neither the information in this document
nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United
Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”))
has been published or is intended to be published in respect of the securities. This document is issued on a confidential basis
to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the securities may
not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except
in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not
be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person
in the United Kingdom.
Any invitation or inducement to engage
in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the securities
has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United
Kingdom in circumstances in which section 21(1) of FSMA does not apply to the Company.
In the United Kingdom, this document
is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments
falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions)
Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net
worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together
“relevant persons”). The investments to which this document relates are available only to, and any invitation, offer
or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act
or rely on this document or any of its contents.
64
LEGAL MATTERS
The legality of the shares of common stock offered by this
prospectus will be passed upon for us by Jolie Kahn, Esq. of
Philadelphia, PA. Certain legal matters in connection with this
offering will be passed upon for the representative of the
underwriters by Ellenoff Grossman & Schole LLP, New York, New
York.
EXPERTS
The financial statements as of September 27, 2015 and September 28,
2014 incorporated in this prospectus have been so included in
reliance on the report of PMB Helin Donovan, an independent
registered public accounting firm, given on the authority of said
firm as experts in accounting and auditing.
No expert or counsel named in this prospectus as having prepared or
certified any part of this prospectus or having given an opinion
upon the validity of the securities being registered or upon other
legal matters in connection with the registration or offering of
the shares and its underlying securities was employed on a
contingency basis, or had, or is to receive, in connection with the
offering, a substantial interest, direct or indirect, in the
registrant or any of its parents or subsidiaries. Nor was any such
person connected with the registrant or any of its parents or
subsidiaries as a promoter, managing or principal underwriter,
voting trustee, director, officer, or employee.
WHERE YOU CAN FIND MORE
INFORMATION
We have filed with the SEC a registration statement on Form S-1
under the Securities Act with respect to the notes offered hereby.
This prospectus, which is part of the registration statement, does
not contain all of the information set forth in the registration
statement and the exhibits and schedules to the registration
statement. For further information, we refer you to the
registration statement and the exhibits and schedules filed as part
of the registration statement. If a document has been filed as an
exhibit to the registration statement, we refer you to the copy of
the document that has been filed. A copy of the registration
statement, including the exhibits and schedules thereto, may be
read and copied at the SEC’s Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. Information on the operation
of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains an Internet website
that contains reports, proxy statements and other information about
issuers, like us, that file electronically with the SEC. The
address of that site is
www.sec.gov
.
65
INFORMATION INCORPORATED
BY REFERENCE
The rules of the SEC allow us to incorporate information into this
prospectus by reference. The information incorporated by reference
is considered to be a part of this prospectus. This prospectus
incorporates by reference the documents listed below:
•
our Annual Report on Form 10-K for the year ended September
27, 2015, filed on December 15, 2015;
•
our Quarterly Reports on Form 10-Q for the three months
ended December 27, 2015 filed on February 16, 2016, on Form 10-Q
for the three and six months ended March 27, 2016 filed on May 11,
2016 and on Form 10-Q for the three and nine months ended June 26, 2016 filed on August 8, 2016;
•
our
Preliminary Information Statement on Schedule 14C, filed on December 15, 2015 and
Definitive Information Statement on Schedule
14C, filed on December 28, 2015; and
•
our
Current Reports on Form 8-K, filed on October 6 and November 9, 2015 and April 19 and 28, May 6, June 17 and August
1, 2016.
Any statement made in this prospectus or in a document incorporated
by reference into this prospectus will be deemed to be modified or
superseded for purposes of this prospectus to the extent that a
statement contained in this prospectus modifies or supersedes that
statement. Any statement so modified or superseded will not be
deemed, except as so modified, to constitute a part of this
prospectus.
You can obtain any of the filings incorporated by reference into
this prospectus through us or from the SEC through the SEC’s
website at
http://www.sec.gov
.
We will provide, without charge, to each person, including any
beneficial owner, to whom a copy of this prospectus is delivered,
upon written or oral request of such person, a copy of any or all
of the reports and documents referred to above which have been or
may be incorporated by reference into this prospectus. You should
direct requests for those documents to:
Optex Systems Holdings, Inc.
1420 Presidential Drive
Richardson, TX 75081
Our reports and documents incorporated by reference into this
prospectus may also be found in the “Investors
Relations” section of our website at
http://www.optexsys.com
.
Our website and the information contained in it or connected to it
shall not be deemed to be incorporated into this prospectus or any
registration statement of which it forms a part.
66
Dealer Prospectus Delivery
Obligation
Until ______ __,
2016, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers’
obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or
subscriptions.
_________
Shares of Common Stock
_________
Warrants
______________________
PROSPECTUS
______________________
Joseph
Gunnar & Co.
PART
II — INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses
of Issuance and Distribution
Expenses
of the Registrant in connection with the issuance and distribution of the securities being registered, are estimated as follows:
|
|
|
(Thousands)
|
|
|
Placement Agent Advisory Fee
|
|
$
|
400
|
|
|
Legal Fees and Expenses
|
|
$
|
50
|
|
|
Transfer Agent Fees and Expenses
|
|
$
|
11
|
|
|
SEC Registration Fee
|
|
$
|
3
|
|
|
Accountants’ Fees and Expenses
|
|
$
|
12
|
|
|
FINRA Filing Fee
|
|
$
|
2
|
|
|
Printing and Engraving Expenses
|
|
$
|
2
|
|
|
Miscellaneous Costs
|
|
$
|
20
|
|
|
Total
|
|
$
|
500
|
|
Item
14. Indemnification of Directors and Officers
Section 102 of the Delaware General Corporation Law allows a
corporation to eliminate the personal liability of a director to
the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except where the director breached
his or her duty of loyalty to the corporation or its stockholders,
failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or
approved a stock purchase or redemption in violation of the
Delaware General Corporation Law or obtained an improper personal
benefit.
Our amended and restated certificate of incorporation specifically
limits each director’s personal liability, as permitted by
Section 102 of the Delaware General Corporation Law, and provides
that if the Delaware General Corporation Law is hereafter amended
to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director
of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law as so
amended.
Section 145 of the Delaware General Corporation Law provides, among
other things, that a corporation may indemnify any and all persons
whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities, or other matters
referred to in or covered by said section, and the indemnification
provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors of
otherwise both as to action in his official capacity and as to
action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person. Our amended and
restated certificate of incorporation provides for indemnification
of our directors, officers, employees and agents to the fullest
extent permitted by the Delaware General Corporation Law.
Item 15. Recent Sales of
Unregistered Securities
Since January 1, 2012, we have issued and sold the following
securities in transactions exempt from registration under Section
4(2) of the Securities Act of 1933:
On November 17, 2014, we entered into a subscription agreement to
sell up to $2.1 million principal amount of convertible promissory
notes a series of notes with an aggregate principal amount of
$1,550 thousand. An additional convertible promissory note for $10
thousand was issued to the placement agent in consideration for
placement services on the transaction.
All of the above equity transactions were made in reliance on
Section 4(2) of the Securities Act and/or Regulation D promulgated
under the Securities Act as private placements of our securities to
institutional investors.
II-1
Item
16. Exhibits and Financial Statement Schedules
Exhibits
|
|
|
|
|
1.1
|
|
Form
of Underwriting Agreement
.
|
|
|
|
|
|
2.1
|
|
Agreement and Plan of Reorganization, dated as
of the March 30, 2009, by and between registrant, a Delaware
corporation and Optex Systems, Inc., a Delaware
corporation
(1)
.
|
|
|
|
|
|
3.1
|
|
Certificate of Incorporation, as amended, of
Optex Systems Holdings, Inc
(2)
.
|
|
|
|
|
|
3.2
|
|
Bylaws of Optex Systems Holdings
(1)
.
|
|
|
|
|
|
3.3
|
|
Charters of the Audit Committee, Compensation
Committee and Nominating Committee
(26)
.
|
|
|
|
|
|
4.1
|
|
Certificate of Powers, Designations, Preferences
and Rights of the Series B Preferred Stock of Optex Systems
Holdings, Inc. dated March 26, 2015
(23)
.
|
|
|
|
|
|
4.2
|
|
Form of Warrant Agency Agreement for Offering
|
|
|
|
|
|
4.3
|
|
Form
of Underwriter Warrant for Offering
|
|
|
|
|
|
5.1
|
|
Opinion of Jolie Kahn, Esq.
|
|
|
|
|
|
10.1
|
|
2009 Stock Option Plan
(1)
.
|
|
|
|
|
|
10.2
|
|
Employment Agreement with Danny
Schoening
(1)
.
|
|
|
|
|
|
10.3
|
|
Lease for 1420 Presidential Blvd., Richardson,
TX
(1)
.
|
|
|
|
|
|
10.4
|
|
Form of Warrant
(3)
|
|
|
|
|
|
10.5
|
|
Specimen Stock Certificate
(3)
|
|
|
|
|
|
10.6
|
|
Contract W52H0905D0248 with Tank-automotive and
Armaments Command, dated August 19, 2005
(5)(6)
|
|
|
|
|
|
10.7
|
|
Contract W52H0909D0128 with Tank-automotive and
Armaments Command, dated March 24, 2009
(5)
|
|
|
|
|
|
10.8
|
|
Contract W52H0905D0260 with Tank-automotive and
Armaments Command, dated August 3, 2005
(5)(6)
|
|
|
|
|
|
10.9
|
|
PO# 40050551 with General Dynamics, dated June
8, 2009
(5)(6)
|
|
|
|
|
|
10.10
|
|
Contract 9726800650 with General Dynamics, dated
April 9, 2007
(5)(6)
|
|
|
|
|
|
10.11
|
|
Form of Subscription Agreement
(4)
|
|
|
|
|
|
10.12
|
|
Single Source Supplier Purchase Orders with TSP
Inc.
(5)
|
|
|
|
|
|
10.13
|
|
Single Source Supplier Purchase Orders with SWS
Trimac
(5)
|
|
|
|
|
|
10.14
|
|
Since Source Supplier Purchase Orders with
Danaher Controls
(5)
|
|
|
|
|
|
10.15
|
|
Single Source Supplier Purchase Orders with
Spartech Polycast
(5)
|
|
|
|
|
|
10.16
|
|
Third Amendment to Lease, between Aquiport DFWIP
and Optex Systems, Inc., dated January 7, 2010
(5)
|
|
|
|
|
|
10.17
|
|
$250,000 principal amount Note in favor of the
Longview Fund, L.P., dated October 27, 2009
(9)
|
|
|
|
|
|
10.18
|
|
Investor
Relations Agreement, dated April 1, 2009 between Optex Systems and
American Capital Ventures, Inc.
(9)
|
|
|
|
|
|
10.19
|
|
Form of Loan and Security Agreement between
Optex Systems, Inc. and Peninsula Bank Business Funding, dated
March 4, 2010
(5)
|
II-2
|
|
|
|
|
10.20
|
|
Form
of Unconditional Guaranty executed by Optex Systems Holdings, Inc. in favor of Peninsula Bank Business Funding, dated March 4,
2010
(5)
|
|
|
|
|
|
10.21
|
|
Form
of Warrant issued by Optex Systems Holdings, Inc. to Peninsula Bank Business Funding, dated March 4, 2010
(5)
|
|
|
|
|
|
10.22
|
|
Allonge
to Promissory Note, dated January 5, 2010
(9)
|
|
|
|
|
|
10.23
|
|
Showcase
Agreement between Optex Systems, Inc. and ECON Corporate Services, Inc., dated April 1, 2009
(9)
|
|
|
|
|
|
10.24
|
|
Consulting
Agreement dated June 29, 2009, between ZA Consulting, Inc. and Optex Systems, Inc.
(9)
|
|
|
|
|
|
10.25
|
|
Purchase
Order dated June 28, 2010 with TACOM-Warren
(7)
|
|
|
|
|
|
10.26
|
|
First
Amendment to Loan and Security Agreement, dated August 3, 2010, by and between Peninsula Bank Business Funding and Optex Systems,
Inc.
(8)
|
|
|
|
|
|
10.27
|
|
Waiver
by Peninsula Bank Business Funding to Optex Systems, Inc., dated November 24, 2010
(10)
|
|
|
|
|
|
10.28
|
|
Second
Amendment to Loan and Security Agreement, dated November 29, 2010, by and between Peninsula Bank Business Funding and Optex Systems,
Inc.
(10)
|
|
|
|
|
|
10.29
|
|
Third
Amendment to Loan and Security Agreement, dated February 15, 2011, by and between Peninsula Bank Business Funding and Optex Systems,
Inc.
(11)
|
|
|
|
|
|
10.30
|
|
Fourth
Amendment to Loan and Security Agreement, dated March 22, 2011, by and between Peninsula Bank Business Funding and Optex Systems,
Inc.
(12)
|
|
|
|
|
|
10.31
|
|
Waiver
of Series A preferred shareholders
(14)
|
|
|
|
|
|
10.32
|
|
Form
of Subscription Agreement
(15)
|
|
|
|
|
|
10.33
|
|
PO#
SPRDL1-12-C-0023 with DLA Land-Warren, dated October 24, 2011
(16)
|
|
|
|
|
|
10.34
|
|
Agreement
with GDLS-Canada, dated as of November 3, 2011
(19)
|
|
|
|
|
|
10.35
|
|
Amendment
to 2009 Stock Option Plan
(17)
|
|
|
|
|
|
10.36
|
|
Amendment
to the Articles of Incorporation
(18)
|
|
|
|
|
|
10.37
|
|
Amendment
to Credit Facility with Avidbank
(20)
|
|
|
|
|
|
10.38
|
|
Purchase
Agreement dated November 3, 2014
(21)
|
|
|
|
|
|
10.39
|
|
Assignment
of Lease dated October 30, 2014
(21)
|
|
|
|
|
|
10.40
|
|
Form
of Subscription Agreement
(22)
|
|
|
|
|
|
10.41
|
|
Form
of Convertible Note
(22)
|
|
|
|
|
|
10.42
|
|
Form
of Registration Rights Agreement
(22)
|
|
|
|
|
|
10.43
|
|
Form
of Make Whole Agreement
(22)
|
|
|
|
|
|
10.44
|
|
Supply
Agreement, dated May 26, 2015, between Optex Systems Holding, Inc. and Nightforce Optics, Inc.
(24)
|
|
|
|
|
|
10.45
|
|
First Amendment to Amended
and Restated Loan and Security Agreement with Avidbank
(26)
|
|
|
|
|
|
10.46
|
|
Restricted Stock Unit Plan
(27)
|
|
|
|
|
|
10.47
|
|
Form of RSU Agreement
(27)
|
|
|
|
|
|
10.48
|
|
Employment Agreement with Karen Hawkins, dated as of August
1, 2016(25)
|
|
|
|
|
|
14.1
|
|
Code
of Ethics
(3)
|
|
|
|
|
|
21.1
|
|
List
of Subsidiaries — Optex Systems, Inc.
(1)
|
|
|
|
|
|
23.1
|
|
Consent
of Jolie Kahn, Esq. (included in Exhibit 5.1)
|
|
|
|
|
|
23.2
|
|
Consent
of PMB Helin Donovan LLP
|
II-3
(25)
Incorporated by reference from our Current Report on Form 8-K, dated August 10, 2016
Item 17.
Undertakings
The undersigned registrant hereby undertakes:
1.
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i.
To
include any prospectus required by section 10(a)(3) of the
Securities Act;
ii.
To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum
aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration
statement.
iii.
To
include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
2.
That,
for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
3.
To
remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
II-4
4.
That,
for the purpose of determining liability under the Securities Act
to any purchaser:
i.
If the
registrant is relying on Rule 430B (Section 430B of this
chapter):
A.
Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall
be deemed to be part of the registration statement as of the date
the filed prospectus was deemed part of and included in the
registration statement; and
B.
Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5),
or (b)(7) as part of a registration statement in reliance on Rule
430B relating to an offering made pursuant to Rule 415(a)(1)(i),
(vii), or (x) for the purpose of providing the information required
by section 10(a) of the Securities Act shall be deemed to be part
of and included in the registration statement as of the earlier of
the date such form of prospectus is first used after effectiveness
or the date of the first contract of sale of securities in the
offering described in the prospectus. As provided in Rule 430B, for
liability purposes of the issuer and any person that is at that
date an underwriter, such date shall be deemed to be a new
effective date of the registration statement relating to the
securities in the registration statement to which that prospectus
relates, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof. Provided,
however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such effective date, supersede or modify
any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in
any such document immediately prior to such effective date; or
ii.
If the registrant is subject
to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part
of a registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be
part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no
statement made in a registration statement or prospectus that is
part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such
document immediately prior to such date of first use.
5.
That, for the purpose of
determining liability of the registrant under the Securities Act to
any purchaser in the initial distribution of the securities: The
undersigned registrant undertakes that in a primary offering of
securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used
to sell the securities to the purchaser, if the securities are
offered or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities
to such purchaser:
i.
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
ii.
Any free writing prospectus relating to the offering prepared by or
on behalf of the undersigned registrant or used or referred to by
the undersigned registrant;
iii.
The
portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the
undersigned registrant; and
iv.
Any other
communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
6.
Insofar
as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1933, the registrant has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly
authorized in Richardson, TX, on the 12
th
day of August, 2016.
|
|
|
OPTEX
SYSTEMS HOLDINGS, INC.
|
|
|
|
|
|
|
|
By:
|
|
/s/
Danny Schoening
|
|
|
|
|
|
Danny
Schoening, Principal Executive Officer
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/
Karen Hawkins
|
|
|
|
|
|
Karen
Hawkins, Principal Financial Officer
|
|
|
|
|
|
|
|
Date: August 12, 2016
|
Pursuant to the requirements of the Securities Act, this
Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Peter Benz
|
|
Chairman
and Director
|
|
August
12, 2016
|
|
Peter
Benz
|
|
|
|
|
|
|
|
|
|
|
|
/s/
David Kittay
|
|
Director
|
|
August
12, 2016
|
|
David
Kittay
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Owen Naccarato
|
|
Director
|
|
August
12, 2016
|
|
Owen
Naccarato
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Danny Schoening
|
|
CEO
and Director
|
|
August
12, 2016
|
|
Danny
Schoening
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Charles Trego
|
|
Director
|
|
August
12, 2016
|
|
Charles
Trego
|
|
|
|
|
II-6
Exhibit 1.1
UNDERWRITING AGREEMENT
between
OPTEX SYSTEMS HOLDINGS, INC.
and
JOSEPH GUNNAR & CO., LLC
as Representative of the Several Underwriters
OPTEX SYSTEMS HOLDINGS, INC.
UNDERWRITING AGREEMENT
New York, New York
____________, 2016
Joseph Gunnar & Co., LLC
As Representative of the several Underwriters named on Schedule
1 attached hereto
30 Broad Street, 11th Floor
New York, NY 10004
Ladies and Gentlemen:
The undersigned, Optex
Systems Holdings, Inc., a corporation formed under the laws of the State of Delaware (collectively with its subsidiaries and affiliates,
including, without limitation, all entities disclosed or described in the Registration Statement (as hereinafter defined) as being
subsidiaries or affiliates of Optex Systems Holdings, Inc., the “
Company
”), hereby confirms its agreement (this
“
Agreement
”) with Joseph Gunnar & Co., LLC (hereinafter referred to as “you” (including its
correlatives) or the “
Representative
”) and with the other underwriters named on
Schedule 1
hereto for
which the Representative is acting as representative (the Representative and such other underwriters being collectively called
the “
Underwriters
” or, individually, an “
Underwriter
”) as follows:
1.
Purchase
and Sale of Securities
.
1.1
Firm
Securities
.
1.1.1.
Nature
and Purchase of Firm Securities
.
(i)
On
the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the
Company agrees to issue and sell to the several Underwriters, an aggregate of ___ shares (“
Firm
Shares
”) of the Company’s common stock, par value $0.001 per share (the “
Common
Stock
”), together with Common Stock purchase warrants to purchase up to an aggregate of
___ shares of Common Stock (the “
Firm Warrants
,” and together with the Option
Warrants, the “
Warrants
” and, the Firm Warrants together with the Firm Shares,
the “
Firm Securities
”).
(ii)
The
Underwriters, severally and not jointly, agree to purchase from the Company the number of Firm Shares and Firm Warrants set forth
opposite their respective names on
Schedule 1
attached hereto and made a part hereof at a purchase price of $__ per share
of Common Stock (the “
Share Purchase Price
”)
and $___ per warrant (the “
Warrant Purchase Price
”). The Firm Securities are
to be offered initially to the public at the offering price set forth on the cover page of the Prospectus (as defined in Section
2.1.1 hereof).
1.1.2.
Securities
Payment and Delivery
.
(i)
Delivery
and payment for the Firm Securities shall be made at 10:00 a.m., Eastern time, on the third (3
rd
) Business Day following
the effective date (the “Effective Date”) of the Registration Statement (as defined in Section 2.1.1 below) (or the
fourth (4
th
) Business Day following the Effective Date if the Registration Statement is declared effective after 4:01
p.m., Eastern time) or at such earlier time as shall be agreed upon by the Representative and the Company, at the offices of Ellenoff
Grossman & Schole LLP, 1345 Avenue of the Americas, New York, New York 10105 (“
Representative
Counsel
”), or at such other place (or remotely by facsimile or other electronic transmission)
as shall be agreed upon by the Representative and the Company. The hour and date of delivery and payment for the Firm Securities
is called the “
Closing Date
.”
(ii)
Payment
for the Firm Securities shall be made on the Closing Date by wire transfer in Federal (same day) funds, payable to the order of
the Company upon delivery (in form and substance satisfactory to the Underwriters) of the Firm Shares and the Firm Warrants through
the facilities of the Depository Trust Company (“
DTC
”)
for the account of the Underwriters. The Firm Securities shall be registered in such name or names and in such authorized denominations
as the Representative may request in writing at least two (2) full Business Days prior to the Closing Date. The Company shall not
be obligated to sell or deliver the Firm Securities except upon tender of payment by the Representative for all of the Firm Securities.
The term “
Business Day
” means any day other than a Saturday, a Sunday or a
legal holiday or a day on which banking institutions are authorized or obligated by law to close in New York, New York.
1.2
Over-Allotment
Option
.
1.2.1.
Option
Securities
. For the purposes of covering any over-allotments in connection with the distribution and sale of the Firm Securities,
the Underwriters are hereby granted an option (the “
Over-Allotment Option
”)
to purchase, in the aggregate, up to (a) ___
1
shares of Common Stock (the “
Option Shares
”)
and/or (b) warrants to purchase up to ____
2
shares of Common Stock (the “
Option Warrants
”
and, collectively with the Option Shares, the “
Option Securities
”), which
may be purchased in any combination of Option Shares and/or Option Warrants. The Firm Shares, Option Shares, Firm Warrants, and
Option Warrants are hereinafter referred to together as the “
Public Securities
.”
The offering and sale of the Public Securities is hereinafter referred to as the “
Offering
.”
1.2.2.
Option
Closing Purchase Price
. In connection with an exercise of the Over-Allotment Option, (a) the purchase price to be paid for
the Option Shares is equal to the product of the Share Purchase Price multiplied by the number of Option Shares to be purchased,
and (b) the purchase price to be paid for the Option Warrants is equal to the product of the Warrant Purchase Price multiplied
by the number of Option Warrants to be purchased.
1.2.3.
