Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of January 26,
2011, by and among Cereplast, Inc., a Nevada corporation with headquarters
located at 300 N. Continental Boulevard, Suite 100, El Segundo, California 90245
(the “Company”), and each investor identified on the signature pages hereto
(individually, an “Investor” and collectively, the “Investors”).
BACKGROUND
A. The Company and each Investor are executing and delivering this Agreement in
reliance upon the exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of
Regulation D (“Regulation D”) as promulgated by the United States Securities and
Exchange Commission (the “SEC”) under the Securities Act.
B. Each Investor, severally and not jointly, wishes to purchase, and the Company
wishes to sell, upon the terms and conditions stated in this Agreement, (i) that
aggregate number of shares of the common stock, par value $0.001 per share, of
the Company (the “Common Stock”), set forth on such Investor’s signature page to
this Agreement (which aggregate amount for all Investors together shall be
[INSERT FINAL SHARE NUMBER] shares of Common Stock and shall collectively be
referred to herein as the “Common Shares”) and (ii) warrants, in substantially
the form attached hereto as Exhibit A (the “Warrants”) to acquire up to that
number of additional shares of Common Stock set forth opposite such Investor’s
name in column three (3) on the Schedule of Investors (the shares of Common
Stock issuable upon exercise of or otherwise pursuant to the Warrants issued to
the Investors, collectively, the “Warrant Shares”).
C. The Common Shares, the Warrants and the Warrant Shares issued or issuable
pursuant to this Agreement are collectively are referred to herein as the
“Securities.”
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Investors agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this Agreement,
the following terms have the meanings indicated:
“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 144 under the
Securities Act.
“Agent” has the meaning set forth in Section 3.1(l).

 

 

--------------------------------------------------------------------------------

 

“Agreement” has the meaning set forth in the Preamble.
“Best Efforts” means the efforts that a prudent person desirous of achieving a
result would use in similar circumstances to ensure that such result is achieved
as expeditiously as practical; provided, however, that an obligation to use Best
Efforts under this Agreement does not require the Company to dispose of or make
any change to its business, expend any material funds or incur any other
material burden.
“Business Day” means any day other than Saturday, Sunday, any day which shall be
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.
“Closing” means the closing of the purchase and sale of the Securities pursuant
to Section 2.1.
“Closing Date” means the date and time of the Closing and shall be by the third
Trading Day following the date of this Agreement or such other date and time as
is mutually agreed to by the Company and each Investor.
“Closing Price” means, for any date, the closing price per share of the Common
Stock for such date (or, if not a Trading Day, the nearest preceding date that
is a Trading Day) on the primary Eligible Market or exchange or quotation system
on which the Common Stock is then listed or quoted.
“Company” has the meaning set forth in the Preamble.
“Company Counsel” means Sichenzia Ross Friedman Ference LLP, counsel to the
Company.
“Common Shares” has the meaning set forth in the Preamble.
“Common Stock” has the meaning set forth in the Preamble.
“Contingent Obligation” has the meaning set forth in Section 3.1(aa).
“Convertible Securities” means any stock or securities (other than Options)
convertible into or exercisable or exchangeable for Common Stock.
“Disclosure Materials” has the meaning set forth in Section 3.1(g).
“Effective Date” means the date that the Registration Statement is first
declared effective by the SEC.
“Effectiveness Period” has the meaning set forth in Section 6.1(b).
“8-K Filing” has the meaning set forth in Section 4.5.

 

-2-

--------------------------------------------------------------------------------

 

“Eligible Market” means any of the New York Stock Exchange, the American Stock
Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, or the
NASDAQ Capital Market.
“Environmental Laws” has the meaning set forth in Section 3.1(dd).
“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) shares of Common Stock
issued to employees, officers or directors of the Company in lieu of cash
compensation for services rendered to the Company, (c) 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 (d) 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 equityholders 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.
“Event” has the meaning set forth in Section 6.1(d).
“Event Payments” has the meaning set forth in Section 6.1(d).
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Excluded Events” has the meaning set forth in Section 6.1(d)(ii).
“Excluded Investors” means Lazard Capital Markets LLC, Ardour Capital
Investments and Merriman Capital, Inc., and each of its and their Affiliates.
“Filing Date” means the date that is twenty (20) days after the Closing Date or,
if such date is not a Business Day, the next date that is a Business Day.
“GAAP” has the meaning set forth in Section 3.1(g).
“Hazardous Materials” has the meaning set forth in Section 3.1(dd).
“Indebtedness” has the meaning set forth in Section 3.1(aa).
“Indemnified Party” has the meaning set forth in Section 6.4(c).

 

-3-

--------------------------------------------------------------------------------

 

“Indemnifying Party” has the meaning set forth in Section 6.4(c).
“Insolvent” has the meaning set forth in Section 3.1(h).
“Intellectual Property Rights” has the meaning set forth in Section 3.1(t).
“Investor” has the meaning set forth in the Preamble.
“Lien” means any lien, charge, claim, security interest, encumbrance, right of
first refusal or other restriction.
“Losses” means any and all losses, claims, damages, liabilities, settlement
costs and expenses, including, without limitation, reasonable attorneys’ fees.
“Material Adverse Effect” means (i) a material adverse effect on the results of
operations, assets, business, prospects or financial condition of the Company
and the Subsidiaries taken as a whole on a consolidated basis or (ii) material
and adverse impairment of the Company’s ability to perform its obligations under
any of the Transaction Documents, provided, that none of the following alone
shall be deemed, in and of itself, to constitute a Material Adverse Effect:
(i) a change in the market price or trading volume of the Common Stock or
(ii) changes in general economic conditions or changes affecting the industry in
which the Company operates generally (as opposed to Company-specific changes) so
long as such changes do not have a disproportionate effect on the Company and
its Subsidiaries taken as a whole.
“