Exercise
of Over-Allotment Option
. The Over-Allotment Option granted pursuant to Section 1.2.1 hereof may be exercised by the Representative
as to all (at any time) or any part (from time to time) of the Option Shares and/or Option Warrants in any combination thereof
within 45 days after the date of this Agreement. The Underwriters shall not be under any obligation to purchase any Option Securities
prior to the exercise of the Over-Allotment Option. The Over-Allotment Option granted hereby may be exercised by the giving of
oral notice to the Company from the Representative, which must be confirmed in writing by overnight mail or facsimile or other
electronic transmission setting forth the number of Option Shares and/or Option Warrants to be purchased and the date and time
for delivery of and payment for the Option Securities (each, an “
Option Closing Date
”),
which shall not be later than two (2) full Business Days after the date of the notice or such other time as shall be agreed upon
by the Company and the Representative, at the offices of Representative Counsel or at such other place (including remotely by
facsimile or other electronic transmission) as shall be agreed upon by the Company and the Representative. If such delivery and
payment for the Option Securities does not occur on the Closing Date, each Option Closing Date will be as set forth in the notice.
Upon exercise of the Over-Allotment Option with respect to all or any portion of the Option Securities, subject to the terms and
conditions set forth herein, (i) the Company shall become obligated to sell to the Underwriters the number of Option Securities
specified in such notice and (ii) each of the Underwriters, acting severally and not jointly, shall purchase that portion of the
total number of Option Securities then being purchased as set forth in
Schedule 1
opposite the name of such Underwriter.
1
15% of Firm Shares
2
15% of Firm Warrants
1.2.4.
Payment
and Delivery
. Payment for the Option Securities shall be made on the Option Closing Date by wire transfer in Federal (same
day) funds, payable to the order of the Company upon delivery to you (in form and substance satisfactory to the Underwriters) the
Option Securities through the facilities of DTC for the account of the Underwriters. The Option Securities shall be registered
in such name or names and in such authorized denominations as the Representative may request in writing at least one (1) full Business
Day prior to the Option Closing Date. The Company shall not be obligated to sell or deliver the Option Securities except upon tender
of payment by the Representative for applicable Option Securities.
1.3
Representative’s
Warrants
.
1.3.1.
Purchase
Warrants
. The Company hereby agrees to issue and sell to the Representative (and/or its designees) on the Closing Date an option
(“
Representative’s Warrant
”) for the purchase of an aggregate of ____
shares of Common Stock, representing 5% of the Firm Shares, for an aggregate purchase price of $100.00. The Representative’s
Warrant agreement, in the form attached hereto as
Exhibit A
(the “
Representative’s Warrant Agreement
”),
shall be exercisable, in whole or in part, commencing on the date which is one (1) year after the Effective Date and expiring on
the five-year anniversary of the Effective Date at an initial exercise price per share of Common Stock of $__, which is equal to
125% of the initial public offering price of the Firm Shares. The Representative’s Warrant Agreement and the shares of Common
Stock issuable upon exercise thereof are hereinafter referred to together as the “
Representative’s Securities
.”
The Representative understands and agrees that there are significant restrictions pursuant to FINRA Rule 5110(g) against transferring
the Representative’s Warrant Agreement and the underlying shares of Common Stock during the one hundred eighty (180) days
after the Effective Date and by its acceptance thereof shall agree that it will not sell, transfer, assign, pledge or hypothecate
the Representative’s Warrant Agreement, or any portion thereof, or be the subject of any hedging, short sale, derivative,
put or call transaction that would result in the effective economic disposition of such securities for a period of one hundred
eighty (180) days following the Effective Date to anyone other than (i) an Underwriter or a selected dealer in connection with
the Offering, or (ii) a bona fide officer or partner of the Representative or of any such Underwriter or selected dealer or as
otherwise permitted by FINRA Rule 5110(g); and only if any such transferee agrees to the foregoing lock-up restrictions.
1.3.2.
Delivery
.
Delivery of the Representative’s Warrant Agreement shall be made on the Closing Date and shall be issued in the name or names
and in such authorized denominations as the Representative may request.
2.
Representations
and Warranties of the Company
. The Company represents and warrants to the Underwriters as of the Applicable Time (as defined
below), as of the Closing Date and as of the Option Closing Date, if any, as follows:
2.1
Filing
of Registration Statement
.
2.1.1.
Pursuant
to the Securities Act
. The Company has filed with the U.S. Securities and Exchange Commission (the “
Commission
”)
a registration statement, and an amendment or amendments thereto, on Form S-1 (File No. 333-212654), including any related prospectus
or prospectuses, for the registration of the Public Securities and the Representative’s Securities under the Securities Act
of 1933, as amended (the “
Securities Act
”), which registration statement and
amendment or amendments have been prepared by the Company in all material respects in conformity with the requirements of the Securities
Act and the rules and regulations of the Commission under the Securities Act (the “
Securities Act Regulations
”)
and will contain all material statements that are required to be stated therein in accordance with the Securities Act and the Securities
Act Regulations. Except as the context may otherwise require, such registration statement, as amended, on file with the Commission
at the time the registration statement became effective (including the Preliminary Prospectus included in the registration statement,
financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein and all information
deemed to be a part thereof as of the Effective Date pursuant to paragraph (b) of Rule 430A of the Securities Act Regulations (the
“
Rule 430A Information
”)), is referred to herein as the “
Registration
Statement.
” If the Company files any registration statement pursuant to Rule 462(b) of
the Securities Act Regulations, then after such filing, the term “Registration Statement” shall include such registration
statement filed pursuant to Rule 462(b). The Registration Statement has been declared effective by the Commission on the date hereof.
Each
prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information
that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a “
Preliminary
Prospectus
.” The Preliminary Prospectus, subject to completion, dated __________, 2016,
that was included in the Registration Statement immediately prior to the Applicable Time is hereinafter called the “
Pricing
Prospectus
.” The final prospectus in the form first furnished to the Underwriters for use
in the Offering is hereinafter called the “
Prospectus
.” Any reference to the
“most recent Preliminary Prospectus” shall be deemed to refer to the latest Preliminary Prospectus included in the
Registration Statement.
“
Applicable
Time
” means 8:00 a.m., Eastern time, on the date of this Agreement.
“
Issuer
Free Writing Prospectus
” means any “issuer free writing prospectus,” as defined
in Rule 433 of the Securities Act Regulations (“
Rule 433
”), including without
limitation any “free writing prospectus” (as defined in Rule 405 of the Securities Act Regulations) relating to the
Public Securities that is (i) required to be filed with the Commission by the Company, (ii) a “road show that is
a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission,
or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Public
Securities or of the Offering that does not reflect the final terms, in each case in the form filed or required to be filed with
the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).
“
Issuer
General Use Free Writing Prospectus
” means any Issuer Free Writing Prospectus that is intended
for general distribution to prospective investors (other than a “
bona fide
electronic road show,” as defined
in Rule 433 (the “
Bona Fide Electronic Road Show
”)), as evidenced by its being
specified in
Schedule 2-B
hereto.
“
Issuer
Limited Use Free Writing Prospectus
” means any Issuer Free Writing Prospectus that is not
an Issuer General Use Free Writing Prospectus.
“
Pricing
Disclosure Package
” means any Issuer General Use Free Writing Prospectus issued at or prior
to the Applicable Time, the Pricing Prospectus and the information included on
Schedule 2-A
hereto, all considered together.
2.1.2.
Pursuant
to the Exchange Act
. The shares of Common Stock [and the Warrants] are registered under the Securities Exchange Act of 1934,
as amended (the “
Exchange Act
”). The Company has taken no action designed
to, or likely to have the effect of, terminating the registration of the shares of Common Stock [or Warrants] under the Exchange
Act, nor has the Company received any notification that the Commission is contemplating terminating such registration.
2.2
Trading
Market
. The shares of Common Stock are quoted on the OTCQB Marketplace (the “
Trading
Market
”), and it is anticipated that the Warrants will be quoted on the Trading Market
as of the Closing Date and the Company has taken no action designed to, or likely to have the effect of, making ineligible for
quotation the shares of Common Stock or the Warrants on the Trading Market, nor has the Company received any notification that
the Trading Market is contemplating terminating such quotation except as described in the Registration Statement, the Pricing Disclosure
Package and the Prospectus.
2.3
No
Stop Orders, etc
. Neither the Commission nor, to the Company’s knowledge, any state regulatory authority has issued any
order preventing or suspending the use of the Registration Statement, any Preliminary Prospectus or the Prospectus or has instituted
or, to the Company’s knowledge, threatened to institute, any proceedings with respect to such an order. The Company has complied
with each request (if any) from the Commission for additional information.
2.4
Disclosures
in Registration Statement
.
2.4.1.
Compliance
with Securities Act and 10b-5 Representation
.
(i)
Each
of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material
respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus, including
the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment or supplement thereto,
and the Prospectus, at the time each was filed with the Commission, complied in all material respects with the requirements of
the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus delivered to the Underwriters for use in connection
with this Offering
and
the Prospectus was or will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(ii)
Neither
the Registration Statement nor any amendment thereto, at its effective time, as of the Applicable Time, at the Closing Date or
at any Option Closing Date (if any), contained, contains or will contain an untrue statement of a material fact or omitted, omits
or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.
(iii)
The
Pricing Disclosure Package, as of the Applicable Time, at the Closing Date or at any Option Closing Date (if any), did not, does
not and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were made, not misleading; and each Issuer Limited Use Free
Writing Prospectus hereto does not conflict with the information contained in the Registration Statement, any Preliminary Prospectus,
the Pricing Prospectus or the Prospectus, and each such Issuer Limited Use Free Writing Prospectus, as supplemented by and taken
together with the Pricing Prospectus as of the Applicable Time, did not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty shall not apply to statements made or statements
omitted in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by
the Representative expressly for use in the Registration Statement, the Pricing Prospectus or the Prospectus or any amendment thereof
or supplement thereto. The parties acknowledge and agree that such information provided by or on behalf of any Underwriter consists
solely of the following disclosure contained in the “Underwriting” section of the Prospectus: [______________] (the
“
Underwriters’ Information
”); and
(iv)
Neither
the Prospectus nor any amendment or supplement thereto (including any prospectus wrapper), as of its issue date, at the time of
any filing with the Commission pursuant to Rule 424(b), at the Closing Date or at any Option Closing Date, included, includes or
will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however,
that this representation and warranty shall not apply to the Underwriters’ Information.
2.4.2.
Disclosure
of Agreements
. The agreements and documents described in the Registration Statement, the Pricing Disclosure Package and the
Prospectus conform in all material respects to the descriptions thereof contained therein and there are no agreements or other
documents required by the Securities Act and the Securities Act Regulations to be described in the Registration Statement, the
Pricing Disclosure Package and the Prospectus or to be filed with the Commission as exhibits to the Registration Statement, that
have not been so described or filed. Each agreement or other instrument (however characterized or described) to which the Company
is a party or by which it is or may be bound or affected and (i) that is referred to in the Registration Statement, the Pricing
Disclosure Package and the Prospectus, or (ii) is material to the Company’s business, has been duly authorized and validly
executed by the Company, is in full force and effect in all material respects and is enforceable against the Company and, to the
Company’s knowledge, the other parties thereto, in accordance with its terms, except (x) as such enforceability may
be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, (y) as enforceability
of any indemnification or contribution provision may be limited under the federal and state securities laws, and (z) that
the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses
and to the discretion of the court before which any proceeding therefor may be brought. None of such agreements or instruments
has been assigned by the Company, and neither the Company nor, to the Company’s knowledge, any other party is in default
thereunder and, to the Company’s knowledge, no event has occurred that, with the lapse of time or the giving of notice, or
both, would constitute a default thereunder. To the best of the Company’s knowledge, performance by the Company of the material
provisions of such agreements or instruments will not result in a violation of any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any of its assets
or businesses (each, a “
Governmental Entity
”), including, without limitation,
those relating to environmental laws and regulations.
2.4.3.
Prior
Securities Transactions
. No securities of the Company have been sold by the Company or by or on behalf of, or for the benefit
of, any person or persons controlling, controlled by or under common control with the Company, except as disclosed in the Registration
Statement, the Pricing Disclosure Package and the Preliminary Prospectus.
2.4.4.
Regulations
.
The disclosures in the Registration Statement, the Pricing Disclosure Package and the Prospectus concerning the effects of federal,
state, local and all foreign regulation on the Offering and the Company’s business as currently contemplated are correct
in all material respects and no other such regulations are required to be disclosed in the Registration Statement, the Pricing
Disclosure Package and the Prospectus which are not so disclosed.
2.5
Changes
After Dates in Registration Statement
.
2.5.1.
No
Material Adverse Change
. Since the respective dates as of which information is given in the Registration Statement, the Pricing
Disclosure Package and the Prospectus, except as otherwise specifically stated therein: (i) there has been no material adverse
change in the financial position or results of operations of the Company, nor any change or development that, singularly or in
the aggregate, would involve a material adverse change or a prospective material adverse change, in or affecting the condition
(financial or otherwise), results of operations, business, assets or prospects of the Company (a “
Material Adverse
Change
”); (ii) there have been no material transactions entered into by the Company,
other than as contemplated pursuant to this Agreement; and (iii) no officer or director of the Company has resigned from any
position with the Company.
2.5.2.
Recent
Securities Transactions, etc
. Subsequent to the respective dates as of which information is given in the Registration Statement,
the Pricing Disclosure Package and the Prospectus, and except as may otherwise be indicated or contemplated herein or disclosed
in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not: (i) issued any securities
or incurred any liability or obligation, direct or contingent, for borrowed money; or (ii) declared or paid any dividend or
made any other distribution on or in respect to its capital stock.
2.6
Independent
Accountants
. To the knowledge of the Company, PMG Helin Donovan, LLP (the “
Auditor
”),
whose report is filed with the Commission as part of the Registration Statement, the Pricing Disclosure Package and the Prospectus,
is an independent registered public accounting firm as required by the Securities Act and the Securities Act Regulations and the
Public Company Accounting Oversight Board. The Auditor has not, during the periods covered by the financial statements included
in the Registration Statement, the Pricing Disclosure Package and the Prospectus, provided to the Company any non-audit services,
as such term is used in Section 10A(g) of the Exchange Act.
2.7
Financial
Statements, etc
. The financial statements, including the notes thereto and supporting schedules included in the Registration
Statement, the Pricing Disclosure Package and the Prospectus, fairly present the financial position and the results of operations
of the Company at the dates and for the periods to which they apply; and such financial statements have been prepared in conformity
with U.S. generally accepted accounting principles (“
GAAP
”),
consistently applied throughout the periods involved (provided that unaudited interim financial statements are subject to year-end
audit adjustments that are not expected to be material in the aggregate and do not contain all footnotes required by GAAP); and
the supporting schedules included in the Registration Statement present fairly the information required to be stated therein. Except
as included therein, no historical or pro forma financial statements are required to be included in the Registration Statement,
the Pricing Disclosure Package or the Prospectus under the Securities Act or the Securities Act Regulations. The pro forma and
pro forma as adjusted financial information and the related notes, if any, included in the Registration Statement, the Pricing
Disclosure Package and the Prospectus have been properly compiled and prepared in accordance with the applicable requirements of
the Securities Act and the Securities Act Regulations and present fairly the information shown therein, and the assumptions used
in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and
circumstances referred to therein. All disclosures contained in the Registration Statement, the Pricing Disclosure Package or the
Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission),
if any, comply with Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Securities Act, to the extent applicable.
Each of the Registration Statement, the Pricing Disclosure Package and the Prospectus discloses all material off-balance sheet
transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company with unconsolidated
entities or other persons that may have a material current or future effect on the Company’s financial condition, changes
in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of
revenues or expenses. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (a)
neither the Company nor any of its direct and indirect subsidiaries, including each entity disclosed or described in the Registration
Statement, the Pricing Disclosure Package and the Prospectus as being a subsidiary of the Company (each, a “
Subsidiary
”
and, collectively, the “
Subsidiaries
”), has incurred any material liabilities
or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of business,
(b) the Company has not declared or paid any dividends or made any distribution of any kind with respect to its capital stock,
(c) there has not been any change in the capital stock of the Company or any of its Subsidiaries, or, other than in the course
of business, any grants under any stock compensation plan, and (d) there has not been any material adverse change in the Company’s
long-term or short-term debt.
2.8
Authorized
Capital; Options, etc
. The Company had, at the date or dates indicated in the Registration Statement, the Pricing Disclosure
Package and the Prospectus, the duly authorized, issued and outstanding capitalization as set forth therein. Based on the assumptions
stated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company will have on the Closing Date
the adjusted stock capitalization set forth therein. Except as set forth in, or contemplated by, the Registration Statement, the
Pricing Disclosure Package and the Prospectus, on the Effective Date, as of the Applicable Time and on the Closing Date and any
Option Closing Date, there will be no stock options, warrants, or other rights to purchase or otherwise acquire any authorized,
but unissued shares of Common Stock of the Company or any security convertible or exercisable into shares of Common Stock of the
Company, or any contracts or commitments to issue or sell shares of Common Stock or any such options, warrants, rights or convertible
securities.
2.9
Valid
Issuance of Securities, etc
.
2.9.1.
Outstanding
Securities
. All issued and outstanding securities of the Company issued prior to the transactions contemplated by this Agreement
have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission
with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were
issued in violation of the preemptive rights of any holders of any security of the Company or similar contractual rights granted
by the Company. The authorized shares of Common Stock conform in all material respects to all statements relating thereto contained
in the Registration Statement, the Pricing Disclosure Package and the Prospectus. The offers and sales of the outstanding shares
of Common Stock were at all relevant times either registered under the Securities Act and the applicable state securities or “blue
sky” laws or, based in part on the representations and warranties of the purchasers of such Shares, exempt from such registration
requirements.
2.9.2.
Securities
Sold Pursuant to this Agreement
. The Public Securities and Representative’s Securities have been duly authorized for
issuance and sale. The Firm Shares and Option Shares, when issued and paid for, will be duly authorized, validly issued, fully
paid and non-assessable; the Firm Warrants and Option Warrants, when issued and paid for, will be duly authorized, validly issued
and fully paid; the holders thereof are not and will not be subject to personal liability by reason of being such holders; the
Public Securities and Representative’s Securities are not and will not be subject to the preemptive rights of any holders
of any security of the Company or similar contractual rights granted by the Company; and all corporate action required to be taken
for the authorization, issuance and sale of the Public Securities and Representative’s Securities has been duly and validly
taken. The Public Securities and Representative’s Securities conform in all material respects to all statements with respect
thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. All corporate action required
to be taken for the authorization, issuance and sale of the Representative’s Warrant Agreement has been duly and validly
taken; the shares of Common Stock issuable upon exercise of the Warrants and Representative’s Warrant have been duly authorized
and reserved for issuance by all necessary corporate action on the part of the Company and when paid for and issued in accordance
with the Warrants and Representative’s Warrant and the Representative’s Warrant Agreement, such shares of Common Stock
will be validly issued, fully paid and non-assessable; the holders thereof are not and will not be subject to personal liability
by reason of being such holders; and such shares of Common Stock are not and will not be subject to the preemptive rights of any
holders of any security of the Company or similar contractual rights granted by the Company.
2.10
Registration
Rights of Third Parties
. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus,
no holders of any securities of the Company or any rights exercisable for or convertible or exchangeable into securities of the
Company have the right to require the Company to register any such securities of the Company under the Securities Act or to include
any such securities in a registration statement to be filed by the Company.
2.11
Validity
and Binding Effect of Agreements
. This Agreement, the Warrant Agency Agreement and the Representative’s Warrant Agreement
have been duly and validly authorized by the Company, and, when executed and delivered, will constitute, the valid and binding
agreements of the Company, enforceable against the Company in accordance with their respective terms, except: (i) as such
enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally;
(ii) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities
laws; and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject
to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.
2.12
No
Conflicts, etc
. The execution, delivery and performance by the Company of this Agreement, the Representative’s Warrant
Agreement and all ancillary documents, the consummation by the Company of the transactions herein and therein contemplated and
the compliance by the Company with the terms hereof and thereof do not and will not, with or without the giving of notice or the
lapse of time or both: (i) result in a material breach of, or conflict with any of the terms and provisions of, or constitute
a material default under, or result in the creation, modification, termination or imposition of any lien, charge or encumbrance
upon any property or assets of the Company pursuant to the terms of any agreement or instrument to which the Company is a party;
(ii) result in any violation of the provisions of the Company’s Articles of Incorporation (as the same may be amended
or restated from time to time, the “
Charter
”)
or the by-laws of the Company; or (iii) violate any existing applicable law, rule, regulation, judgment, order or decree of
any Governmental Entity as of the date hereof.
2.13
No
Defaults; Violations
. No material default exists in the due performance and observance of any term, covenant or condition of
any material license, contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or instrument to which the Company is a party or by
which the Company may be bound or to which any of the properties or assets of the Company is subject. The Company is not in violation
of any term or provision of its Charter or by-laws, or in violation of any franchise, license, permit, applicable law, rule, regulation,
judgment or decree of any Governmental Entity.
2.14
Corporate
Power; Licenses; Consents
.
2.14.1.
Conduct
of Business
. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company
has all requisite corporate power and authority, and has all necessary authorizations, approvals, orders, licenses, certificates
and permits of and from all governmental regulatory officials and bodies that it needs as of the date hereof to conduct its business
purpose as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.14.2.
Transactions
Contemplated Herein
. The Company has all corporate power and authority to enter into this Agreement and to carry out the provisions
and conditions hereof, and all consents, authorizations, approvals and orders required in connection therewith have been obtained.
No consent, authorization or order of, and no filing with, any court, government agency or other body is required for the valid
issuance, sale and delivery of the Public Securities and the consummation of the transactions and agreements contemplated by this
Agreement, the Warrants and the Representative’s Warrant Agreement and as contemplated by the Registration Statement, the
Pricing Disclosure Package and the Prospectus, except with respect to applicable federal and state securities laws and the rules
and regulations of the Financial Industry Regulatory Authority, Inc. (“
FINRA
”).
2.15
D&O
Questionnaires
. To the Company’s knowledge, all information contained in the questionnaires (the “
Questionnaires
”)
completed by each of the Company’s directors and officers immediately prior to the Offering (the “
Insiders”
)
as supplemented by all information concerning the Company’s directors, officers and principal shareholders as described in
the Registration Statement, the Pricing Disclosure Package and the Prospectus, as well as in the Lock-Up Agreement (as defined
in Section 2.24 below), provided to the Underwriters, is true and correct in all material respects and the Company has not become
aware of any information which would cause the information disclosed in the Questionnaires to become materially inaccurate and
incorrect.
2.16
Litigation;
Governmental Proceedings
. There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental
proceeding pending or, to the Company’s knowledge, threatened against, or involving the Company or, to the Company’s
knowledge, any executive officer or director which has not been disclosed in the Registration Statement, the Pricing Disclosure
Package and the Prospectus.
2.17
Good
Standing
. The Company has been duly organized and is validly existing as a corporation and is in good standing under the laws
of the State of Delaware as of the date hereof, and is duly qualified to do business and is in good standing in each other jurisdiction
in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to
qualify, singularly or in the aggregate, would not have or reasonably be expected to result in a Material Adverse Change.
2.18
Insurance
.
The Company carries or is entitled to the benefits of insurance, with reputable insurers, in such amounts and covering such risks
which the Company believes are adequate, including, but not limited to, directors and officers insurance coverage at least equal
to $5,000,000 and the Company has included each Underwriter as an additional insured party to the directors and officers insurance
coverage and all such insurance is in full force and effect. The Company has no reason to believe that it will not be able (i)
to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions
as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse
Change.
2.19
Transactions
Affecting Disclosure to FINRA
.
2.19.1.
Finder’s
Fees
. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no claims,
payments, arrangements, agreements or understandings relating to the payment of a finder’s, consulting or origination fee
by the Company or any Insider with respect to the sale of the Public Securities hereunder or any other arrangements, agreements
or understandings of the Company or, to the Company’s knowledge, any of its shareholders that may affect the Underwriters’
compensation, as determined by FINRA.
2.19.2.
Payments
Within Twelve (12) Months
. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus,
the Company has not made any direct or indirect payments (in cash, securities or otherwise) to: (i) any person, as a finder’s
fee, consulting fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company
persons who raised or provided capital to the Company; (ii) any FINRA member; or (iii) any person or entity that has any
direct or indirect affiliation or association with any FINRA member, within the twelve (12) months prior to the Effective Date,
other than the payment to the Underwriters as provided hereunder in connection with the Offering.
2.19.3.
Use
of Proceeds
. None of the net proceeds of the Offering will be paid by the Company to any participating FINRA member or its
affiliates, except as specifically authorized herein.
2.19.4.
FINRA
Affiliation
. There is no (i) officer or director of the Company, (ii) beneficial owner of 5% or more of any class of the Company's
securities or (iii) beneficial owner of the Company's unregistered equity securities which were acquired during the 180-day period
immediately preceding the filing of the Registration Statement that is an affiliate or associated person of a FINRA member participating
in the Offering (as determined in accordance with the rules and regulations of FINRA).
2.20
Foreign
Corrupt Practices Act
. None of the Company and its Subsidiaries or, to the Company’s knowledge, any director, officer,
agent, employee or affiliate of the Company and its Subsidiaries or any other person acting on behalf of the Company and its Subsidiaries,
has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to
customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official
or employee of any governmental agency or instrumentality of any government (domestic or foreign) or any political party or candidate
for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of the Company
(or assist it in connection with any actual or proposed transaction) that (i) might subject the Company to any damage or penalty
in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have had a Material
Adverse Change or (iii) if not continued in the future, might adversely affect the assets, business, operations or prospects
of the Company. The Company has taken reasonable steps to ensure that its accounting controls and procedures are sufficient to
cause the Company to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended.
2.21
Compliance
with OFAC
. None of the Company and its Subsidiaries or, to the Company’s knowledge, any director, officer, agent, employee
or affiliate of the Company and its Subsidiaries or any other person acting on behalf of the Company and its Subsidiaries, is currently
subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“
OFAC
”),
and the Company will not, directly or indirectly, use the proceeds of the Offering hereunder, or lend, contribute or otherwise
make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the
activities of any person currently subject to any U.S. sanctions administered by OFAC.
2.22
Money
Laundering Laws
. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance
with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970,
as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar
rules, regulations or guidelines, issued, administered or enforced by any Governmental Entity (collectively, the “
Money
Laundering Laws
”); and no action, suit or proceeding by or before any Governmental Entity
involving the Company with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened.
2.23
Officers’
Certificate
. Any certificate signed by any duly authorized officer of the Company and delivered to you or to Representative
Counsel shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby.
2.24
Lock-Up
Agreements
.
Schedule 3
hereto contains a complete and accurate list of the Company’s officers and directors and
certain owners of more than 5% of the Company’s outstanding shares of Common Stock (or securities convertible or exercisable
into shares of Common Stock) (collectively, the “
Lock-Up Parties
”).
The Company has caused each of the Lock-Up Parties to deliver to the Representative an executed Lock-Up Agreement, in the form
attached hereto as
Exhibit B
(the “
Lock-Up Agreement
”), prior to the
execution of this Agreement.
2.25
Subsidiaries
.
All direct and indirect Subsidiaries of the Company are duly organized and in good standing under the laws of the place of organization
or incorporation, and each Subsidiary is in good standing in each jurisdiction in which its ownership or lease of property or the
conduct of business requires such qualification, except where the failure to qualify would not have a material adverse effect on
the assets, business or operations of the Company taken as a whole. The Company’s ownership and control of each Subsidiary
is as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.26
Related
Party Transactions
. There are no business relationships or related party transactions involving the Company or any other person
required to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus that have not been described
as required.
2.27
Board
of Directors
. The Board of Directors of the Company is comprised of the persons set forth under the heading of the Pricing
Prospectus and the Prospectus captioned “Management.” The qualifications of the persons serving as board members and
the overall composition of the board comply with the Exchange Act, the Exchange Act Regulations, the Sarbanes-Oxley Act of 2002
and the rules promulgated thereunder (the “
Sarbanes-Oxley Act
”)
applicable to the Company and any applicable rules of the Trading Market.
2.28
Sarbanes-Oxley
Compliance
.
2.28.1.
Disclosure
Controls
. The Company has developed and currently maintains disclosure controls and procedures that will comply with Rule 13a-15
or 15d-15 under the Exchange Act Regulations, and such controls and procedures are effective to ensure that all material information
concerning the Company will be made known on a timely basis to the individuals responsible for the preparation of the Company’s
Exchange Act filings and other public disclosure documents.
2.28.2.
Compliance
.
The Company is, or at the Applicable Time and on the Closing Date will be, in material compliance with the provisions of the Sarbanes-Oxley
Act applicable to it, and has implemented or will implement such programs and taken reasonable steps to ensure the Company’s
future compliance (not later than the relevant statutory and regulatory deadlines therefor) with all of the material provisions
of the Sarbanes-Oxley Act.
2.29
Accounting
Controls
. The Company and its Subsidiaries maintain systems of “internal control over financial reporting” (as
defined under Rules 13a-15 and 15d-15 under the Exchange Act Regulations) that comply with the requirements of the Exchange Act
and have been designed by, or under the supervision of, their respective principal executive and principal financial officers,
or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with GAAP, including, but not limited to, 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 GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s
general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the
Pricing Disclosure Package and the Prospectus, the Company is not aware of any material weaknesses in its internal controls. The
Company’s auditors and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant
deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are known to
the Company’s management and that have adversely affected or are reasonably likely to adversely affect the Company’
ability to record, process, summarize and report financial information; and (ii) any fraud known to the Company’s management,
whether or not material, that involves management or other employees who have a significant role in the Company’s internal
controls over financial reporting.
2.30
No
Investment Company Status
. The Company is not and, after giving effect to the Offering and the application of the proceeds
thereof as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be, required to
register as an “investment company,” as defined in the Investment Company Act of 1940, as amended.
2.31
No
Labor Disputes
. No labor dispute with the employees of the Company or any of its Subsidiaries exists or, to the knowledge of
the Company, is imminent.
2.32
Intellectual
Property Rights
. The Company and each of its Subsidiaries owns or possesses or has valid rights to use all patents, patent
applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets and similar rights (“
Intellectual Property Rights
”)
necessary for the conduct of the business of the Company and its Subsidiaries as currently carried on and as described in the Registration
Statement, the Pricing Disclosure Package and the Prospectus. To the knowledge of the Company, no action or use by the Company
or any of its Subsidiaries necessary for the conduct of its business as currently carried on and as described in the Registration
Statement and the Prospectus will involve or give rise to any infringement of, or license or similar fees for, any Intellectual
Property Rights of others. Neither the Company nor any of its Subsidiaries has received any notice alleging any such infringement,
fee or conflict with asserted Intellectual Property Rights of others. Except as would not reasonably be expected to result, individually
or in the aggregate, in a Material Adverse Change (A) to the knowledge of the Company, there is no infringement, misappropriation
or violation by third parties of any of the Intellectual Property Rights owned by the Company; (B) there is no pending or, to the
knowledge of the Company, threatened action, suit, proceeding or claim by others challenging the rights of the Company in or to
any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such
claim, that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected
to result in a Material Adverse Change; (C) the Intellectual Property Rights owned by the Company and, to the knowledge of the
Company, the Intellectual Property Rights licensed to the Company have not been adjudged by a court of competent jurisdiction invalid
or unenforceable, in whole or in part, and there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding
or claim by others challenging the validity or scope of any such Intellectual Property Rights, and the Company is unaware of any
facts which would form a reasonable basis for any such claim that would, individually or in the aggregate, together with any other
claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change; (D) there is no pending or, to the
Company’s knowledge, threatened action, suit, proceeding or claim by others that the Company infringes, misappropriates or
otherwise violates any Intellectual Property Rights or other proprietary rights of others, the Company has not received any written
notice of such claim and the Company is unaware of any other facts which would form a reasonable basis for any such claim that
would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result
in a Material Adverse Change; and (E) to the Company’s knowledge, no employee of the Company is in or has ever been in violation
in any material respect of any term of any employment contract, patent disclosure agreement, invention assignment agreement, non-competition
agreement, non-solicitation agreement, nondisclosure agreement or any restrictive covenant to or with a former employer where the
basis of such violation relates to such employee’s employment with the Company, or actions undertaken by the employee while
employed with the Company and could reasonably be expected to result, individually or in the aggregate, in a Material Adverse Change.
To the Company’s knowledge, all material technical information developed by and belonging to the Company which has not been
patented has been kept confidential. The Company is not a party to or bound by any options, licenses or agreements with respect
to the Intellectual Property Rights of any other person or entity that are required to be set forth in the Registration Statement,
the Pricing Disclosure Package and the Prospectus and are not described therein. The Registration Statement, the Pricing Disclosure
Package and the Prospectus contain in all material respects the same description of the matters set forth in the preceding sentence.
None of the technology employed by the Company has been obtained or is being used by the Company in violation of any contractual
obligation binding on the Company or, to the Company’s knowledge, any of its officers, directors or employees, or otherwise
in violation of the rights of any persons..
2.33
Taxes
.
Each of the Company and its Subsidiaries has filed all returns (as hereinafter defined) required to be filed with taxing authorities
prior to the date hereof or has duly obtained extensions of time for the filing thereof. Each of the Company and its Subsidiaries
has paid all taxes (as hereinafter defined) shown as due on such returns that were filed and has paid all taxes imposed on or assessed
against the Company or such respective Subsidiary. The provisions for taxes payable, if any, shown on the financial statements
filed with or as part of the Registration Statement are sufficient for all accrued and unpaid taxes, whether or not disputed, and
for all periods to and including the dates of such consolidated financial statements. Except as disclosed in writing to the Underwriters,
(i) no issues have been raised (and are currently pending) by any taxing authority in connection with any of the returns or taxes
asserted as due from the Company or its Subsidiaries, and (ii) no waivers of statutes of limitation with respect to the returns
or collection of taxes have been given by or requested from the Company or its Subsidiaries. The term “taxes” means
all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatever, together with any
interest and any penalties, additions to tax or additional amounts with respect thereto. The term “returns” means all
returns, declarations, reports, statements and other documents required to be filed in respect to taxes.
2.34
ERISA
Compliance
. The Company and any “employee benefit plan” (as defined under the Employee Retirement Income Security
Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, “
ERISA
”))
established or maintained by the Company or its “ERISA Affiliates” (as defined below) are in compliance in all material
respects with ERISA. “ERISA Affiliate” means, with respect to the Company, any member of any group of organizations
described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the “
Code
”) of which the Company is a member.
No “reportable event” (as defined under ERISA) has occurred or is reasonably expected to occur with respect to any
“employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates. No “employee
benefit plan” established or maintained by the Company or any of its ERISA Affiliates, if such “employee benefit plan”
were terminated, would have any “amount of unfunded benefit liabilities” (as defined under ERISA). Neither the Company
nor any of its ERISA Affiliates has incurred or reasonably expects to incur any material liability under (i) Title IV of ERISA
with respect to termination of, or withdrawal from, any “employee benefit plan” or (ii) Sections 412, 4971, 4975 or
4980B of the Code. Each “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates
that is intended to be qualified under Section 401(a) of the Code is so qualified and, to the knowledge of the Company, nothing
has occurred, whether by action or failure to act, which would cause the loss of such qualification.
2.35
Compliance
with Laws
. The Company: (A) is and at all times has been in compliance with all statutes, rules, or regulations applicable
to the ownership, testing, development, manufacture, packaging, processing, use, distribution, marketing, labeling, promotion,
sale, offer for sale, storage, import, export or disposal of any product manufactured or distributed by the Company (“
Applicable
Laws
”), except as could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Change; (B) has not received any warning letter, untitled letter or other correspondence or notice from
any other governmental authority alleging or asserting noncompliance with any Applicable Laws or any licenses, certificates, approvals,
clearances, authorizations, permits and supplements or amendments thereto required by any such Applicable Laws (“
Authorizations
”);
(C) possesses all material Authorizations and such Authorizations are valid and in full force and effect and are not in material
violation of any term of any such Authorizations; (D) has not received notice of any claim, action, suit, proceeding, hearing,
enforcement, investigation, arbitration or other action from any governmental authority or third party alleging that any product
operation or activity is in violation of any Applicable Laws or Authorizations and has no knowledge that any such governmental
authority or third party is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding; (E)
has not received notice that any governmental authority has taken, is taking or intends to take action to limit, suspend, modify
or revoke any Authorizations and has no knowledge that any such governmental authority is considering such action; (F) has filed,
obtained, maintained or submitted all material reports, documents, forms, notices, applications, records, claims, submissions and
supplements or amendments as required by any Applicable Laws or Authorizations and that all such reports, documents, forms, notices,
applications, records, claims, submissions and supplements or amendments were complete and correct on the date filed (or were corrected
or supplemented by a subsequent submission); and (G) has not, either voluntarily or involuntarily, initiated, conducted, or issued
or caused to be initiated, conducted or issued, any recall, market withdrawal or replacement, safety alert, post-sale warning,
“dear doctor” letter, or other notice or action relating to the alleged lack of safety or efficacy of any product or
any alleged product defect or violation and, to the Company’s knowledge, no third party has initiated, conducted or intends
to initiate any such notice or action.
2.36
Ineligible
Issuer
. At the time of filing the Registration Statement and any post-effective amendment thereto, at the time of effectiveness
of the Registration Statement and any amendment thereto, at the earliest time thereafter that the Company or another offering participant
made a bona fide offer (within the meaning of Rule 164(h)(2) of the Securities Act Regulations) of the Public Securities and at
the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405, without taking account
of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible
issuer.
2.37
Real
Property
. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company
and its Subsidiaries have good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items
of real or personal property which are material to the business of the Company and its Subsidiaries taken as a whole, in each case
free and clear of all liens, encumbrances, security interests, claims and defects that do not, singly or in the aggregate, materially
affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company
or its Subsidiaries; and all of the leases and subleases material to the business of the Company and its subsidiaries, considered
as one enterprise, and under which the Company or any of its Subsidiaries holds properties described in the Registration Statement,
the Pricing Disclosure Package and the Prospectus, are in full force and effect, and neither the Company nor any Subsidiary has
received any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or
any Subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such
Subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease.
2.38
Contracts
Affecting Capital
. There are no transactions, arrangements or other relationships between and/or among the Company, any of
its affiliates (as such term is defined in Rule 405 of the Securities Act Regulations) and any unconsolidated entity, including,
but not limited to, any structured finance, special purpose or limited purpose entity that could reasonably be expected to materially
affect the Company’s or its Subsidiaries’ liquidity or the availability of or requirements for their capital resources
required to be described or incorporated by reference in the Registration Statement, the Pricing Disclosure Package and the Prospectus
which have not been described or incorporated by reference as required.
2.39
Loans
to Directors or Officers
. There are no outstanding loans, advances (except normal advances for business expenses in the ordinary
course of business) or guarantees or indebtedness by the Company or its Subsidiaries to or for the benefit of any of the officers
or directors of the Company, its Subsidiaries or any of their respective family members, except as disclosed in the Registration
Statement, the Pricing Disclosure Package and the Prospectus.
2.40
Smaller
Reporting Company
. As of the time of filing of the Registration Statement, the Company was a “smaller reporting
company,” as defined in Rule 12b-2 of the Exchange Act Regulations.
2.41
Industry
Data
. The statistical and market-related data included in each of the Registration Statement, the Pricing Disclosure
Package and the Prospectus are based on or derived from sources that the Company reasonably and in good faith believes are reliable
and accurate or represent the Company’s good faith estimates that are made on the basis of data derived from such sources.
2.42
Electronic
Road Show
. The Company has made available a Bona Fide Electronic Road Show in compliance with Rule 433(d)(8)(ii) of the
Securities Act Regulations such that no filing of any “road show” (as defined in Rule 433(h) of the Securities
Act Regulations) is required in connection with the Offering.
2.43
Margin
Securities
. The Company owns no “margin securities” as that term is defined in Regulation U of the Board of Governors
of the Federal Reserve System (the “
Federal Reserve Board
”),
and none of the proceeds of Offering will be used, directly or indirectly, for the purpose of purchasing or carrying any margin
security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might cause any of the shares of Common Stock to be considered a “purpose credit”
within the meanings of Regulation T, U or X of the Federal Reserve Board.
2.44
Investor
Relations Activities and Press Releases
. The Company hereby represents and warrants to the Representative that neither the
Company nor, to the best of the Company’s knowledge after due inquiry, any of its officers, directors, employees, agents,
Affiliates or Subsidiaries, including, without limitation, any investor relations firm of the Company or any Subsidiary, published
or caused to be published, had any knowledge of, approved, or paid any compensation to any person in connection with, the press
release issued on August 8, 2016 captioned “Little known Optex Systems, the Dominant Player in U.S. Periscope Market, Sets
its Sights on International and Consumer Markets” that is available at [insert web address] or the e-mail dated August 4,
2016 from info@pennystock101.org captioned “OPXS is our low-float breakout trade for Friday!”.
3.
Covenants
of the Company
. The Company covenants and agrees as follows:
3.1
Amendments
to Registration Statement
. The Company shall deliver to the Representative, prior to filing, any amendment or supplement to
the Registration Statement or Prospectus proposed to be filed after the Effective Date and not file any such amendment or supplement
to which the Representative shall reasonably object in writing.
3.2
Federal
Securities Laws
.
3.2.1.
Compliance
.
The Company, subject to Section 3.2.2, shall comply with the requirements of Rule 430A of the Securities Act Regulations, and will
notify the Representative promptly, and confirm the notice in writing, (i) when any post-effective amendment to the Registration
Statement shall become effective or any amendment or supplement to the Prospectus shall have been filed; (ii) of the receipt
of any comments from the Commission; (iii) of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information; (iv) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment or of any order preventing
or suspending the use of any Preliminary Prospectus or the Prospectus, or of the suspension of the qualification of the Public
Securities and Representative’s Securities for offering or sale in any jurisdiction, or of the initiation or threatening
of any proceedings for any of such purposes or of any examination pursuant to Section 8(d) or 8(e) of the Securities Act concerning
the Registration Statement and (v) if the Company becomes the subject of a proceeding under Section 8A of the Securities
Act in connection with the Offering of the Public Securities and Representative’s Securities. The Company shall effect all
filings required under Rule 424(b) of the Securities Act Regulations, in the manner and within the time period required by Rule
424(b) (without reliance on Rule 424(b)(8)), and shall take such steps as it deems necessary to ascertain promptly whether the
form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it
was not, it will promptly file such prospectus. The Company shall use its best efforts to prevent the issuance of any stop order,
prevention or suspension and, if any such order is issued, to obtain the lifting thereof at the earliest possible moment.
3.2.2.
Continued
Compliance
. The Company shall comply with the Securities Act, the Securities Act Regulations, the Exchange Act and the Exchange
Act Regulations so as to permit the completion of the distribution of the Public Securities as contemplated in this Agreement and
in the Registration Statement, the Pricing Disclosure Package and the Prospectus. If at any time when a prospectus relating to
the Public Securities is (or, but for the exception afforded by Rule 172 of the Securities Act Regulations (“
Rule
172
”), would be) required by the Securities Act to be delivered in connection with sales
of the Public Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of
counsel for the Underwriters or for the Company, to (i) amend the Registration Statement in order that the Registration Statement
will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; (ii) amend or supplement the Pricing Disclosure Package or the Prospectus in
order that the Pricing Disclosure Package or the Prospectus, as the case may be, will not include any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser or (iii) amend the Registration Statement or amend or supplement the Pricing
Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the Securities Act or the
Securities Act Regulations, the Company will promptly (A) give the Representative notice of such event; (B) prepare any
amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, the Pricing
Disclosure Package or the Prospectus comply with such requirements and, a reasonable amount of time prior to any proposed filing
or use, furnish the Representative with copies of any such amendment or supplement and (C) file with the Commission any such
amendment or supplement; provided that the Company shall not file or use any such amendment or supplement to which the Representative
or counsel for the Underwriters shall reasonably object. The Company will furnish to the Underwriters such number of copies of
such amendment or supplement as the Underwriters may reasonably request. The Company has given the Representative notice of any
filings made pursuant to the Exchange Act or the Exchange Act Regulations within 48 hours prior to the Applicable Time. The Company
shall give the Representative notice of its intention to make any such filing from the Applicable Time until the later of the Closing
Date and the exercise in full or expiration of the Over-Allotment Option specified in Section 1.2 hereof and will furnish the Representative
with copies of the related document(s) a reasonable amount of time prior to such proposed filing, as the case may be, and will
not file or use any such document to which the Representative or counsel for the Underwriters shall reasonably object.
3.2.3.
Exchange
Act Registration
. For a period of three (3) years after the date of this Agreement, the Company shall use its best efforts
to maintain the registration of the shares of Common Stock and Warrants under the Exchange Act. The Company shall not deregister
the shares of Common Stock or Warrants under the Exchange Act without the prior written consent of the Representative.
3.2.4.
Free
Writing Prospectuses
. The Company agrees that, unless it obtains the prior written consent of the Representative, it shall
not make any offer relating to the Public Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise
constitute a “free writing prospectus,” or a portion thereof, required to be filed by the Company with the Commission
or retained by the Company under Rule 433; provided that the Representative shall be deemed to have consented to each Issuer General
Use Free Writing Prospectus hereto and any “road show that is a written communication” within the meaning of Rule 433(d)(8)(i)
that has been reviewed by the Representative. The Company represents that it has treated or agrees that it will treat each such
free writing prospectus consented to, or deemed consented to, by the Underwriters as an “issuer free writing prospectus,”
as defined in Rule 433, and that it has complied and will comply with the applicable requirements of Rule 433 with respect thereto,
including timely filing with the Commission where required, legending and record keeping. If at any time following issuance of
an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing
Prospectus conflicted or would conflict with the information contained in the Registration Statement or included or would include
an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the
Underwriters and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct
such conflict, untrue statement or omission.
3.3
Delivery
to the Underwriters of Registration Statements
. The Company has delivered or made available or shall deliver or make available
to the Representative and counsel for the Representative, without charge, signed copies of the Registration Statement as originally
filed and each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts,
and will also deliver to the Underwriters, without charge, a conformed copy of the Registration Statement as originally filed and
each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment
thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
3.4
Delivery
to the Underwriters of Prospectuses
. The Company has delivered or made available or will deliver or make available to each
Underwriter, without charge, as many copies of each Preliminary Prospectus as such Underwriter reasonably requested, and the Company
hereby consents to the use of such copies for purposes permitted by the Securities Act. The Company will furnish to each Underwriter,
without charge, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by
Rule 172, would be) required to be delivered under the Securities Act, such number of copies of the Prospectus (as amended or supplemented)
as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters
will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
3.5
Effectiveness
and Events Requiring Notice to the Representative
. The Company shall use its best efforts to cause the Registration Statement
to remain effective with a current prospectus while any Warrants are outstanding, and shall notify the Representative immediately
and confirm the notice in writing: (i) of the effectiveness of the Registration Statement and any amendment thereto; (ii) of
the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceeding for that purpose;
(iii) of the issuance by any state securities commission of any proceedings for the suspension of the qualification of the
Public Securities for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that
purpose; (iv) of the mailing and delivery to the Commission for filing of any amendment or supplement to the Registration
Statement or Prospectus; (v) of the receipt of any comments or request for any additional information from the Commission;
and (vi) of the happening of any event during the period described in this Section 3.5 that, in the judgment of the Company,
makes any statement of a material fact made in the Registration Statement, the Pricing Disclosure Package or the Prospectus untrue
or that requires the making of any changes in (a) the Registration Statement in order to make the statements therein not misleading,
or (b) in the Pricing Disclosure Package or the Prospectus in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. If the Commission or any state securities commission shall enter a stop order or suspend
such qualification at any time, the Company shall make every reasonable effort to obtain promptly the lifting of such order.
3.6
Review
of Financial Statements
. For a period of five (5) years after the date of this Agreement, the Company, at its expense, shall
cause its regularly engaged independent registered public accounting firm to review (but not audit) the Company’s financial
statements for each of the three fiscal quarters immediately preceding the announcement of any quarterly financial information.
3.7
Trading
Market
. The Company shall use its best efforts to maintain the eligibility for quotation of the shares of Common Stock and
Warrants on the Trading Market or a national securities exchange for at least three years from the date of this Agreement.
3.8
Financial
Public Relations Firm
. As of the Effective Date, the Company shall have retained a financial public relations firm reasonably
acceptable to the Representative and the Company, which shall initially be _________, which firm shall be experienced in assisting
issuers in initial public offerings of securities and in their relations with their security holders, and shall retain such firm
or another firm reasonably acceptable to the Representative for a period of not less than two (2) years after the Effective Date.
3.9
Reports
to the Representative
.
3.9.1.
Transfer
Agent; Transfer Sheets
. For a period of three (3) years after the date of this Agreement, the Company shall retain a transfer
agent and registrar acceptable to the Representative (the “
Transfer Agent
”)
and shall furnish to the Representative at the Company’s sole cost and expense such transfer sheets of the Company’s
securities as the Representative may reasonably request, including the daily and monthly consolidated transfer sheets of the Transfer
Agent and DTC. Equity Stock Transfer, LLC is acceptable to the Representative to act as Transfer Agent for the shares of Common
Stock.
3.9.2.
Trading
Reports
. During such time as the Public Securities are listed on the Trading Market, the Company shall provide to the Representative,
at the Company’s expense, such reports published by Exchange relating to price trading of the Public Securities, as the Representative
shall reasonably request.
3.10
Payment
of Expenses
3.10.1.
General
Expenses Related to the Offering
. The Company hereby agrees to pay on each of the Closing Date and the Option Closing Date,
if any, to the extent not paid at the Closing Date, all expenses incident to the performance of the obligations of the Company
under this Agreement, including, but not limited to: (a) all filing fees and communication expenses relating to the registration
of the Public Securities and the Representative’s Securities with the Commission; (b) all Public Filing System filing fees
associated with the review of the Offering by FINRA; (c) all fees and expenses relating to the quotation of such Public Securities
on the Trading Market and any other national securities exchanges or trading market as the Company and the Representative together
determine; (e) all fees, expenses and disbursements relating to the registration or qualification of the Public Securities under
the “blue sky” securities laws of such states and other jurisdictions as the Representative may reasonably designate
(including, without limitation, all filing and registration fees, it being agreed that if the Offering is commenced on the Trading
Market, the Company shall make a payment of $5,000 to such counsel at Closing, or if the Offering is commenced on the Over-the-Counter
Bulletin Board, the Company shall make a payment of $15,000 to such counsel upon the commencement of “blue sky” work
by such counsel and an additional $5,000 at Closing); (f) all fees, expenses and disbursements relating to the registration, qualification
or exemption of the Public Securities under the securities laws of such foreign jurisdictions as the Representative may reasonably
designate; (g) the costs of all mailing and printing of the underwriting documents (including, without limitation, the Underwriting
Agreement, any Blue Sky Surveys and, if appropriate, any Agreement Among Underwriters, Selected Dealers’ Agreement, Underwriters’
Questionnaire and Power of Attorney), Registration Statements, Prospectuses and all amendments, supplements and exhibits thereto
and as many preliminary and final Prospectuses as the Representative may reasonably deem necessary; (h) the costs and expenses
of a public relations firm; (i) the costs of preparing and delivering the Public Securities; (j) fees and expenses of the transfer
agent for the shares of Common Stock and the Warrant Agent for Warrants; (k) stock transfer and/or stamp taxes, if any, payable
upon the transfer of securities from the Company to the Underwriters; (l) up to $2,500 for the costs associated with bound volumes
of the public offering materials as well as commemorative mementos and lucite tombstones, each of which the Company or its designee
shall provide within a reasonable time after the Closing Date in such quantities as the Representative may reasonably request;
(m) the fees and expenses of the Company’s accountants; (n) the fees and expenses of the Company’s legal counsel and
other agents and representatives; (o) fees and expenses of the Representative’s legal counsel not to exceed $75,000; (p)
$29,500 for cost associated with the Underwriter’s use of Ipreo’s book-building, prospectus tracking and compliance
software for the Offering; and (q) up to $20,000 of the Underwriters’ actual accountable “road show” expenses
for the Offering. The Representative may deduct from the net proceeds of the Offering payable to the Company on the Closing Date,
or the Option Closing Date, if any, the expenses set forth herein to be paid by the Company to the Underwriters.
3.10.2.
Non-Accountable
Expenses
. The Company further agrees that, in addition to the expenses payable pursuant to Section 3.10.1, on the Closing Date
it shall pay to the Representative, by deduction from the net proceeds of the Offering contemplated herein, a non-accountable expense
allowance equal to one percent (1%) of the gross proceeds received by the Company from the sale of the Firm Securities (excluding
the Option Securities), less the Advance (as such term is defined in Section 8.3 hereof), provided, however, that in the event
that the Offering is terminated, the Company agrees to reimburse the Underwriters pursuant to Section 8.3 hereof.
3.11
Application
of Net Proceeds
. The Company shall apply the net proceeds from the Offering received by it in a manner consistent with the
application thereof described under the caption “Use of Proceeds” in the Registration Statement, the Pricing Disclosure
Package and the Prospectus.
3.12
Delivery
of Earnings Statements to Security Holders
. The Company shall make generally available to its security holders as soon as practicable,
but not later than the first day of the fifteenth (15
th
) full calendar month following the date of this Agreement, an
earnings statement (which need not be certified by independent registered public accounting firm unless required by the Securities
Act or the Securities Act Regulations, but which shall satisfy the provisions of Rule 158(a) under Section 11(a) of the Securities
Act) covering a period of at least twelve (12) consecutive months beginning after the date of this Agreement.
3.13
Stabilization
.
Neither the Company nor, to its knowledge, any of its employees, directors or shareholders (without the consent of the Representative)
has taken or shall take, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected
to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Public Securities.
3.14
Internal
Controls
. The Company shall maintain a system of internal accounting controls sufficient to provide reasonable assurances that:
(i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions
are recorded as necessary in order to permit preparation of financial statements in accordance with GAAP and to maintain accountability
for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization;
and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
3.15
Accountants
.
As of the date of this Agreement, the Company shall retain an independent registered public accounting firm reasonably acceptable
to the Representative, and the Company shall continue to retain a nationally recognized independent registered public accounting
firm for a period of at least three (3) years after the date of this Agreement. The Representative acknowledges that the Auditor
is acceptable to the Representative.
3.16
FINRA
.
The Company shall advise the Representative (who shall make an appropriate filing with FINRA) if it is or becomes aware that (i)
any officer or director of the Company, (ii) any beneficial owner of 5% or more of any class of the Company's securities or (iii)
any beneficial owner of the Company's unregistered equity securities which were acquired during the 180 days immediately preceding
the filing of the Registration Statement is or becomes an affiliate or associated person of a FINRA member participating in the
Offering (as determined in accordance with the rules and regulations of FINRA).
3.17
No
Fiduciary Duties
. The Company acknowledges and agrees that the Underwriters’ responsibility to the Company is solely
contractual in nature and that none of the Underwriters or their affiliates or any selling agent shall be deemed to be acting in
a fiduciary capacity, or otherwise owes any fiduciary duty to the Company or any of its affiliates in connection with the Offering
and the other transactions contemplated by this Agreement.
3.18
Company
Lock-Up Agreements
.
3.18.1.
Restriction
on Sales of Capital Stock
. The Company, on behalf of itself and any successor entity, agrees that, without the prior written
consent of the Representative, it will not, for a period of 180 days after the date of this Agreement (the “
Lock-Up
Period
”), (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose
of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable
for shares of capital stock of the Company; (ii) file or cause to be filed any registration statement with the Commission relating
to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable
for shares of capital stock of the Company; (iii) complete any offering of debt securities of the Company, other than entering
into a line of credit with a traditional bank or (iv) enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of capital stock of the Company, whether any such transaction described
in clause (i), (ii), (iii) or (iv) above is to be settled by delivery of shares of capital stock of the Company or such other securities,
in cash or otherwise.
The
restrictions contained in this Section 3.18.1 shall not apply to (i) the shares of Common Stock and Warrants to be sold hereunder,
(ii) the issuance by the Company of shares of Common Stock upon the exercise of a stock option or warrant or the conversion of
a security outstanding on the date hereof, of which the Representative has been advised in writing or (iii) the issuance by the
Company of stock options or shares of capital stock of the Company under any equity compensation plan of the Company, provided
that in each of (ii) and (iii) above, the underlying shares shall be restricted from sale during the entire Lock-Up Period.
Notwithstanding
the foregoing, if (i) during the last 17 days of the Lock-Up Period, the Company issues an earnings release or material news or
a material event relating to the Company occurs, or (ii) prior to the expiration of the Lock-Up Period, the Company announces that
it will release earnings results or becomes aware that material news or a material event will occur during the 16-day period beginning
on the last day of the Lock-Up Period, the restrictions imposed by this Section 3.18.1 shall continue to apply until the expiration
of the 18-day period beginning on the issuance of the earnings release or the occurrence of such material news or material event,
as applicable, unless the Representative waives, in writing, such extension.
3.18.2.
Restriction
on Continuous Offerings
. Notwithstanding the restrictions contained in Section 3.18.1, the Company, on behalf of itself and
any successor entity, agrees that, without the prior written consent of the Representative, it will not, for a period of 12 months
after the date of this Agreement, directly or indirectly in any “at-the-market” or continuous equity transaction, offer
to sell, sell, contract to sell, grant any option to sell or otherwise dispose of shares of capital stock of the Company or any
securities convertible into or exercisable or exchangeable for shares of capital stock of the Company.
3.19
Release
of D&O Lock-up Period
. If the Representative, in its sole discretion, agrees to release or waive the restrictions set forth
in the Lock-Up Agreements described in Section 2.24 hereof for an officer or director of the Company and provide the Company with
notice of the impending release or waiver at least three (3) Business Days before the effective date of the release or waiver,
the Company agrees to announce the impending release or waiver by a press release substantially in the form of
Exhibit C
hereto through a major news service at least two (2) Business Days before the effective date of the release or waiver.
3.20
Blue
Sky Qualifications
. The Company shall use its best efforts, in cooperation with the Underwriters, if necessary, to qualify
the Public Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic
or foreign) as the Representative may designate and to maintain such qualifications in effect so long as required to complete the
distribution of the Public Securities; provided, however, that the Company shall not be obligated to file any general consent to
service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so
qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.
3.21
Reporting
Requirements
. The Company, during the period when a prospectus relating to the Public Securities is (or, but for the exception
afforded by Rule 172, would be) required to be delivered under the Securities Act, will file all documents required to be filed
with the Commission pursuant to the Exchange Act within the time periods required by the Exchange Act and Exchange Act Regulations.
Additionally, the Company shall report the use of proceeds from the issuance of the Public Securities as may be required under
Rule 463 under the Securities Act Regulations.
4.
Conditions
of Underwriters’ Obligations
. The obligations of the Underwriters to purchase and pay for the Public Securities, as provided
herein, shall be subject to (i) the continuing accuracy of the representations and warranties of the Company as of the date hereof
and as of each of the Closing Date and the Option Closing Date, if any; (ii) the accuracy of the statements of officers of the
Company made pursuant to the provisions hereof; (iii) the performance by the Company of its obligations hereunder; and (iv) the
following conditions:
4.1
Regulatory
Matters
.
4.1.1.
Effectiveness
of Registration Statement; Rule 430A Information
. The Registration Statement has become effective not later than 5:00 p.m.,
Eastern time, on the date of this Agreement or such later date and time as shall be consented to in writing by you, and, at each
of the Closing Date and any Option Closing Date, no stop order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto has been issued under the Securities Act, no order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or,
to the Company’s knowledge, contemplated by the Commission. The Company has complied with each request (if any) from the
Commission for additional information. The Prospectus containing the Rule 430A Information shall have been filed with the Commission
in the manner and within the time frame required by Rule 424(b) (without reliance on Rule 424(b)(8)) or a post-effective amendment
providing such information shall have been filed with, and declared effective by, the Commission in accordance with the requirements
of Rule 430A.
4.1.2.
FINRA
Clearance
. On or before the date of this Agreement, the Representative shall have received clearance from FINRA as to the amount
of compensation allowable or payable to the Underwriters as described in the Registration Statement.
4.1.3.
Trading
Market
. On the Closing Date, the Company’s shares of Common Stock, including the Firm Shares, shall have been eligible
for quotation on the Trading Market. On the first Option Closing Date (if any), the Company’s shares of Common Stock, including
the Option Shares, and the Warrants, including the Option Warrants, shall have been eligible for quotation on the Trading Market.
4.2
Company
Counsel Matters
.
4.2.1.
Closing
Date Opinion of Counsel
. On the Closing Date, the Representative shall have received the favorable opinion, including a negative
assurance letter, of Jolie Kahn, Esq., counsel to the Company, dated the Closing Date and addressed to the Representative, substantially
in the form of
Exhibit D
attached hereto.
4.2.2.
Option
Closing Date Opinion of Counsel
. On the Option Closing Date, if any, the Representative shall have received the favorable opinion,
including a negative assurance letter, of counsel listed in Sections 4.2.1, dated the Option Closing Date, addressed to the Representative
and in form and substance reasonably satisfactory to the Representative, confirming as of the Option Closing Date, the statements
made by such counsel in their opinion delivered on the Closing Date.
4.2.3.
Reliance
.
In rendering such opinions, such counsel may rely: (i) as to matters involving the application of laws other than the laws
of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified
in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to the Representative) of
other counsel reasonably acceptable to the Representative, familiar with the applicable laws; and (ii) as to matters of fact,
to the extent they deem proper, on certificates or other written statements of officers of the Company and officers of departments
of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company, provided
that copies of any such statements or certificates shall be delivered to Representative Counsel if requested. The opinion of Jolie
Kahn, Esq. and any opinion relied upon by Jolie Kahn, Esq. shall include a statement to the effect that it may be relied upon by
Representative Counsel in its opinion delivered to the Underwriters.
4.3
Comfort
Letters
.
4.3.1.
Cold
Comfort Letter
. At the time this Agreement is executed you shall have received a cold comfort letter containing statements
and information of the type customarily included in accountants’ comfort letters with respect to the financial statements
and certain financial information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus, addressed
to the Representative and in form and substance satisfactory in all respects to you and to the Auditor, dated as of the date of
this Agreement.
4.3.2.
Bring-down
Comfort Letter
. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received from
the Auditor a letter, dated as of the Closing Date or the Option Closing Date, as applicable, to the effect that the Auditor reaffirms
the statements made in the letter furnished pursuant to Section 4.3.1, except that the specified date referred to shall be a date
not more than three (3) business days prior to the Closing Date or the Option Closing Date, as applicable.
4.4
Officers’
Certificates
.
4.4.1.
Officers’
Certificate
. The Company shall have furnished to the Representative a certificate, dated the Closing Date and any Option Closing
Date (if such date is other than the Closing Date), of its Chief Executive Officer, its President and its Chief Financial Officer
stating that (i) such officers have carefully examined the Registration Statement, the Pricing Disclosure Package, any Issuer Free
Writing Prospectus and the Prospectus and, in their opinion, the Registration Statement and each amendment thereto, as of the Applicable
Time and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date) did not include any untrue
statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Pricing Disclosure Package, as of the Applicable Time and as of the Closing Date (or any Option
Closing Date if such date is other than the Closing Date), any Issuer Free Writing Prospectus as of its date and as of the Closing
Date (or any Option Closing Date if such date is other than the Closing Date), the Prospectus and each amendment or supplement
thereto, as of the respective date thereof and as of the Closing Date, did not include any untrue statement of a material fact
and did not omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances
in which they were made, not misleading, (ii) since the effective date of the Registration Statement, no event has occurred which
should have been set forth in a supplement or amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus,
(iii) to the best of their knowledge after reasonable investigation, as of the Closing Date (or any Option Closing Date if such
date is other than the Closing Date), the representations and warranties of the Company in this Agreement are true and correct
and the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to the Closing Date (or any Option Closing Date if such date is other than the Closing Date), and (iv) there has not
been, subsequent to the date of the most recent audited financial statements included or incorporated by reference in the Pricing
Disclosure Package, any material adverse change in the financial position or results of operations of the Company, or any change
or development that, singularly or in the aggregate, would involve a material adverse change or a prospective material adverse
change, in or affecting the condition (financial or otherwise), results of operations, business, assets or prospects of the Company,
except as set forth in the Prospectus.
4.4.2.
Secretary’s
Certificate
. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received a certificate
of the Company signed by the Secretary of the Company, dated the Closing Date or the Option Date, as the case may be, respectively,
certifying: (i) that each of the Charter and Bylaws is true and complete, has not been modified and is in full force and effect;
(ii) that the resolutions of the Company’s Board of Directors relating to the Offering are in full force and effect
and have not been modified; (iii) as to the accuracy and completeness of all correspondence between the Company or its counsel
and the Commission; and (iv) as to the incumbency of the officers of the Company. The documents referred to in such certificate
shall be attached to such certificate.
4.5
No
Material Changes
. Prior to and on each of the Closing Date and each Option Closing Date, if any: (i) there shall have
been no material adverse change or development involving a prospective material adverse change in the condition or prospects or
the business activities, financial or otherwise, of the Company from the latest dates as of which such condition is set forth in
the Registration Statement, the Pricing Disclosure Package and the Prospectus; (ii) no action, suit or proceeding, at law
or in equity, shall have been pending or threatened against the Company or any Insider before or by any court or federal or state
commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may materially adversely affect
the business, operations, prospects or financial condition or income of the Company, except as set forth in the Registration Statement,
the Pricing Disclosure Package and the Prospectus; (iii) no stop order shall have been issued under the Securities Act and
no proceedings therefor shall have been initiated or threatened by the Commission; and (iv) the Registration Statement, the
Pricing Disclosure Package and the Prospectus and any amendments or supplements thereto shall contain all material statements which
are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations and shall conform in
all material respects to the requirements of the Securities Act and the Securities Act Regulations, and neither the Registration
Statement, the Pricing Disclosure Package nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement
of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
4.6
Delivery
of Agreements
.
4.6.1.
Lock-Up
Agreements
. On or before the date of this Agreement, the Company shall have delivered to the Representative executed copies
of the Lock-Up Agreements from each of the persons listed in
Schedule 3
hereto.
4.6.2.
Warrant
Agency Agreement
. On the Closing Date, the Company shall have delivered to the Representative the executed Warrant Agency Agreement
and the Warrant Agency Agreement shall be in full force and effect. “
Warrant Agency Agreement
”
means the Warrant Agent Agreement, dated on or about the date hereof, between the Company and Equity Stock Transfer, LLC (the “
Warrant
Agent
”) in connection with the Warrants, in the form of Exhibit ___ attached hereto.
4.6.3.
Representative’s
Warrant Agreement
. On the Closing Date, the Company shall have delivered to the Representative executed copies of the Representative’s
Warrant Agreement.
4.6.4.
Preferred
Stock Conversion Agreements
. On the Closing Date, the Company shall have delivered to the Representative conversion agreements
from stockholders of the Company for the conversion of the Company’s Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock into an aggregate of ______ shares of Common Stock.
4.7
Additional
Documents
. At the Closing Date and at each Option Closing Date (if any) Representative Counsel shall have been furnished with
such documents and opinions as they may require for the purpose of enabling Representative Counsel to deliver an opinion to the
Underwriters, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Public Securities
and the Representative’s Securities as herein contemplated shall be satisfactory in form and substance to the Representative
and Representative Counsel.
5.
Indemnification
.
5.1
Indemnification
of the Underwriters
.
5.1.1.
General
.
Subject to the conditions set forth below, the Company agrees to indemnify and hold harmless each Underwriter, its affiliates and
each of its and their respective directors, officers, members, employees, representatives, partners, shareholders, affiliates,
counsel, and agents and each person, if any, who controls any such Underwriter within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act (collectively the “
Underwriter Indemnified Parties
,”
and each an “
Underwriter Indemnified Party
”), against any and all loss, liability,
claim, damage and expense whatsoever (including but not limited to any and all legal or other expenses reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action
between any of the Underwriter Indemnified Parties and the Company or between any of the Underwriter Indemnified Parties and any
third party, or otherwise) to which they or any of them may become subject under the Securities Act, the Exchange Act or any other
statute or at common law or otherwise or under the laws of foreign countries (a “
Claim
”),
(i) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in (A) the Registration
Statement, the Pricing Disclosure Package, any Preliminary Prospectus, the Prospectus, or in any Issuer Free Writing Prospectus
(as from time to time each may be amended and supplemented); (B) any materials or information provided to investors by, or with
the approval of, the Company in connection with the marketing of the Offering, including any “road show” or investor
presentations made to investors by the Company (whether in person or electronically); or (C) any application or other document
or written communication (in this Section 5, collectively called “application”) executed by the Company or based upon
written information furnished by the Company in any jurisdiction in order to qualify the Public Securities and Representative’s
Securities under the securities laws thereof or filed with the Commission, any state securities commission or agency, the Trading
Market or any national securities exchange; or the omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading,
unless such statement or omission was made in reliance upon, and in conformity with, the Underwriters’ Information or (ii)
otherwise arising in connection with or allegedly in connection with the Offering (including, without limitation, any authorized
or unauthorized investor relations activities, press releases about the Company or any interviews given by representatives of the
Company). The Company also agrees that it will reimburse each Underwriter Indemnified Party for all fees and expenses (including
but not limited to any and all legal or other expenses reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between any of the Underwriter
Indemnified Parties and the Company or between any of the Underwriter Indemnified Parties and any third party, or otherwise) (collectively,
the “
Expenses
”), and further agrees wherever and whenever possible to advance
payment of Expenses as they are incurred by an Underwriter Indemnified Party in investigating, preparing, pursuing or defending
any Claim.
5.1.2.
Procedure
.
If any action is brought against an Underwriter Indemnified Party in respect of which indemnity
may be sought against the Company pursuant to Section 5.1.1, such Underwriter Indemnified Party shall promptly notify the Company
in writing of the institution of such action and the Company shall assume the defense of such action, including the employment
and fees of counsel (subject to the approval of such Underwriter Indemnified Party) and payment of actual expenses if an Underwriter
Indemnified Party requests that the Company do so. Such Underwriter Indemnified Party shall have the right to employ its or their
own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Company, and shall be advanced
by the Company. The Company shall not be liable for any settlement of any action effected without its consent (which consent shall
not be unreasonably withheld). In addition, the Company shall not, without the prior written consent of the Underwriters, settle,
compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened action in respect
of which advancement, reimbursement, indemnification or contribution may be sought hereunder (whether or not such Underwriter Indemnified
Party is a party thereto) unless such settlement, compromise, consent or termination (i) includes an unconditional release of each
Underwriter Indemnified Party, acceptable to such Underwriter Indemnified Party, from all liabilities, expenses and claims arising
out of such action for which indemnification or contribution may be sought and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any Underwriter Indemnified Party.
5.2
Indemnification
of the Company
. Each Underwriter, severally and not jointly, agrees to indemnify and hold harmless the Company, its directors,
its officers who signed the Registration Statement and persons who control the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act against any and all loss, liability, claim, damage and expense described in the
foregoing indemnity from the Company to the several Underwriters, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Pricing Disclosure
Package or Prospectus or any amendment or supplement thereto or in any application, in reliance upon, and in strict conformity
with, the Underwriters’ Information. In case any action shall be brought against the Company or any other person so indemnified
based on any Preliminary Prospectus, the Registration Statement, the Pricing Disclosure Package or Prospectus or any amendment
or supplement thereto or any application, and in respect of which indemnity may be sought against any Underwriter, such Underwriter
shall have the rights and duties given to the Company, and the Company and each other person so indemnified shall have the rights
and duties given to the several Underwriters by the provisions of Section 5.1.2. The Company agrees promptly to notify the Representative
of the commencement of any litigation or proceedings against the Company or any of its officers, directors or any person, if any,
who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, in connection
with the issuance and sale of the Public Securities or in connection with the Registration Statement, the Pricing Disclosure Package,
the Prospectus, or any Issuer Free Writing Prospectus.
5.3
Contribution
.
5.3.1.
Contribution
Rights
. If the indemnification provided for in this Section 5 shall for any reason be unavailable to or insufficient to hold
harmless an indemnified party under Section 5.1 or 5.2 in respect of any loss, claim, damage or liability, or any action in respect
thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to
the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company, on the one hand,
and the Underwriters, on the other, from the Offering of the Public Securities, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company, on the one hand, and the Underwriters, on the other, with respect
to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as
any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriters,
on the other, with respect to such Offering shall be deemed to be in the same proportion as the total net proceeds from the Offering
of the Public Securities purchased under this Agreement (before deducting expenses) received by the Company, as set forth in the
table on the cover page of the Prospectus, on the one hand, and the total underwriting discounts and commissions received by the
Underwriters with respect to the shares of the Common Stock purchased under this Agreement, as set forth in the table on the cover
page of the Prospectus, on the other hand. The relative fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by
the Company or the Underwriters, the intent of the parties and their relative knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 5.3.1 were to be determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation that does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 5.3.1 shall be deemed to include, for purposes of this Section 5.3.1,
any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 5.3.1 in no event shall an Underwriter be required to contribute
any amount in excess of the amount by which the total underwriting discounts and commissions received by such Underwriter with
respect to the Offering of the Public Securities exceeds the amount of any damages that such Underwriter has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.
5.3.2.
Contribution
Procedure
. Within fifteen (15) days after receipt by any party to this Agreement (or its representative) of notice of the commencement
of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another
party (“contributing party”), notify the contributing party of the commencement thereof, but the failure to so notify
the contributing party will not relieve it from any liability which it may have to any other party other than for contribution
hereunder. In case any such action, suit or proceeding is brought against any party, and such party notifies a contributing party
or its representative of the commencement thereof within the aforesaid 15 days, the contributing party will be entitled to participate
therein with the notifying party and any other contributing party similarly notified. Any such contributing party shall not be
liable to any party seeking contribution on account of any settlement of any claim, action or proceeding affected by such party
seeking contribution on account of any settlement of any claim, action or proceeding affected by such party seeking contribution
without the written consent of such contributing party. The contribution provisions contained in this Section 5.3.2 are intended
to supersede, to the extent permitted by law, any right to contribution under the Securities Act, the Exchange Act or otherwise
available. Each Underwriter’s obligations to contribute pursuant to this Section 5.3 are several and not joint.
6.
Default
by an Underwriter
.
6.1
Default
Not Exceeding 10% of Firm Shares, Option Shares, Firm Warrants or Option Warrants
. If any Underwriter or Underwriters shall
default in its or their obligations to purchase the Firm Shares, the Option Shares, the Firm Warrants or the Option Warrants, if
the Over-Allotment Option is exercised hereunder, and if the number of the Firm Shares, the Option Shares, the Firm Warrants or
the Option Warrants with respect to which such default relates does not exceed in the aggregate 10% of the number of Firm Shares,
Option Shares, Firm Warrants or Option Warrants that all Underwriters have agreed to purchase hereunder, then such Firm Shares,
Option Shares, Firm Warrants or Option Warrants to which the default relates shall be purchased by the non-defaulting Underwriters
in proportion to their respective commitments hereunder.
6.2
Default
Exceeding 10% of Firm Shares, Option Shares, Firm Warrants or Option Warrants
. In the event that the default addressed in Section
6.1 relates to more than 10% of the Firm Shares, the Option Shares, the Firm Warrants or the Option Warrants, you may in your discretion
arrange for yourself or for another party or parties to purchase such Firm Shares, Option Shares, Firm Warrants or Option Warrants
to which such default relates on the terms contained herein. If, within one (1) Business Day after such default relating to more
than 10% of the Firm Shares, Option Shares, Firm Warrants or Option Warrants you do not arrange for the purchase of such Firm Shares,
Option Shares, Firm Warrants or Option Warrants, then the Company shall be entitled to a further period of one (1) Business Day
within which to procure another party or parties satisfactory to you to purchase said Firm Shares, Option Shares, Firm Warrants
or Option Warrants on such terms. In the event that neither you nor the Company arrange for the purchase of the Firm Shares, Option
Shares, Firm Warrants or Option Warrants to which a default relates as provided in this Section 6, this Agreement will automatically
be terminated by you or the Company without liability on the part of the Company (except as provided in Sections 3.9 and 5 hereof)
or the several Underwriters (except as provided in Section 5 hereof); provided, however, that if such default occurs with respect
to the Option Shares or Option Warrants, this Agreement will not terminate as to the Firm Shares or Firm Warrants; and provided,
further, that nothing herein shall relieve a defaulting Underwriter of its liability, if any, to the other Underwriters and to
the Company for damages occasioned by its default hereunder.
6.3
Postponement
of Closing Date
. In the event that the Firm Shares, Option Shares, Firm Warrants or Option Warrants to which the default relates
are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, you or
the Company shall have the right to postpone the Closing Date or Option Closing Date for a reasonable period, but not in any event
exceeding five (5) Business Days, in order to effect whatever changes may thereby be made necessary in the Registration Statement,
the Pricing Disclosure Package or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly
any amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus that in the opinion of counsel for
the Underwriter may thereby be made necessary. The term “Underwriter” as used in this Agreement shall include any party
substituted under this Section 6 with like effect as if it had originally been a party to this Agreement with respect to such shares
of Common Stock.
7.
Additional
Covenants
.
7.1
Board
Composition and Board Designations
. The Company shall ensure that: (i) the qualifications of the persons serving as members
of the Board of Directors and the overall composition of the Board comply with the Sarbanes-Oxley Act, with the Exchange Act and
with any rules of the Trading Market or any national securities exchange, as the case may be, in the event the Company seeks to
have its Public Securities listed on any national securities exchange or quoted on an automated quotation system, and (ii) if
applicable, at least one member of the Audit Committee of the Board of Directors qualifies as an “audit committee financial
expert,” as such term is defined under Regulation S-K and the listing rules of the Trading Market.
7.2
Prohibition
on Press Releases and Public Announcements
. The Company shall not issue press releases or engage in any other publicity, without
the Representative’s prior written consent, for a period ending at 5:00 p.m., Eastern time, on the first (1
st
)
Business Day following the forty-fifth (45
th
) day after the Closing Date, other than normal and customary releases issued
in the ordinary course of the Company’s business.
7.3
Right
of First Refusal
. Provided that the Firm Securities are sold in accordance with the terms of this Agreement, the Representative
shall have an irrevocable right of first refusal (the “
Right of First Refusal
”),
for a period of twelve (12) months after the date the Offering is completed, to act as sole and exclusive investment banker, sole
and exclusive book-runner, sole and exclusive financial advisor, sole and exclusive underwriter and/or sole and exclusive placement
agent, at the Representative’s sole and exclusive discretion, for each and every future public and private equity and debt
offering, including all equity linked financings (each, a “
Subject Transaction
”),
during such twelve (12) month period, of the Company, or any successor to or subsidiary of the Company, on terms and conditions
customary to the Representative for such Subject Transactions. For the avoidance of any doubt, the Company shall not retain, engage
or solicit any additional investment banker, book-runner, financial advisor, underwriter and/or placement agent in a Subject Transaction
without the express written consent of the Representative.
The Company shall notify
the Representative of its intention to pursue a Subject Transaction, including the material terms thereof, by providing written
notice thereof by registered mail or overnight courier service addressed to the Representative. If the Representative fails
to exercise its Right of First Refusal with respect to any Subject Transaction within ten (10) Business Days after the mailing
of such written notice, then the Representative shall have no further claim or right with respect to the Subject Transaction. The
Representative may elect, in its sole and absolute discretion, not to exercise its Right of First Refusal with respect to any Subject
Transaction; provided that any such election by the Representative shall not adversely affect the Representative’s Right
of First Refusal with respect to any other Subject Transaction during the twelve (12) month period agreed to above.
8.
Effective
Date of this Agreement and Termination Thereof
.
8.1
Effective
Date
. This Agreement shall become effective when both the Company and the Representative have executed the same and delivered
counterparts of such signatures to the other party.
8.2
Termination
.
The Representative shall have the right to terminate this Agreement at any time prior to any Closing Date, (i) if any domestic
or international event or act or occurrence has materially disrupted, or in your opinion will in the immediate future materially
disrupt, general securities markets in the United States; or (ii) if trading on the New York Stock Exchange or the Nasdaq
Stock Market LLC shall have been suspended or materially limited, or minimum or maximum prices for trading shall have been fixed,
or maximum ranges for prices for securities shall have been required by FINRA or by order of the Commission or any other government
authority having jurisdiction; or (iii) if the United States shall have become involved in a new war or an increase in major
hostilities; or (iv) if a banking moratorium has been declared by a New York State or federal authority; or (v) if a
moratorium on foreign exchange trading has been declared which materially adversely impacts the United States securities markets;
or (vi) if the Company shall have sustained a material loss by fire, flood, accident, hurricane, earthquake, theft, sabotage
or other calamity or malicious act which, whether or not such loss shall have been insured, will, in your opinion, make it inadvisable
to proceed with the delivery of the Firm Shares or Option Shares; or (vii) if the Company is in material breach of any of
its representations, warranties or covenants hereunder; or (viii) if the Representative shall have become aware after the
date hereof of such a material adverse change in the conditions or prospects of the Company, or such adverse material change in
general market conditions as in the Representative’s judgment would make it impracticable to proceed with the offering, sale
and/or delivery of the Public Securities or to enforce contracts made by the Underwriters for the sale of the Public Securities.
8.3
Expenses
.
Notwithstanding anything to the contrary in this Agreement, except in the case of a default by the Underwriters, pursuant to Section
6.2 above, in the event that this Agreement shall not be carried out for any reason whatsoever, within the time specified herein
or any extensions thereof pursuant to the terms herein, the Company shall be obligated to pay to the Underwriters their actual
and accountable out-of-pocket expenses related to the transactions contemplated herein then due and payable (including the fees
and disbursements of Representative Counsel) up to $100,000, inclusive of the $2,500 advance for accountable expenses previously
paid by the Company to the Representative (the “
Advance
”)
and upon demand the Company shall pay the full amount thereof to the Representative on behalf of the Underwriters; provided, however,
that such expense cap in no way limits or impairs the indemnification and contribution provisions of this Agreement. Notwithstanding
the foregoing, any advance received by the Representative will be reimbursed to the Company to the extent not actually incurred
in compliance with FINRA Rule 5110(f)(2)(C).
8.4
Indemnification
.
Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement,
and whether or not this Agreement is otherwise carried out, the provisions of Section 5 shall remain in full force and effect and
shall not be in any way affected by, such election or termination or failure to carry out the terms of this Agreement or any part
hereof.
8.5
Representations,
Warranties, Agreements to Survive
. All representations, warranties and agreements contained in this Agreement or in certificates
of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any
investigation made by or on behalf of any Underwriter or its Affiliates or selling agents, any person controlling any Underwriter,
its officers or directors or any person controlling the Company or (ii) delivery of and payment for the Public Securities.
9.
Miscellaneous
.
9.1
Notices
.
All communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be mailed (registered
or certified mail, return receipt requested), personally delivered or sent by facsimile transmission and confirmed and shall be
deemed given when so delivered or faxed and confirmed or if mailed, two (2) days after such mailing.
If to the Representative:
Joseph Gunnar & Co., LLC
30 Broad Street, 11th Floor
New York, NY 10004
Attn: Mr. Eric Lord, Head of Investment Banking/Underwritings
Fax No.: (212) 440-9614
with a copy (which shall not constitute notice) to:
Ellenoff Grossman & Schole LLP
1345 Avenue of the Americas, 11
th
Floor
New York, NY 10105
Attn: Robert F. Charron
Fax No.: (212) 401-4741
If to the Company:
Optex Systems Holdings, Inc.
1420 Presidential Drive, Richardson, TX 75081
Attention: _________
Fax No: __________
with a copy (which shall not constitute notice) to:
Jolie Kahn, Esq.
2 Liberty Place
50 South 16
th
Street, Suite 3401
Philadelphia, Pennsylvania 19102
Fax No: (866) 705-3071
9.2
Headings
.
The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
9.3
Amendment
.
This Agreement may only be amended by a written instrument executed by each of the parties hereto.
9.4
Entire
Agreement
. This Agreement (together with the other agreements and documents being delivered pursuant to or in connection with
this Agreement) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and thereof, and
supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.
Notwithstanding anything to the contrary set forth herein, it is understood and agreed by the parties hereto that all other terms
and conditions of that certain engagement letter between the Company and Joseph Gunnar & Co., LLC, dated June 28, 2016, shall
remain in full force and effect.
9.5
Binding
Effect
. This Agreement shall inure solely to the benefit of and shall be binding upon the Representative, the Underwriters,
the Company and the controlling persons, directors and officers referred to in Section 5 hereof, and their respective successors,
legal representatives, heirs and assigns, and no other person shall have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. The term “successors
and assigns” shall not include a purchaser, in its capacity as such, of securities from any of the Underwriters.
9.6
Governing
Law; Consent to Jurisdiction; Trial by Jury
. This Agreement shall be governed by and construed and enforced in accordance with
the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that
any action, proceeding or claim against it arising out of, or relating in any way to this Agreement shall be brought and enforced
in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York,
and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to
such exclusive jurisdiction and that such courts represent an inconvenient forum. Any such process or summons to be served upon
the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid,
addressed to it at the address set forth in Section 9.1 hereof. Such mailing shall be deemed personal service and shall be legal
and binding upon the Company in any action, proceeding or claim. The Company agrees that the prevailing party(ies) in any such
action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating
to such action or proceeding and/or incurred in connection with the preparation therefor. The Company (on its behalf and, to the
extent permitted by applicable law, on behalf of its stockholders and affiliates) and each of the Underwriters hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out
of or relating to this Agreement or the transactions contemplated hereby.
9.7
Execution
in Counterparts
. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same
agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered
to each of the other parties hereto. Delivery of a signed counterpart of this Agreement by facsimile or email/pdf transmission
shall constitute valid and sufficient delivery thereof.
9.8
Waiver,
etc
. The failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed
or construed to be a waiver of any such provision, nor to in any way effect the validity of this Agreement or any provision hereof
or the right of any of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach,
non-compliance or non-fulfillment of any of the provisions of this Agreement shall be effective unless set forth in a written instrument
executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach,
non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance
or non-fulfillment.
[Signature Page Follows]
If
the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a binding agreement between us.
|
|
Very truly yours,
|
|
|
|
|
|
OPTEX SYSTEMS HOLDINGS, INC.
|
|
|
|
|
|
|
By:
|
|
|
|
|
Name:
|
|
|
|
Title:
|
Confirmed as of the date first written above mentioned, on behalf
of itself and as Representative of the several Underwriters named on
Schedule 1
hereto:
|
JOSEPH GUNNAR & CO., LLC
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
Name:
|
Eric Lord
|
|
|
|
Title:
|
Head of Investment Banking/Underwritings
|
|
[Signature
Page]
Optex
Systems Holdings, INc. – Underwriting Agreement
SCHEDULE 1
|
Underwriter
|
Total Number of Firm
Shares to be
Purchased
|
Total Number of Firm
Warrants to be
Purchased
|
Number of Option
Shares and Option
Warrants to be
Purchased if the Over-
Allotment Option is
Full Exercised
|
|
Joseph Gunnar & Co., LLC
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
SCHEDULE 2-A
Pricing Information
Number of Firm Shares: [•]
Number of Firm Warrants: [•]
Number of Option Shares (assuming full exercise of the Over-Allotment
Option): [•]
Number of Option Warrants (assuming full exercise of the Over-Allotment
Option): [•]
Public Offering Price per Share: $[•]
Public Offering Price per Warrant: $[•]
Underwriting Discount per Share: $[•]
Underwriting Discount per Warrant: $[•]
Per Share Purchase Price:
Per Warrant Purchase Price:
Underwriting Non-accountable expense allowance per Share and Warrant:
$[•]
Proceeds to Company per Share and Warrant (before expenses): $[•]
SCHEDULE 2-B
Issuer General Use Free Writing Prospectuses
[None.]
SCHEDULE 2-C
Written Testing-the-Waters Communications
[None.]
SCHEDULE 3
List of Lock-Up Parties
Directors and Officers
5% or Greater Shareholders
EXHIBIT A
Form of Representative’s Warrant Agreement
Exhibit 4.2
Optex Systems Holdings, Inc.,
and
Equity Stock Transfer, LLC, as
Warrant Agent
Warrant Agency Agreement
Dated as of ________, 2016
WARRANT AGENCY AGREEMENT
WARRANT AGENCY AGREEMENT,
dated as of _________, 2016 (“
Agreement
”), between Optex Systems Holdings, Inc., a Delaware corporation (the
“
Company
”), and Equity Stock Transfer, LLC, a ____ limited liability company (the “
Warrant Agent
”).
WITNESSETH
WHEREAS, pursuant to
a registered offering by the Company of shares of common stock, par value $0.001 per share (the “
Common Stock
”),
and warrants to purchase Common Stock, pursuant to an effective registration statement on Form S-1, SEC File No. 333-212654 (the
“
Registration Statement
”), the Company wishes to issue warrants (the “
Warrants
”) in book
entry form entitling the respective holders of the Warrants (the “
Holders
”, which term shall include a Holder’s
transferees, successors and assigns and “Holder” shall include, if the Warrants are held in “street name”,
a Participant (as defined below) or a designee appointed by such Participant) to purchase an aggregate of ______ shares of Common
Stock (which includes Warrants to purchase up to ____ shares of Common Stock pursuant to an overallotment option granted to the
underwriters) upon the terms and subject to the conditions hereinafter set forth (the “
Offering
”);
WHEREAS, the shares
of Common Stock and Warrants to be issued in connection with the Offering shall be immediately separable and will be issued separately,
but will be purchased together in the Offering; and
WHEREAS, the Company
wishes the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing so to act, in connection with the issuance,
registration, transfer, exchange, exercise and replacement of the Warrants and, in the Warrant Agent’s capacity as the Company’s
transfer agent, the delivery of the Warrant Shares.
NOW, THEREFORE, in
consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows:
Section 1.
Certain
Definitions
. For purposes of this Agreement, the following terms have the meanings indicated:
(a) “
Affiliate
”
has the meaning ascribed to it in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “
Exchange Act
”).
(b) “
Business
Day
” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or
any day on which the New York Stock Exchange is authorized or required by law or other governmental action to close.
(c) “
Close
of Business
” on any given date means 5:00 p.m., New York City time, on such date;
provided
,
however
, that
if such date is not a Business Day it means 5:00 p.m., New York City time, on the next succeeding Business Day.
(e) “
Person
”
means an individual, corporation, association, partnership, limited liability company, joint venture, trust, unincorporated organization,
government or political subdivision thereof or governmental agency or other entity.
(j) “
Warrant
Certificate
” means a certificate in substantially the form attached as
Exhibit 1
hereto, representing such number
of Warrant Shares as is indicated therein, provided that any reference to the delivery of a Warrant Certificate in this Agreement
shall include delivery of notice from the Depository or a Participant (each as defined below) of the transfer or exercise of Warrant
in the form of a Global Warrant (as defined below).
(k) “
Warrant
Shares
” means the shares of Common Stock underlying the Warrants and issuable upon exercise of the Warrants.
All other capitalized
terms used but not otherwise defined herein shall have the meaning ascribed to such terms in the Warrant Certificate.
Section 2.
Appointment
of Warrant Agent
. The Company hereby appoints the Warrant Agent to act as agent for the Company in accordance with the terms
and conditions hereof, and the Warrant Agent hereby accepts such appointment. The Company may from time to time appoint a Co-Warrant
Agent as it may, in its sole discretion, deem necessary or desirable.
Section 3.
Global
Warrants
.
(a) The Warrants
shall be issuable in book entry form (the “
Global Warrants
”). All of the Warrants shall initially be represented
by one or more Global Warrants deposited with the Warrant Agent and registered in the name of Cede & Co., a nominee of the
Depository, or as otherwise directed by the Depository. Ownership of beneficial interests in the Warrants shall be shown on, and
the transfer of such ownership shall be effected through, records maintained by (i) the Depository or its nominee for each Global
Warrant or (ii) institutions that have accounts with the Depository (such institution, with respect to a Warrant in its account,
a “
Participant
”).
(b) If the Depository
subsequently ceases to make its book-entry settlement system available for the Warrants, the Company may instruct the Warrant Agent
regarding other arrangements for book-entry settlement. In the event that the Warrants are not eligible for, or it is no longer
necessary to have the Warrants available in, book-entry form, the Warrant Agent shall provide written instructions to the Depository
to deliver to the Warrant Agent for cancellation each Global Warrant, and the Company shall instruct the Warrant Agent to deliver
to each Holder a Warrant Certificate.
(c) A Holder has
the right to elect at any time or from time to time a Warrant Exchange (as defined below) pursuant to a Warrant Certificate Request
Notice (as defined below). Upon written notice by a Holder to the Warrant Agent for the exchange of some or all of such Holder’s
Global Warrants for a Warrant Certificate evidencing the same number of Warrants, which request shall be in the form attached hereto
as
Annex A
(a “
Warrant Certificate Request Notice
” and the date of delivery of such Warrant Certificate
Request Notice by the Holder, the “
Warrant Certificate Request Notice Date
” and the deemed surrender upon delivery
by the Holder of a number of Global Warrants for the same number of Warrants evidenced by a Warrant Certificate, a “
Warrant
Exchange
”), the Warrant Agent shall promptly effect the Warrant Exchange and shall promptly issue and deliver to the
Holder a Warrant Certificate for such number of Warrants in the name set forth in the Warrant Certificate Request Notice. Such
Warrant Certificate shall be dated the original issue date of the Warrants, shall be manually executed by an authorized signatory
of the Company, shall be in the form attached hereto as
Exhibit 1
, and shall be reasonably acceptable in all respects to
such Holder. In connection with a Warrant Exchange, the Company agrees to deliver, or to direct the Warrant Agent to deliver, the
Warrant Certificate to the Holder within three (3) Business Days of the Warrant Certificate Request Notice pursuant to the delivery
instructions in the Warrant Certificate Request Notice (“
Warrant Certificate Delivery Date
”). If the Company
fails for any reason to deliver to the Holder the Warrant Certificate subject to the Warrant Certificate Request Notice by the
Warrant Certificate Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for
each $1,000 of Warrant Shares evidenced by such Warrant Certificate (based on the VWAP (as defined in the Warrants) of the Common
Stock on the Warrant Certificate Request Notice Date), $10 per Business Day for each Business Day after such Warrant Certificate
Delivery Date until such Warrant Certificate is delivered or, prior to delivery of such Warrant Certificate, the Holder rescinds
such Warrant Exchange. The Company covenants and agrees that, upon the date of delivery of the Warrant Certificate Request Notice,
the Holder shall be deemed to be the holder of the Warrant Certificate and, notwithstanding anything to the contrary set forth
herein, the Warrant Certificate shall be deemed for all purposes to contain all of the terms and conditions of the Warrants evidenced
by such Warrant Certificate and the terms of this Agreement, other than Sections 3(c) and 9 herein, shall not apply to the Warrants
evidenced by the Warrant Certificate.
Section 4.
Form
of Warrant Certificates
. The Warrant Certificate, together with the form of election to purchase Common Stock (“
Exercise
Notice
”) and the form of assignment to be printed on the reverse thereof, shall be in the form of
Exhibit 1
hereto.
Section 5.
Countersignature
and Registration
. The Warrant Certificates shall be executed on behalf of the Company by its Chief Executive Officer, Chief
Financial Officer or Vice President, either manually or by facsimile signature, and have affixed thereto the Company’s seal
or a facsimile thereof which shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Warrant Certificates shall be countersigned by the Warrant Agent either manually or by facsimile signature
and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of
the Warrant Certificates shall cease to be such officer of the Company before countersignature by the Warrant Agent and issuance
and delivery by the Company, such Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent, issued and delivered
with the same force and effect as though the person who signed such Warrant Certificate had not ceased to be such officer of the
Company; and any Warrant Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution
of such Warrant Certificate, shall be a proper officer of the Company to sign such Warrant Certificate, although at the date of
the execution of this Warrant Agreement any such person was not such an officer.
The Warrant Agent will
keep or cause to be kept, at one of its offices, or at the office of one of its agents, books for registration and transfer of
the Warrant Certificates issued hereunder. Such books shall show the names and addresses of the respective Holders of the Warrant
Certificates, the number of warrants evidenced on the face of each of such Warrant Certificate and the date of each of such Warrant
Certificate.
The Warrant Agent will
create a special account for the issuance of Warrant Certificates.
Section 6.
Transfer,
Split Up, Combination and Exchange of Warrant Certificates; Mutilated, Destroyed, Lost or Stolen Warrant Certificates
. With
respect to the Global Warrant, subject to the provisions of the Warrant Certificate and the last sentence of this first paragraph
of Section 6 and subject to applicable law, rules or regulations, or any “stop transfer” instructions the Company may
give to the Warrant Agent, at any time after the closing date of the Offering, and at or prior to the Close of Business on the
Termination Date (as such term is hereinafter defined), any Warrant Certificate or Warrant Certificates or Global Warrant or Global
Warrants may be transferred, split up, combined or exchanged for another Warrant Certificate or Warrant Certificates or Book-Entry
Warrant Certificate or Book-Entry Warrant Certificates, entitling the Holder to purchase a like number of shares of Common Stock
as the Warrant Certificate or Warrant Certificates or Global Warrant or Global Warrants surrendered then entitled such Holder to
purchase. Any Holder desiring to transfer, split up, combine or exchange any Warrant Certificate or Global Warrant shall make such
request in writing delivered to the Warrant Agent, and shall surrender the Warrant Certificate or Warrant Certificates to be transferred,
split up, combined or exchanged at the principal office of the Warrant Agent, provided that no such surrender is applicable to
the Holder of a Global Warrant. Any requested transfer of Warrants, whether in book-entry form or certificate form, shall be accompanied
by reasonable evidence of authority of the party making such request that may be required by the Warrant Agent. Thereupon the Warrant
Agent shall, subject to the last sentence of this first paragraph of Section 6, countersign and deliver to the Person entitled
thereto a Warrant Certificate or Warrant Certificates, as the case may be, as so requested. The Company may require payment from
the Holder of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Warrant Certificates. The Company shall compensate the Warrant Agent per the fee schedule mutually
agreed upon by the parties hereto and provided separately on the date hereof.
Upon receipt by the
Warrant Agent of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of a Warrant Certificate,
which evidence shall include an affidavit of loss, or in the case of mutilated certificates, the certificate or portion thereof
remaining, and, in case of loss, theft or destruction, of indemnity in customary form and amount and satisfaction of any other
reasonable requirements established by Section 8-405 of the Uniform Commercial Code as in effect in the State of Delaware, and
reimbursement to the Company and the Warrant Agent of all reasonable expenses incidental thereto, and upon surrender to the Warrant
Agent and cancellation of the Warrant Certificate if mutilated, the Company will make and deliver a new Warrant Certificate of
like tenor to the Warrant Agent for delivery to the Holder in lieu of the Warrant Certificate so lost, stolen, destroyed or mutilated.
Section 7.
Exercise
of Warrants; Exercise Price; Termination Date
.
(a) The Warrants
shall be exercisable commencing on the Initial Exercise Date. The Warrants shall cease to be exercisable and shall terminate and
become void, and all rights thereunder and under this Agreement shall cease, at or prior to the Close of Business on the Termination
Date. Subject to the foregoing and to Section 7(b) below, the Holder of a Warrant may exercise the Warrant in whole or in part
upon surrender of the Warrant Certificate, if required, with the executed Exercise Notice and payment of the Exercise Price, which
may be made, at the option of the Holder, by wire transfer or by certified or official bank check in United States dollars, to
the Warrant Agent at the principal office of the Warrant Agent or to the office of one of its agents as may be designated by the
Warrant Agent from time to time. In the case of the Holder of a Global Warrant, the Holder shall deliver the executed Exercise
Notice and the payment of the Exercise Price as described herein. Notwithstanding any other provision in this Agreement, a holder
whose interest in a Global Warrant is a beneficial interest in a Global Warrant held in book-entry form through the Depositary
(or another established clearing corporation performing similar functions), shall effect exercises by delivering to the Depositary
(or such other clearing corporation, as applicable) the appropriate instruction form for exercise, complying with the procedures
to effect exercise that are required by the Depositary (or such other clearing corporation, as applicable). The Company acknowledges
that the bank accounts maintained by the Warrant Agent in connection with the services provided under this Agreement will be in
its name and that the Warrant Agent may receive investment earnings in connection with the investment at Warrant Agent risk and
for its benefit of funds held in those accounts from time to time. Neither the Company nor the Holders will receive interest on
any deposits or Exercise Price.
(b) Upon receipt
of an Exercise Notice for a Cashless Exercise, the Warrant Agent will promptly calculate and transmit to the Company the number
of Warrant Shares issuable in connection with such Cashless Exercise and deliver a copy of the Exercise Notice to the Company,
which shall approve such number of Warrant Shares issuable in connection with such Cashless Exercise.
(c)
Upon the Warrant Agent’s receipt of a Warrant Certificate at or prior to the Close of Business on the Termination Date set
forth in such Warrant Certificate, with the executed Exercise Notice, accompanied by payment of the Exercise Price for the shares
to be purchased (other than in the case of a Cashless Exercise) and an amount equal to any applicable tax, governmental charge
or expense reimbursement referred to in Section 6 in cash, or by certified check or bank draft payable to the order of the Company
(or, in the case of the Holder of a Global Warrant, the delivery of the executed Exercise Notice and the payment of the Exercise
Price (other than in the case of a Cashless Exercise) and any other applicable amounts as set forth herein), the Warrant Agent
shall cause the Warrant Shares underlying such Warrant Certificate or Global Warrant to be delivered to or upon the order of the
Holder of such Warrant Certificate or Global Warrant, registered in such name or names as may be designated by such Holder, no
later than the Warrant Share Delivery Date. If the Company is then a participant in the DWAC system of the Depository and either
(A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares
by Holder or (B) the Warrant is being exercised via Cashless Exercise, then the certificates for Warrant Shares shall be transmitted
by the Warrant Agent to the Holder by crediting the account of the Holder’s broker with the Depository through its DWAC system.
For the avoidance of doubt, if the Company becomes obligated to pay any amounts to any Holders pursuant to Section 2(d)(i) or 2(d)(iv)
of the Warrant Certificate, such obligation shall be solely that of the Company and not that of the Warrant Agent. Notwithstanding
anything else to the contrary in this Agreement, except in the case of a Cashless Exercise, if any Holder fails to duly deliver
payment to the Warrant Agent of an amount equal to the aggregate Exercise Price of the Warrant Shares to be purchased upon exercise
of such Holder’s Warrant as set forth in Section 7(a) hereof, the Warrant Agent will not obligated to deliver certificates
representing any such Warrant Shares (via DWAC or otherwise) until following receipt of such payment, and the applicable Warrant
Share Delivery Date shall be deemed extended by one day for each day (or part thereof) until such payment is delivered to the Warrant
Agent
.
(d) The Warrant Agent
shall deposit all funds received by it in payment of the Exercise Price for all Warrants in the account of the Company maintained
with the Warrant Agent for such purpose (or to such other account as directed by the Company in writing) and shall advise the Company
via telephone at the end of each day on which funds for the exercise of any Warrant are received of the amount so deposited to
its account. The Warrant Agent shall promptly confirm such telephonic advice to the Company in writing.
(e) In case the Holder
of any Warrant Certificate shall exercise fewer than all Warrants evidenced thereby, a new Warrant Certificate evidencing the number
of Warrants equivalent to the number of Warrants remaining unexercised may be issued by the Warrant Agent to the Holder of such
Warrant Certificate or to his duly authorized assigns in accordance with Section 2(d)(ii) of the Warrant Certificate, subject to
the provisions of Section 6 hereof.
Section 8.
Cancellation
and Destruction of Warrant Certificates
. All Warrant Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Warrant Agent for
cancellation or in canceled form, or, if surrendered to the Warrant Agent, shall be canceled by it, and no Warrant Certificates
shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver
to the Warrant Agent for cancellation and retirement, and the Warrant Agent shall so cancel and retire, any other Warrant Certificate
purchased or acquired by the Company otherwise than upon the exercise thereof. The Warrant Agent shall deliver all canceled Warrant
Certificates to the Company, or shall, at the written request of the Company, destroy such canceled Warrant Certificates, and in
such case shall deliver a certificate of destruction thereof to the Company, subject to any applicable law, rule or regulation
requiring the Warrant Agent to retain such canceled certificates.
Section 9.
Certain
Representations; Reservation and Availability of Shares of Common Stock or Cash
.
(a) This Agreement
has been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery hereof
by the Warrant Agent, constitutes a valid and legally binding obligation of the Company enforceable against the Company in accordance
with its terms, and the Warrants have been duly authorized, executed and issued by the Company and, assuming due authentication
thereof by the Warrant Agent pursuant hereto and payment therefor by the Holders as provided in the Registration Statement, constitute
valid and legally binding obligations of the Company enforceable against the Company in accordance with their terms and entitled
to the benefits hereof; in each case except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium
and other similar laws relating to or affecting creditors’ rights generally or by general equitable principles (regardless
of whether such enforceability is considered in a proceeding in equity or at law).
(b) As of the date
hereof, the authorized capital stock of the Company consists of (i) _____ shares of Common Stock, of which ____ shares of Common
Stock are issued and outstanding, and ________ shares of Common Stock are reserved for issuance upon exercise of the Warrants.
Except as disclosed in the Registration Statement, there are no other outstanding obligations, warrants, options or other rights
to subscribe for or purchase from the Company any class of capital stock of the Company.
(c) The Company covenants
and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Common Stock or its
authorized and issued shares of Common Stock held in its treasury, free from preemptive rights, the number of shares of Common
Stock that will be sufficient to permit the exercise in full of all outstanding Warrants.
(d) The Warrant Agent
will create a special account for the issuance of Common Stock upon the exercise of Warrants.
(e) The Company further
covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be
payable in respect of the original issuance or delivery of the Warrant Certificates or certificates evidencing Common Stock upon
exercise of the Warrants. The Company shall not, however, be required to pay any tax or governmental charge which may be payable
in respect of any transfer involved in the transfer or delivery of Warrant Certificates or the issuance or delivery of certificates
for Common Stock in a name other than that of the Holder of the Warrant Certificate evidencing Warrants surrendered for exercise
or to issue or deliver any certificate for shares of Common Stock upon the exercise of any Warrants until any such tax or governmental
charge shall have been paid (any such tax or governmental charge being payable by the holder of such Warrant Certificate at the
time of surrender) or until it has been established to the Company’s reasonable satisfaction that no such tax or governmental
charge is due.
Section 10.
Common
Stock Record Date
. Each Person in whose name any certificate for shares of Common Stock is issued (or to whose broker’s
account is credited shares of Common Stock through the DWAC system) upon the exercise of Warrants shall for all purposes be deemed
to have become the holder of record for the Common Stock represented thereby on, and such certificate shall be dated, the date
upon which the Warrant Certificate evidencing such Warrant was duly surrendered (but only if required herein) and payment of the
Exercise Price (and any applicable transfer taxes) and submission of the Exercise Notice was made;
provided
,
however
,
that if the date of such surrender (if applicable), payment and submission is a date upon which the Common Stock transfer books
of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next succeeding day on which the Common Stock transfer books of the Company are open.
Section 11.
Adjustment
of Exercise Price, Number of Shares of Common Stock or Number of the Company Warrants
. The Exercise Price, the number of shares
covered by each Warrant and the number of Warrants outstanding are subject to adjustment from time to time as provided in Section
3 of the Warrant Certificate. In the event that at any time, as a result of an adjustment made pursuant to Section 3 of the Warrant
Certificate, the Holder of any Warrant thereafter exercised shall become entitled to receive any shares of capital stock of the
Company other than shares of Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant
shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the shares contained in Section 3 of the Warrant Certificate, and the provisions of Sections 7, 9 and 13 of this
Agreement with respect to the shares of Common Stock shall apply on like terms to any such other shares. All Warrants originally
issued by the Company subsequent to any adjustment made to the Exercise Price pursuant to the Warrant Certificate shall evidence
the right to purchase, at the adjusted Exercise Price, the number of shares of Common Stock purchasable from time to time hereunder
upon exercise of the Warrants, all subject to further adjustment as provided herein. The Company agrees that it will not, by amendment
of its Certificate of Incorporation or through reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act, avoid or seek to avoid the observance or performance of any of the covenants, stipulations or conditions to
be observed or performed hereunder by the Company.
Section 12.
Certification
of Adjusted Exercise Price or Number of Shares of Common Stock
. Whenever the Exercise Price or the number of shares of Common
Stock issuable upon the exercise of each Warrant is adjusted as provided in Section 11 or 13, the Company shall (a) promptly prepare
a certificate setting forth the Exercise Price of each Warrant as so adjusted, and a brief statement of the facts accounting for
such adjustment, (b) promptly file with the Warrant Agent and with each transfer agent for the Common Stock a copy of such certificate
and (c) instruct the Warrant Agent to deliver a brief summary thereof to each Holder of a Warrant Certificate.
Section 13.
Fractional
Shares of Common Stock
.
(a) The Company shall
not issue fractions of Warrants or distribute Warrant Certificates which evidence fractional Warrants. Whenever any fractional
Warrant would otherwise be required to be issued or distributed, the actual issuance or distribution shall reflect a rounding of
such fraction to the nearest whole Warrant (rounded down).
(b) The Company shall
not issue fractions of shares of Common Stock upon exercise of Warrants or distribute stock certificates which evidence fractional
shares of Common Stock. Whenever any fraction of a share of Common Stock would otherwise be required to be issued or distributed,
the actual issuance or distribution in respect thereof shall be made in accordance with Section 2(d)(v) of the Warrant Certificate.
Section 14.
Conditions
of the Warrant Agent’s Obligations
. The Warrant Agent accepts its obligations herein set forth upon the terms and conditions
hereof, including the following to all of which the Company agrees and to all of which the rights hereunder of the Holders from
time to time of the Warrant Certificates shall be subject:
|
|
(a)
|
Compensation and Indemnification. The Company agrees promptly to pay the Warrant Agent the compensation
detailed on Exhibit 2 hereto for all services rendered by the Warrant Agent and to reimburse the Warrant Agent for reasonable out-of-pocket
expenses (including reasonable counsel fees) incurred without negligence, bad faith or willful misconduct by the Warrant Agent
in connection with the services rendered hereunder by the Warrant Agent. The Company also agrees to indemnify the Warrant Agent
for, and to hold it harmless against, any loss, liability or expense incurred without negligence, bad faith or willful misconduct
on the part of the Warrant Agent, arising out of or in connection with its acting as Warrant Agent hereunder, including the reasonable
costs and expenses of defending against any claim of such liability.
|
|
|
(b)
|
Agent for the Company. In acting under this Warrant Agreement and in connection with the Warrant
Certificates, the Warrant Agent is acting solely as agent of the Company and does not assume any obligations or relationship of
agency or trust for or with any of the Holders of Warrant Certificates or beneficial owners of Warrants.
|
|
|
(c)
|
Counsel. The Warrant Agent may consult with counsel satisfactory to it, which may include counsel
for the Company, and the written advice of such counsel shall be full and complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good faith and in accordance with the advice of such counsel.
|
|
|
(d)
|
Documents. The Warrant Agent shall be protected and shall incur no liability for or in respect
of any action taken or omitted by it in reliance upon any Warrant Certificate, notice, direction, consent, certificate, affidavit,
statement or other paper or document reasonably believed by it to be genuine and to have been presented or signed by the proper
parties.
|
|
|
(e)
|
Certain Transactions. The Warrant Agent, and its officers, directors and employees, may become
the owner of, or acquire any interest in, Warrants, with the same rights that it or they would have if it were not the Warrant
Agent hereunder, and, to the extent permitted by applicable law, it or they may engage or be interested in any financial or other
transaction with the Company and may act on, or as depositary, trustee or agent for, any committee or body of holders of Warrant
Securities or other obligations of the Company as freely as if it were not the Warrant Agent hereunder. Nothing in this Warrant
Agreement shall be deemed to prevent the Warrant Agent from acting as trustee under any indenture to which the Company is a party.
|
|
|
(f)
|
No Liability for Interest. Unless otherwise agreed with the Company, the Warrant Agent shall have
no liability for interest on any monies at any time received by it pursuant to any of the provisions of this Agreement or of the
Warrant Certificates.
|
|
|
(g)
|
No Liability for Invalidity. The Warrant Agent shall have no liability with respect to any invalidity
of this Agreement or any of the Warrant Certificates (except as to the Warrant Agent's countersignature thereon).
|
|
|
(h)
|
No Responsibility for Representations. The Warrant Agent shall not be responsible for any of the
recitals or representations herein or in the Warrant Certificates (except as to the Warrant Agent's countersignature thereon),
all of which are made solely by the Company.
|
|
|
(i)
|
No Implied Obligations. The Warrant Agent shall be obligated to perform only such duties as are
herein and in the Warrant Certificates specifically set forth and no implied duties or obligations shall be read into this Agreement
or the Warrant Certificates against the Warrant Agent. The Warrant Agent shall not be under any obligation to take any action hereunder
which may tend to involve it in any expense or liability, the payment of which within a reasonable time is not, in its reasonable
opinion, assured to it. The Warrant Agent shall not be accountable or under any duty or responsibility for the use by the Company
of any of the Warrant Certificates authenticated by the Warrant Agent and delivered by it to the Company pursuant to this Agreement
or for the application by the Company of the proceeds of the Warrant Certificates. The Warrant Agent shall have no duty or responsibility
in case of any default by the Company in the performance of its covenants or agreements contained herein or in the Warrant Certificates
or in the case of the receipt of any written demand from a holder of a Warrant Certificate with respect to such default, including,
without limiting the generality of the foregoing, any duty or responsibility to initiate or attempt to initiate any proceedings
at law.
|
Section 15.
Purchase
or Consolidation or Change of Name of Warrant Agent
. Any corporation into which the Warrant Agent or any successor Warrant
Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which
the Warrant Agent or any successor Warrant Agent shall be party, or any corporation succeeding to the corporate trust business
of the Warrant Agent or any successor Warrant Agent, shall be the successor to the Warrant Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would
be eligible for appointment as a successor Warrant Agent under the provisions of Section 17. In case at the time such successor
Warrant Agent shall succeed to the agency created by this Agreement any of the Warrant Certificates shall have been countersigned
but not delivered, any such successor Warrant Agent may adopt the countersignature of the predecessor Warrant Agent and deliver
such Warrant Certificates so countersigned; and in case at that time any of the Warrant Certificates shall not have been countersigned,
any successor Warrant Agent may countersign such Warrant Certificates either in the name of the predecessor Warrant Agent or in
the name of the successor Warrant Agent; and in all such cases such Warrant Certificates shall have the full force provided in
the Warrant Certificates and in this Agreement.
In case at any time
the name of the Warrant Agent shall be changed and at such time any of the Warrant Certificates shall have been countersigned but
not delivered, the Warrant Agent may adopt the countersignature under its prior name and deliver Warrant Certificates so countersigned;
and in case at that time any of the Warrant Certificates shall not have been countersigned, the Warrant Agent may countersign such
Warrant Certificates either in its prior name or in its changed name; and in all such cases such Warrant Certificates shall have
the full force provided in the Warrant Certificates and in this Agreement.
Section 16.
Duties
of Warrant Agent
. The Warrant Agent undertakes the duties and obligations imposed by this Agreement upon the following terms
and conditions, by all of which the Company, by its acceptance hereof, shall be bound:
(a) The Warrant Agent
may consult with legal counsel reasonably acceptable to the Company (who may be legal counsel for the Company), and the opinion
of such counsel shall be full and complete authorization and protection to the Warrant Agent as to any action taken or omitted
by it in good faith and in accordance with such opinion.
(b) Whenever in the
performance of its duties under this Agreement the Warrant Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence
in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate
signed by the Chief Executive Officer, Chief Financial Officer or Vice President of the Company; and such certificate shall be
full authentication to the Warrant Agent for any action taken or suffered in good faith by it under the provisions of this Agreement
in reliance upon such certificate.
(c) Subject to the
limitation set forth in Section 14, the Warrant Agent shall be liable hereunder only for its own gross negligence, bad faith or
willful misconduct, or for a breach by it of this Agreement.
(d) The Warrant Agent
shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Warrant
Certificates (except its countersignature thereof) by the Company or be required to verify the same, but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Warrant Agent
shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Warrant Agent) or in respect of the validity or execution of any Warrant Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in
this Agreement or in any Warrant Certificate; nor shall it be responsible for the adjustment of the Exercise Price or the making
of any change in the number of shares of Common Stock required under the provisions of Section 11 or 13 or responsible for the
manner, method or amount of any such change or the ascertaining of the existence of facts that would require any such adjustment
or change (except with respect to the exercise of Warrants evidenced by Warrant Certificates after actual notice of any adjustment
of the Exercise Price); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization
or reservation of any shares of Common Stock to be issued pursuant to this Agreement or any Warrant Certificate or as to whether
any shares of Common Stock will, when issued, be duly authorized, validly issued, fully paid and nonassessable.
(f) Each party hereto
agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be required by the other party hereto for the carrying
out or performing by any party of the provisions of this Agreement.
(g) The Warrant Agent
is hereby authorized to accept instructions with respect to the performance of its duties hereunder from the Chief Executive Officer,
Chief Financial Officer or Vice President of the Company, and to apply to such officers for advice or instructions in connection
with its duties, and it shall not be liable and shall be indemnified and held harmless for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer, provided Warrant Agent carries out such instructions without
gross negligence, bad faith or willful misconduct.
(h) The Warrant Agent
and any shareholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities
of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though it were not Warrant Agent under this Agreement. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity.
(i) The Warrant Agent
may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through
its attorney or agents, and the Warrant Agent shall not be answerable or accountable for any act, default, neglect or misconduct
of any such attorney or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided
reasonable care was exercised in the selection and continued employment thereof.
Section 17.
Change
of Warrant Agent
. The Warrant Agent may resign and be discharged from its duties under this Agreement upon 30 days’ notice
in writing mailed to the Company and to each transfer agent of the Common Stock by registered or certified mail, and to the holders
of the Warrant Certificates by first-class mail. The Company may remove the Warrant Agent or any successor Warrant Agent upon 30
days’ notice in writing, mailed to the Warrant Agent or successor Warrant Agent, as the case may be, and to each transfer
agent of the Common Stock by registered or certified mail, and to the holders of the Warrant Certificates by first-class mail.
If the Warrant Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor
to the Warrant Agent. If the Company shall fail to make such appointment within a period of 30 days after such removal or after
it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Warrant Agent or by the Holder
of a Warrant Certificate (who shall, with such notice, submit his Warrant Certificate for inspection by the Company), then the
Holder of any Warrant Certificate may apply to any court of competent jurisdiction for the appointment of a new Warrant Agent,
provided that, for purposes of this Agreement, the Company shall be deemed to be the Warrant agent until a new warrant agent is
appointed. Any successor Warrant Agent, whether appointed by the Company or by such a court, shall be a corporation organized and
doing business under the laws of the United States or of a state thereof, in good standing, which is authorized under such laws
to exercise corporate trust powers and is subject to supervision or examination by federal or state authority and which has at
the time of its appointment as Warrant Agent a combined capital and surplus of at least $50,000,000. After appointment, the successor
Warrant Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Warrant
Agent without further act or deed; but the predecessor Warrant Agent shall deliver and transfer to the successor Warrant Agent
any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary
for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with
the predecessor Warrant Agent and each transfer agent of the Common Stock, and mail a notice thereof in writing to the Holders
of the Warrant Certificates. However, failure to give any notice provided for in this Section 17, or any defect therein, shall
not affect the legality or validity of the resignation or removal of the Warrant Agent or the appointment of the successor Warrant
Agent, as the case may be.
Section 18.
Issuance
of New Warrant Certificates
. Notwithstanding any of the provisions of this Agreement or of the Warrants to the contrary, the
Company may, at its option, issue new Warrant Certificates evidencing Warrants in such form as may be approved by its Board of
Directors to reflect any adjustment or change in the Exercise Price per share and the number or kind or class of shares of stock
or other securities or property purchasable under the several Warrant Certificates made in accordance with the provisions of this
Agreement.
Section 19.
Notices
.
Notices or demands authorized by this Agreement to be given or made (i) by the Warrant Agent or by the Holder of any Warrant Certificate
to or on the Company, (ii) subject to the provisions of Section 17, by the Company or by the Holder of any Warrant Certificate
to or on the Warrant Agent or (iii) by the Company or the Warrant Agent to the Holder of any Warrant Certificate, shall be deemed
given (a) on the date delivered, if delivered personally, (b) on the first Business Day following the deposit thereof with Federal
Express or another recognized overnight courier, if sent by Federal Express or another recognized overnight courier, (c) on the
fourth Business Day following the mailing thereof with postage prepaid, if mailed by registered or certified mail (return receipt
requested), (d) the date of transmission, if such notice or communication is delivered via facsimile or email attachment at or
prior to 5:30 p.m. (New York City time) on a Business Day and (e) the next Business Day after the date of transmission, if such
notice or communication is delivered via facsimile or email attachment on a day that is not a Business Day or later than 5:30 p.m.
(New York City time) on any Business Day, in each case to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
|
|
(a)
|
If to the Company, to:
|
Optex Systems Holdings, Inc.
1420 Presidential Drive
Richardson, Texas 75081-2439
Attention:
Fax:
|
|
(b)
|
If to the Warrant Agent, to:
|
Equity
Stock Transfer, LLC
237 West
37
th
Street, Suite 601
New York,
New York 10018
Attention:
_______
Fax: (347)
584-3644
(c) If to the Holder
of any Warrant Certificate, to the address of such Holder as shown on the registry books of the Company. Any notice required to
be delivered by the Company to the Holder of any Warrant may be given by the Warrant Agent on behalf of the Company. Notwithstanding
any other provision of this Agreement, where this Agreement provides for notice of any event to a Holder of any Warrant, such notice
shall be sufficiently given if given to the Depositary (or its designee) pursuant to the procedures of the Depositary or its designee.
Section 20.
Supplements
and Amendments
.
(a) The Company and
the Warrant Agent may from time to time supplement or amend this Agreement without the approval of any Holders of Warrant Certificates
or Global Warrants in order to add to the covenants and agreements of the Company for the benefit of the Holders of the Warrant
Certificates or Global Warrants or to surrender any rights or power reserved to or conferred upon the Company in this Agreement,
provided that such addition or surrender shall not adversely affect the interests of the Holders of the Warrant Certificates or
Global Warrants in any material respect.
(b) In addition to
the foregoing, with the consent of Holders of Warrants entitled, upon exercise thereof, to receive not less than a majority of
the shares of Common Stock issuable thereunder, the Company and the Warrant Agent may modify this Agreement for the purpose of
adding any provisions to or changing in any manner or eliminating any of the provisions of this Warrant Agreement or modifying
in any manner the rights of the Holders of the Warrant Certificates or the Global Warrants;
provided
,
however
, that
no modification of the terms (including but not limited to the adjustments described in Section 11) upon which the Warrants are
exercisable or reducing the percentage required for consent to modification of this Agreement may be made without the consent of
the holder of each outstanding warrant certificate affected thereby. As a condition precedent to the Warrant Agent’s execution
of any amendment, the Company shall deliver to the Warrant Agent a certificate from a duly authorized officer of the Company that
states that the proposed amendment complies with the terms of this Section 20.
Section 21.
Successors
.
All covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
Section 22.
Benefits
of this Agreement
. Nothing in this Agreement shall be construed to give any Person other than the Company, the Holders of Warrant
Certificates and the Warrant Agent any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Warrant Agent and the Holders of the Warrant Certificates.
Section 23.
Governing
Law
. This Agreement and each Warrant Certificate issued hereunder shall be governed by, and construed in accordance with, the
laws of the State of New York without giving effect to the conflicts of law principles thereof.
Section 24.
Counterparts
.
This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and the same instrument.
Section 25.
Captions
.
The captions of the sections of this Agreement have been inserted for convenience only and shall not control or affect the meaning
or construction of any of the provisions hereof.
Section 26.
Information
.
The Company agrees to promptly provide the Holders of the Warrants the information it is required to provide to the holders of
the Common Stock.
IN WITNESS WHEREOF,
the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.
|
|
OPTEX SYSTEMS HOLDINGS, INC.
|
|
|
|
|
|
|
By:
|
|
|
|
|
Name:
|
|
|
|
Title:
|
|
|
|
|
|
|
EQUITY STOCK TRANSFER, LLC
|
|
|
|
|
|
|
By:
|
|
|
|
|
Name:
|
|
|
|
Title:
|
Annex A: Form of Warrant Certificate
Request Notice
WARRANT CERTIFICATE REQUEST NOTICE
To: Equity Stock Transfer, LLC
as Warrant Agent for Optex Systems Holdings, Inc. (the “Company”)
The undersigned Holder of Common
Stock Purchase Warrants (“Warrants”) in the form of Global Warrants issued by the Company hereby elects to receive
a Warrant Certificate evidencing the Warrants held by the Holder as specified below:
|
|
1.
|
Name of Holder of Warrants in form of Global Warrants:
_____________________________
|
|
|
2.
|
Name of Holder in Warrant Certificate (if different from
name of Holder of Warrants in form of Global Warrants): ________________________________
|
|
|
3.
|
Number of Warrants in name of Holder in form of Global
Warrants: ___________________
|
|
|
4.
|
Number of Warrants for which Warrant Certificate shall
be issued: __________________
|
|
|
5.
|
Number of Warrants in name of Holder in form of Global
Warrants after issuance of Warrant Certificate, if any: ___________
|
|
|
6.
|
Warrant Certificate shall be delivered to the following
address:
|
______________________________
______________________________
______________________________
______________________________
The undersigned hereby acknowledges
and agrees that, in connection with this Warrant Exchange and the issuance of the Warrant Certificate, the Holder is deemed to
have surrendered the number of Warrants in form of Global Warrants in the name of the Holder equal to the number of Warrants evidenced
by the Warrant Certificate.
[SIGNATURE
OF HOLDER]
Name of Investing Entity: ____________________________________________________
Signature of Authorized Signatory of Investing
Entity
: ______________________________
Name of Authorized Signatory: ________________________________________________
Title of Authorized Signatory: _________________________________________________
Date: _______________________________________________________________
Exhibit 1: Form of Warrant Certificate
Exhibit 2: Warrant Agent Fees
EXHIBIT A
COMMON STOCK PURCHASE WARRANT
optex
systems holdings, inc.
|
Warrant Shares: _______
|
Initial Exercise Date: _______, 2016
|
|
|
Issue Date: ___________, 2016
|
|
|
|
|
|
CUSIP: ______________
|
|
|
|
|
|
ISIN: _______________
|
THIS COMMON STOCK PURCHASE
WARRANT (the “
Warrant
”) certifies that, for value received, _____________ or its assigns (the “
Holder
”)
is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on
or after ________, 2016 (the “
Initial Exercise Date
”) and on or prior to the close of business on the three
(3) year anniversary of the Initial Exercise Date (the “
Termination Date
”) but not thereafter, to subscribe
for and purchase from Optex Systems Holdings, Inc., a Delaware corporation (the “
Company
”), up to ______ shares
(as subject to adjustment hereunder, the “
Warrant Shares
”) of Common Stock. The purchase price of one share
of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b). This Warrant shall initially
be issued and maintained in the form of a security held in book-entry form and the Depository Trust Company or its nominee (“
DTC
”)
shall initially be the sole registered holder of this Warrant, subject to a Holder’s right to elect to receive a Warrant
in certificated form pursuant to the terms of the Warrant Agency Agreement, in which case this sentence shall not apply.
Section 1
.
Definitions
.
In addition to the terms defined elsewhere in this Warrant, the following terms have the meanings indicated in this Section 1:
“
Affiliate
”
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“
Board of Directors
”
means the board of directors of the Company.
“
Business Day
”
means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which
banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“
Commission
”
means the United States Securities and Exchange Commission.
“
Common Stock
”
means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities
may hereafter be reclassified or changed.
“
Common Stock
Equivalents
” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire
at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument
that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock
“
Exchange Act
”
means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“
Exempt Issuance
”
means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any
stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority
of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange
of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into
shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or
conversion price of such securities, and (c) securities issued pursuant to acquisitions or strategic transactions approved by a
majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equity
holders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic
with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but
shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an
entity whose primary business is investing in securities.
“
Liens
”
means a lien, charge pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“
Person
”
means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“
Proceeding
”
means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
“
Registration
Statement
” means the Company’s registration statement on Form S-1 (File No. 333-212654).
“
Rule 144
”
means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time
to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect
as such Rule.
“
Securities Act
”
means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“
Trading Day
”
means a day on which the Common Stock is traded on a Trading Market.
“
Trading Market
”
means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question:
the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange
(or any successors to any of the foregoing).
“
Transfer Agent
”
means Equity Stock Transfer, LLC, the current transfer agent of the Company, with a mailing address of 237 West 37
th
Street, Suite 601, New York, New York 10018 and a facsimile number of (347) 584-3644, and any successor transfer agent of the Company.
“
Warrant Agency
Agreement
” means that certain warrant agency agreement, dated as of the Initial Exercise Date, between the Company and
the Transfer Agent.
“
Warrant Agent
”
means the Transfer Agent and any successor warrant agent of the Company.
“
Warrants
”
means this Warrant and other Common Stock Purchase Warrants issued by the Company pursuant to the Registration Statement.
“
Variable Rate
Transaction
” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible
into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion
price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations
for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion,
exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity
security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company
or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit,
whereby the Company may issue securities at a future determined price.
Section 2
.
Exercise
.
a) Exercise
of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial
Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as
it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company)
of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise in the form annexed hereto. Within three (3)
Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares
specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the
cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original
Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice
of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender
this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been
exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading
Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases
of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number
of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and
the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall
deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice.
The Holder and any assignee,
by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase
of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may
be less than the amount stated on the face hereof.
Notwithstanding
the foregoing in this Section 2(a), a holder whose interest in this Warrant is a beneficial interest in certificate(s) representing
this Warrant held in book-entry form through DTC (or another established clearing corporation performing similar functions), shall
effect exercises made pursuant to this Section 2(a) by delivering to DTC (or such other clearing corporation, as applicable) the
appropriate instruction form for exercise, complying with the procedures to effect exercise that are required by DTC (or such other
clearing corporation, as applicable), subject to a Holder’s right to elect to receive a Warrant in certificated form pursuant
to the terms of the Warrant Agency Agreement, in which case this sentence shall not apply.
b)
Exercise
Price
. The exercise price per share of the Common Stock under this Warrant shall be
$
_____, subject to adjustment hereunder
(the “
Exercise Price
”).
c)
Cashless
Exercise
. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained
therein is not available for the issuance of the Warrant Shares to the Holder, then this Warrant may also be exercised, in whole
or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number
of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the last
VWAP immediately preceding the time of delivery of the Notice of Exercise giving rise to the applicable “cashless exercise”,
as set forth in the applicable Notice of Exercise (to clarify, the “last VWAP” will be the last VWAP as calculated
over an entire Trading Day such that, in the event that this Warrant is exercised at a time that the Trading Market is open, the
prior Trading Day’s VWAP shall be used in this calculation);
(B) = the Exercise
Price of this Warrant, as adjusted hereunder; and
(X) = the
number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such
exercise were by means of a cash exercise rather than a cashless exercise.
If
Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9)
of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised. The
Company agrees not to take any position contrary to this Section 2(c).
“
VWAP
”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed
or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding
date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading
Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market,
the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable,
(c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then
reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding
to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all
other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith
by the holders of a majority in interest of the Warrants then outstanding and reasonably acceptable to the Company, the fees and
expenses of which shall be paid by the Company.
Notwithstanding
anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant
to this Section 2(c).
d)
Mechanics
of Exercise
.
i.
Delivery
of Warrant Shares Upon Exercise
. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer
Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository
Trust Company through its Deposit or Withdrawal at Custodian system (“
DWAC
”) if the Company is then a participant
in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or
resale of the Warrant Shares by Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical
delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the
number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the
Notice of Exercise by the date that is three (3) Trading Days after the delivery to the Company of the Notice of Exercise (such
date, the “
Warrant Share Delivery Date
”). Upon delivery of the Notice of Exercise, the Holder shall be deemed
for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other
than in the case of a Cashless Exercise) is received within three Trading Days of delivery of the Notice of Exercise. If the Company
fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery
Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares
subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading
Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading
Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company
agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exerciseable.
ii.
Delivery
of New Warrants Upon Exercise
. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder
and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant
evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.
iii.
Rescission
Rights
. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i)
by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv.
Compensation
for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise
. In addition to any other rights available to the Holder,
if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions
of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder
is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise
purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated
receiving upon such exercise (a “
Buy-In
”), then the Company shall (A) pay in cash to the Holder the amount,
if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common
Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required
to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such
purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent
number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver
to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise
and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such
purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the
Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the
Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right
to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof.
v.
No
Fractional Shares or Scrip
. No fractional shares or scrip representing fractional shares shall be issued upon the exercise
of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the
Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole share.
vi.
Charges,
Taxes and Expenses
. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the
Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder;
provided
,
however
, that in the event Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder
and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental
thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees
to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day
electronic delivery of the Warrant Shares.
vii.
Closing
of Books
. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this
Warrant, pursuant to the terms hereof.
e)
Holder’s
Exercise Limitations
. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise
any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after
exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other
Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)),
would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall
include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is
being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii)
exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation,
any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence,
for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act
and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing
to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible
for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e)
applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together
with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion
of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this
Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties)
and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company
shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group
status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder
may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual
report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent
written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon
the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder
the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder
or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported.
The “
Beneficial Ownership Limitation
” shall be 4.99% (or, upon election by a Holder prior to the issuance of
any Warrants, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease
the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event
exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares
of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply.
Any increase in the Beneficial Ownership Limitation will not be effective until the 61
st
day after such notice is delivered
to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity
with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with
the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly
give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
Section 3
.
Certain
Adjustments
.
a)
Stock
Dividends and Splits
. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable
in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon
exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including
by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification
of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding
immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately
after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become
effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b)
Subsequent
Equity Sales
. If the Company or any Subsidiary thereof, as applicable, during the period that ends upon the earlier of (i)
a Dilutive Issuance or (ii) one year from the Initial Exercise Date (the “
Restricted Period
”), shall sell or
grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale,
grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share
less than the Exercise Price then in effect (such lower price, the “
Base Share Price
” and such issuances collectively,
a “
Dilutive Issuance
”) (it being understood and agreed that if the holder of the Common Stock or Common Stock
Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such
issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective
price), then simultaneously with the consummation of a Dilutive Issuance the Exercise Price shall be reduced and only reduced to
equal the Base Share Price. For purposes of clarity, there shall be only one adjustment pursuant to this Section 3(b) during the
term of this Warrant. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued during the
Restricted Period. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect
of an Exempt Issuance. For purposes of clarity, an Exempt Issuance shall not be a Dilutive Issuance. The Company shall notify the
Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock
Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange
price, conversion price and other pricing terms (such notice, the “
Dilutive Issuance Notice
”). For purposes
of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence
of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless
of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable
Rate Transaction, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion
or exercise price at which such securities may be converted or exercised.
c)
Subsequent
Rights Offerings
. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues
or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock (the “
Purchase Rights
”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired
if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to
any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date
on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as
of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights
(provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder
exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such
extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase
Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in
the Holder exceeding the Beneficial Ownership Limitation).
d)
Pro
Rata Distributions
. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other
distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital
or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of
a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a "
Distribution
"),
at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution
to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock
acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation,
the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such
record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in
such Distribution (
provided
,
however
, to the extent that the Holder's right to participate in any such Distribution
would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate
in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution
to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if
ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
e)
Fundamental
Transaction
. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly,
effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets
in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether
by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange
their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common
Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization
or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted
into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions
consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group
acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person
or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a “
Fundamental Transaction
”), then, upon any subsequent
exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon
such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard
to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “
Alternate Consideration
”)
receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise
of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to
apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in
a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder
shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental
Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor
Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after,
the consummation of the Fundamental Transaction, purchase this Warrant from the Holder by paying to the Holder an amount of cash
equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental
Transaction. “
Black Scholes Value
” means the value of this Warrant based on the Black and Scholes Option Pricing
Model obtained from the “OV” function on Bloomberg, L.P. (“
Bloomberg
”) determined as of the day
of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding
to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained
from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental
Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered
in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (D) a
remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and
the Termination Date. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds within
five Business Days of the Holder’s election (or, if later, on the effective date of the Fundamental Transaction)
.
The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the
“
Successor Entity
”) to assume in writing all of the obligations of the Company under this Warrant and the other
Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance
reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction
and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced
by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number
of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable
and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such
Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock
(but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value
of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting
the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably
satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity
shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this
Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity),
and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant
and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.
f)
Calculations
.
All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall
be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
g)
Notice
to Holder
.
i.
Adjustment
to Exercise Price
. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly
deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment
to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii.
Notice
to Allow Exercise by Holder
. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the
Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the
Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares
of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer
of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted
into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email
to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least
20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which
a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon
such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice
or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified
in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information
regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant
to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the
date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 4
.
Transfer
of Warrant
.
a)
Transferability
.
This Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the principal office
of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto
duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of
such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants
in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument
of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant
shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender
this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this
Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning
this Warrant full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase
of Warrant Shares without having a new Warrant issued.
b)
New
Warrants
. If this Warrant is not held in global form through DTC (or any successor depository), this Warrant may be divided
or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject
to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such
notice. All Warrants issued on transfers or exchanges shall be dated the original Initial Exercise Date of this Warrant and shall
be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c)
Warrant
Register
. The Warrant Agent shall register this Warrant, upon records to be maintained by the Warrant Agent for that purpose
(the “
Warrant Register
”), in the name of the record Holder hereof from time to time. The Company and the Warrant
Agent may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof
or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
Section 5
.
Miscellaneous
.
a)
No Rights
as Stockholder Until Exercise
. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as
a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section
3.
b)
Loss,
Theft, Destruction or Mutilation of Warrant
. The Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant
Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of
the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate,
if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation,
in lieu of such Warrant or stock certificate.
c)
Saturdays,
Sundays, Holidays, etc
. If the last or appointed day for the taking of any action or the expiration of any right required or
granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding
Business Day.
d)
Authorized
Shares
.
The Company covenants
that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.
The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged
with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be
listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented
by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance
herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by
the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such
issue).
Except and to the
extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its
certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale
of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the
generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant
and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory
body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any
action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise
Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any
public regulatory body or bodies having jurisdiction thereof.
e)
Governing
Law
. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed
by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of
conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of
this Warrant shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “
New
York Courts
”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for
the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents), 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 such New York Courts,
or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereto hereby irrevocably waives, to
the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating
to this Warrant. If any party shall commence an action or proceeding to enforce any provisions of this Warrant, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses
incurred in the investigation, preparation and prosecution of such action or proceeding.
f)
Restrictions
.
The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does
not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g)
Nonwaiver
and Expenses
. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision
of this Warrant, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any
material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by
the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h)
Notices
.
Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation,
any Notice of Exercise, shall be in writing and delivered personally, by facsimile or by e-mail, or sent by a nationally recognized
overnight courier service, addressed to the Company, at 1420 Presidential Drive, Richardson, Texas 75081-2439, Attention:
Karen
Hawkins, facsimile number: (972) 234-3544, email address: khawkins@optexsys.com, or such other facsimile number, email address
or address as the Company may specify for such purposes by notice to the Holders. Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service addressed to each Holder at the facsimile number or address of such Holder appearing on the
books of the Warrant Agent. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or
e-mail at the e-mail address set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading
Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or e-mail
at the e-mail address set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time)
on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. Notwithstanding any other
provision of this Warrant, where this Warrant provides for notice of any event to the Holder, if this Warrant is held in global
form by DTC (or any successor depositary), such notice shall be sufficiently given if given to DTC (or any successor depositary)
pursuant to the procedures of DTC (or such successor depositary), subject to a Holder’s right to elect to receive a Warrant
in certificated form pursuant to the terms of the Warrant Agency Agreement, in which case this sentence shall not apply.
i)
Warrant
Agency Agreement.
If this Warrant is held in global form through DTC (or any successor depositary), this Warrant is issued
subject to the Warrant Agency Agreement. To the extent any provision of this Warrant conflicts with the express provisions of the
Warrant Agency Agreement, the provisions of this Warrant shall govern and be controlling.
j)
Limitation
of Liability
. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase
Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder
for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
k)
Remedies
.
The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled
to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert
the defense in any action for specific performance that a remedy at law would be adequate.
l)
Successors
and Assigns
. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and
shall be enforceable by the Holder or holder of Warrant Shares.
m)
Amendment
.
This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company, on the one hand,
and the Holder or the beneficial owner of this Warrant, on the other hand.
n)
Severability
.
Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions
of this Warrant.
o)
Headings
.
The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of
this Warrant.
********************
(Signature Page Follows)
IN WITNESS WHEREOF, the Company
has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
|
|
OPtex systems holdings,
inc.
|
|
|
|
|
|
|
By:
|
|
|
|
|
Name:
|
|
|
|
Title:
|
NOTICE OF EXERCISE
To: optex
systems holdings, inc.
(1) The
undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only
if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes,
if any.
(2) Payment
shall take the form of (check applicable box):
¨
in lawful money of the United States; or
¨
if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection
2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise
procedure set forth in subsection 2(c).
(3) Please
issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
The Warrant Shares shall be delivered to the
following DWAC Account Number:
_______________________________
_______________________________
_______________________________
[SIGNATURE
OF HOLDER]
Name of Investing Entity: ________________________________________________________________________
Signature of Authorized Signatory of Investing
Entity
: _________________________________________________
Name of Authorized Signatory: ___________________________________________________________________
Title of Authorized Signatory: ____________________________________________________________________
Date: _______________________________________________________________________________________
EXHIBIT B
ASSIGNMENT
FORM
(To assign the foregoing
Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the
foregoing Warrant and all rights evidenced thereby are hereby assigned to
|
Name:
|
|
|
|
(Please Print)
|
|
Address:
|
|
|
|
(Please Print)
|
|
Phone Number:
|
|
|
|
|
|
Email Address:
|
|
Dated: _______________ __, ______
Holder’s Signature: _____________________
Holder’s Address: ______________________
Exhibit 4.3
EXHIBIT A
THE REGISTERED HOLDER OF
THIS PURCHASE WARRANT BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE WARRANT EXCEPT AS
HEREIN PROVIDED AND THE REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES THAT IT WILL NOT SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE
THIS PURCHASE WARRANT FOR A PERIOD OF ONE HUNDRED EIGHTY DAYS FOLLOWING THE EFFECTIVE DATE (DEFINED BELOW) TO ANYONE OTHER THAN
(I) JOSEPH GUNNAR & CO., LLC OR AN UNDERWRITER OR A SELECTED DEALER IN CONNECTION WITH THE OFFERING, OR (II) A BONA FIDE OFFICER
OR PARTNER OF JOSEPH GUNNAR & CO., LLC OR OF ANY SUCH UNDERWRITER OR SELECTED DEALER, OR (III) AS OTHERWISE PERMITTED BY FINRA
RULE 5110(G).
THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR
TO ________, 2017. VOID AFTER 5:00 P.M., EASTERN TIME, ____________, 2021.
WARRANT TO PURCHASE COMMON STOCK
optex
systems holdings, inc.
|
Warrant Shares: ______
|
Initial Exercise Date: _______, 2017
|
THIS WARRANT TO PURCHASE
COMMON STOCK (the “
Warrant
”) certifies that, for value received, _____________ or its assigns (the “
Holder
”)
is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on
or after ______ __, 2017 (the “
Initial Exercise Date
”) and on or prior to the close of business on __________,
2021
1
(the “
Termination
Date
”) but not thereafter, to subscribe for and purchase from Optex Systems Holdings, Inc., a Delaware corporation (the
“
Company
”), up to ______ shares (as subject to adjustment hereunder, the “
Warrant Shares
”)
of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined
in Section 2(b).
Section 1
.
Definitions
.
In addition to the terms defined elsewhere in this Warrant, the following terms have the meanings indicated in this Section 1:
“
Affiliate
”
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“
Board of Directors
”
means the board of directors of the Company.
1
five (5) year anniversary of the effective date of the Registration Statement on Form S-1 (333-212654)
“
Business Day
”
means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which
banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“
Commission
”
means the United States Securities and Exchange Commission.
“
Common Stock
”
means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities
may hereafter be reclassified or changed.
“
Common Stock
Equivalents
” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire
at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument
that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock
“
Exchange Act
”
means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“
Person
”
means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“
Securities Act
”
means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“
Trading Day
”
means a day on which the New York Stock Exchange is open for trading.
“
Trading Market
”
means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question:
the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange,
OTCQB or OTCQX (or any successors to any of the foregoing).
“
Transfer Agent
”
means Equity Stock Transfer, LLC, the current transfer agent of the Company, with a mailing address of 237 West 37
th
Street, Suite 601, New York, New York 10018 and a facsimile number of (347) 584-3644, and any successor transfer agent of the Company.
“
VWAP
”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed
or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding
date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading
Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market,
the volume weighted average price of a share of Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as
applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock
are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding
to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all
other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith
by the Holder and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
Section 2
.
Exercise
.
a) Exercise
of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial
Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as
it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company)
of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise in the form annexed hereto. Within three (3)
Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares
specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the
cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original
Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice
of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender
this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been
exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading
Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases
of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number
of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and
the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall
deliver any objection to any Notice of Exercise within two (2) Business Days of receipt of such notice.
The Holder and any assignee,
by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase
of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may
be less than the amount stated on the face hereof.
b)
Exercise
Price
. The exercise price per share of the Common Stock under this Warrant shall be
$
____,
2
subject to adjustment hereunder (the “
Exercise Price
”).
2
125% of the public offering price per share
c)
Cashless
Exercise
. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained
therein is not available for the issuance of the Warrant Shares to the Holder, then this Warrant may also be exercised, in whole
or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number
of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
|
|
(A) =
|
the VWAP on the Trading Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless exercise,” as set forth in the applicable Notice of Exercise;
|
|
|
|
|
|
|
(B) =
|
the Exercise Price of this Warrant, as adjusted hereunder; and
|
|
|
|
|
|
|
(X) =
|
the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.
|
If
Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9)
of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised. The
Company agrees not to take any position contrary to this Section 2(c).
Notwithstanding
anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant
to this Section 2(c).
d)
Mechanics
of Exercise
.
i.
Delivery
of Warrant Shares Upon Exercise
. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by its Transfer
Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository
Trust Company through its Deposit or Withdrawal at Custodian system (“
DWAC
”) if the Company is then a participant
in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or
resale of the Warrant Shares by Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical
delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the
number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the
Notice of Exercise by the date that is three (3) Trading Days after the delivery to the Company of the Notice of Exercise (such
date, the “
Warrant Share Delivery Date
”). The Warrant Shares shall be deemed to have been issued, and Holder
or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all
purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise,
if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such
shares, having been paid. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of
Exercise by the second Trading Day following the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as
liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common
Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading
Day after such liquidated damages begin to accrue) for each Trading Day after such second Trading Day following the Warrant Share
Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise.
ii.
Delivery
of New Warrants Upon Exercise
. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder
and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant
evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.
iii.
Rescission
Rights
. If the Company fails to cause its Transfer Agent to deliver to the Holder the Warrant Shares pursuant to Section 2(d)(i)
by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise;
provided
,
however
,
that the Holder shall be required to return any Warrant Shares or Common Stock subject to any such rescinded exercise notice concurrently
with the return to Holder of the aggregate Exercise Price paid to the Company for such Warrant Shares and the restoration of Holder’s
right to acquire such Warrant Shares pursuant to this Warrant (including, issuance of a replacement warrant certificate evidencing
such restored right).
iv.
Compensation
for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise
. In addition to any other rights available to the Holder,
if the Company fails to cause its Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions
of Section 2(d)(i) above pursuant to an exercise on or before the second Trading Day following the Warrant Share Delivery Date,
and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s
brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares
which the Holder anticipated receiving upon such exercise (a “
Buy-In
”), then the Company shall (A) pay in cash
to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any)
for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that
the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell
order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall
be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company
timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having
a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate
sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company
shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall
limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation,
a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares
of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
v.
No
Fractional Shares or Scrip
. No fractional shares or scrip representing fractional shares shall be issued upon the exercise
of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the
Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole share.
vi.
Charges,
Taxes and Expenses
. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the
Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder;
provided
,
however
, that in the event Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder
and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental
thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees
to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day
electronic delivery of the Warrant Shares.
vii.
Closing
of Books
. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this
Warrant, pursuant to the terms hereof.
viii.
Signature
.
This Section 2 and the Notice of Exercise attached hereto set forth the totality of the procedures required of the Holder in order
to exercise this Warrant. Without limiting the preceding sentences, no ink-original exercise form shall be required, nor
shall any medallion guarantee (or other type of guarantee or notarization) of any exercise form be required in order to exercise
this Warrant. No additional legal opinion, other information or instructions shall be required of the Holder to exercise
this Warrant. The Company shall honor exercises of this Warrant and shall deliver Warrant Shares underlying this Warrant
in accordance with the terms, conditions and time periods set forth herein.
e)
Holder’s
Exercise Limitations
. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise
any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after
exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other
Persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of
the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise
of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder
or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth
in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company
is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder
is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained
in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by
the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of
the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant
is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this
Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to
verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above
shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number
of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with
the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by
the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral
request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares
of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates
since the date as of which such number of outstanding shares of Common Stock was reported. The “
Beneficial Ownership Limitation
”
shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares
of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial
Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99%
of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock
upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase
in the Beneficial Ownership Limitation will not be effective until the 61
st
day after such notice is delivered to the
Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with
the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the
intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly
give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
Section 3
.
Certain
Adjustments
.
a)
Stock
Dividends and Splits
. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable
in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon
exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including
by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification
of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding
immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately
after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become
effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
For the purposes of clarification, the Exercise Price of this Warrant will not be adjusted in the event that the Company or any
Subsidiary thereof, as applicable, sells or grants any option to purchase, or sell or grant any right to reprice, or otherwise
dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common
Stock Equivalents, at an effective price per share less than the Exercise Price then in effect.
b)
Reserved
.
c)
Subsequent
Rights Offerings
. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues
or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock (the “
Purchase Rights
”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired
if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to
any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date
on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as
of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights
(provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder
exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such
extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase
Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in
the Holder exceeding the Beneficial Ownership Limitation).
d)
Pro
Rata Distributions
. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend (other
than cash dividends) or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock,
by way of return of capital or otherwise (including, without limitation, any distribution of stock or other securities, property
or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction)
(a "
Distribution
"), at any time after the issuance of this Warrant, then, in each such case, the Holder shall
be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder
had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations
on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record
is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock
are to be determined for the participation in such Distribution (
provided
,
however
, to the extent that the Holder's
right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the
Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of
Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for
the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial
Ownership Limitation). To the extent that this Warrant has not been partially or completely exercised at the time of such Distribution,
such portion of the Distribution shall be held in abeyance for the benefit of the Holder until the Holder has exercised this Warrant.
e)
Fundamental
Transaction
. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly,
effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets
in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether
by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange
their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common
Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization
or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted
into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions
consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group
acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person
or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a “
Fundamental Transaction
”), then, upon any subsequent
exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon
such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard
to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “
Alternate Consideration
”)
receivable by holders of Common Stock as a result of such Fundamental Transaction for each share of Common Stock for which this
Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the
exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted
to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in
a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder
shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental
Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor
Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after,
the consummation of the Fundamental Transaction, purchase this Warrant from the Holder by paying to the Holder an amount of cash
equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental
Transaction. “
Black Scholes Value
” means the value of this Warrant based on the Black and Scholes Option Pricing
Model obtained from the “OV” function on Bloomberg, L.P. (“
Bloomberg
”) determined as of the day
of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding
to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained
from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental
Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered
in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (D) a
remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and
the Termination Date. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the
survivor (the “
Successor Entity
”) to assume in writing all of the obligations of the Company under this Warrant
in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory
to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option
of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital
stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise
of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and
with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the
relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock,
such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant
immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance
to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted
for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company”
shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.
f)
Calculations
.
All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall
be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
g)
Notice
to Holder
.
i.
Adjustment
to Exercise Price
. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly
mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of
Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii.
Notice
to Allow Exercise by Holder
. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the
Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the
Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares
of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer
of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted
into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed a notice to the Holder at
its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, stating (x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common
Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the
date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares
of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale,
transfer or share exchange; provided that the failure to provide such notice or any defect therein shall not affect the validity
of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes,
or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously
file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this
Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except
as may otherwise be expressly set forth herein.
Section 4
.
Transfer
of Warrant
.
a)
Transferability
.
Pursuant to FINRA Rule 5110(g)(1), neither this Warrant nor any Warrant Shares issued upon exercise of this Warrant shall be sold,
transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction
that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following
the date of effectiveness or commencement of sales of the offering pursuant to which this Warrant is being issued, except the transfer
of any security:
i. by
operation of law or by reason of reorganization of the Company;
ii. to
any FINRA member firm participating in the offering and the officers or partners thereof, if all securities so transferred remain
subject to the lock-up restriction in this Section 4(a) for the remainder of the time period;
iii. if
the aggregate amount of securities of the Company held by the Holder or related person do not exceed 1% of the securities being
offered;
iv. that
is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages
or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10% of the equity
in the fund; or
v. the
exercise or conversion of any security, if all securities received remain subject to the lock-up restriction in this Section 4(a)
for the remainder of the time period.
Subject to the
foregoing restriction, any applicable securities laws and the conditions set forth in Section 4(d), this Warrant and all rights
hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this
Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially
in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver
a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified
in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned,
and this Warrant shall promptly be cancelled. The Warrant, if properly assigned in accordance herewith, may be exercised by a new
holder for the purchase of Warrant Shares without having a new Warrant issued.
b)
New
Warrants
. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the
Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by
the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants
to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial
issuance date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant
thereto.
c)
Warrant
Register
. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “
Warrant
Register
”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered
Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and
for all other purposes, absent actual notice to the contrary.
Section 5
.
Miscellaneous
.
a)
No Rights
as Stockholder Until Exercise
. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as
a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i).
b)
Loss,
Theft, Destruction or Mutilation of Warrant
. The Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant
Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of
the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate,
if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation,
in lieu of such Warrant or stock certificate.
c)
Saturdays,
Sundays, Holidays, etc
. If the last or appointed day for the taking of any action or the expiration of any right required or
granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding
Business Day.
d)
Authorized
Shares
.
The Company covenants
that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.
The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged
with the duty of executing stock certificates to execute and issue the necessary Warrant Shares upon the exercise of the purchase
rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares
may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market
upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise
of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment
for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from
all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously with such issue).
Except and to the
extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its
certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale
of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the
generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant
and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory
body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any
action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise
Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any
public regulatory body or bodies having jurisdiction thereof.
e)
Jurisdiction
.
All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance
with the provisions of the underwriting agreement, dated August ___, 2016, by and between the Company and Joseph Gunnar, LLC as
representatives of the underwriters set forth therein (the “
Underwriting Agreement
”).
f)
Restrictions
.
The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does
not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g)
Nonwaiver
and Expenses
. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision
of this Warrant or the Underwriting Agreement, if the Company willfully and knowingly fails to comply with any provision of this
Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings,
incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
h)
Notices
.
Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation,
any Notice of Exercise, shall be in writing and delivered personally, by facsimile or by e-mail, or sent by a nationally recognized
overnight courier service, addressed to the Company, at 1420 Presidential Drive, Richardson, Texas 75081-2439, Attention:
Karen
Hawkins, facsimile number: (972) 234-3544, email address: khawkins@optexsys.com, or such other facsimile number, email address
or address as the Company may specify for such purposes by notice to the Holders. Any notice, request or other document required
or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions
of the Underwriting Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on
the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number
set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile number set forth in this Section on a day that is not
a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date
of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given.
i)
Limitation
of Liability
. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase
Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder
for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
j)
Remedies
.
The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled
to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert
the defense in any action for specific performance that a remedy at law would be adequate.
k)
Successors
and Assigns
. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and
shall be enforceable by the Holder or holder of Warrant Shares.
l)
Amendment
.
This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
m)
Severability
.
Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions
of this Warrant.
n)
Headings
.
The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of
this Warrant.
********************
(Signature Page Follows)
IN WITNESS WHEREOF, the Company
has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
|
|
OPtex systems holdings, inc.
|
|
|
|
|
|
By:
|
|
|
|
|
Name:
|
|
|
|
Title:
|
NOTICE OF EXERCISE
|
|
To:
|
optex systems holdings,
inc.
|
(1) The
undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only
if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes,
if any.
(2) Payment
shall take the form of (check applicable box):
¨
in lawful money of the United States; or
¨
if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection
2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise
procedure set forth in subsection 2(c).
(3) Please
issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
The Warrant Shares shall be delivered to the
following DWAC Account Number:
_______________________________
_______________________________
_______________________________
[SIGNATURE
OF HOLDER]
Name of Investing Entity: ________________________________________________________________________
Signature of Authorized Signatory of Investing
Entity
: _________________________________________________
Name of Authorized Signatory: ___________________________________________________________________
Title of Authorized Signatory: ____________________________________________________________________
Date: ________________________________________________________________________________________
EXHIBIT B
ASSIGNMENT
FORM
(To assign the foregoing
Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the
foregoing Warrant and all rights evidenced thereby are hereby assigned to
|
Name:
|
|
|
|
(Please Print)
|
|
Address:
|
|
|
|
(Please Print)
|
Dated: _______________ __, ______
Holder’s Signature: ________________________
Holder’s Address: _________________________
Exhibit
5.1
Jolie
Kahn, Esq.
2021
Stony Creek
Lansdale,
PA 19446
August
12, 2016
Optex
Systems Holdings, Inc.
1420
Presidential Drive
Richardson,
TX 75081
Ladies
and Gentlemen:
I
have acted as counsel to Optex Systems Holdings, Inc., a Delaware corporation (the “
Company
”),
in connection with the Company’s registration statement on Form S-1, as amended (the “
Registration Statement
”),
filed with the Securities and Exchange Commission (the “
Commission
”) under the Securities
Act of 1933, as amended (the “
Securities Act
”), relating to the issuance and sale of _______
shares (and any additional shares issuable upon the exercise of an over-allotment option granted by the Company to underwriters
to purchase additional shares) of common stock of the Company, par value $0.001 per share (the “
Shares
”)
____ warrants (and any additional shares issuable upon the exercise of an over-allotment option granted by the Company to the
underwriters to purchase additional warrants) to purchase common stock (the “
Warrants
”) and the shares
of common stock of the Company issuable from time to time upon exercise of the Warrants (the “
Warrant Shares
”;
the Shares, Warrants and Warrant Shares are collectively referred to herein as the “
Securities
”), issued by
the Company. The Securities are to be sold by Company pursuant to an underwriting agreement (the “
Underwriting Agreement
”)
to be entered into by and among the Company and Joseph Gunnar & Co., the form of which is to be filed as Exhibit 1.1 to the
Registration Statement. The Company is also registering warrants to purchase shares of common stock of the Company to be issued
to the representative of the underwriters as additional compensation pursuant to the Underwriting Agreement (the “
Underwriter’s
Warrant
”), as well as the shares of Common Stock issuable upon exercise of the Underwriters’s Warrant (the “
Underwriter’s
Warrant Shares
”).
In
connection with this opinion, I have examined originals or copies, certified or otherwise identified to our satisfaction, of (i)
the Registration Statement, including the form of prospectus included therein and the documents incorporated by reference therein,
(ii) the Company’s certificate of incorporation, as amended to date, (iii) the Company’s by-laws, as amended to date,
and (iv) certain resolutions of the Board of Directors of the Company. I have also examined originals or copies, certified or
otherwise identified to our satisfaction, of such other documents, certificates and records as I have deemed necessary or appropriate,
and I have made such investigations of law as I have deemed appropriate as a basis for the opinions expressed below.
In
rendering the opinions expressed below, I have assumed and have not verified (i) the genuineness of the signatures on all documents
that I have examined, (ii) the legal capacity of all natural persons, (iii) the authenticity of all documents supplied to us as
originals and (iv) the conformity to the authentic originals of all documents supplied to us as certified or photostatic or faxed
copies.
Based
upon and subject to the foregoing and subject also to the limitations, qualifications, exceptions and assumptions set forth herein,
I am of the opinion that:
1.
the Shares have been duly authorized for issuance and, when issued, delivered and paid for in accordance with the terms of the
Underwriting Agreement, will be validly issued, fully paid and nonassessable;
2.
the Warrants have been duly authorized for issuance, and, when issued, delivered and paid for in accordance with the terms of
the Underwriting Agreement, will be validly issued and will constitute the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and equitable principles
of general applicability;
3.
the Warrant Shares have been duly authorized, and when issued and sold by the Company and delivered by the Company against receipt
of the exercise price therefor, in accordance with and in the manner described in the Registration Statement and Warrants, will
be validly issued, fully paid and non-assessable;
4.
the Underwriter’s Warrant, when executed and delivered by the Company in accordance with and in the manner described in
the Registration Statement and the Underwriting Agreement, will be validly issued and will constitute a valid and binding agreement
of the Company, enforceable against the Company in accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally
and equitable principles of general applicability; and
5.
the Underwriter’s Warrant Shares, when issued and sold by the Company and delivered by the Company upon valid exercise thereof
and against receipt of the exercise price therefor, in accordance with and in the manner described in the Registration Statement
and the Underwriter’s Warrant, will be validly issued, folly paid and non-assessable.
I
express no opinion other than as to the federal laws of the United States of America and the Delaware General Corporation Law
(including the statutory provisions, all applicable provisions of the Delaware Constitution and reported judicial decisions interpreting
the forgoing). I hereby consent to the filing of this opinion as an exhibit to the Registration Statement and the reference to
this firm under the caption “Legal Matters” in the prospectus included in the Registration Statement. In giving this
consent, I do not admit that I am an “expert” under the Securities Act or under the rules and regulations of the Commission
relating thereto with respect to any part of the Registration Statement.
|
|
Very truly
yours,
|
|
|
|
|
|
/s/ Jolie G. Kahn,
Esq.
|
EXHIBIT 23.2
Consent of Independent Registered Public
Accounting Firm
We consent to the reference to our firm under
the caption “Experts” in this Registration Statement on Form S-1 and related Prospectus Statement of Optex Systems
Holdings, Inc. and the incorporation by reference therein of our reports, dated September 27, 2015 and September 28, 2014, with
respect to the consolidated financial statements of Optex Systems Holdings, Inc., which is part of this Registration Statement.
Dallas, Texas
August 12, 2016
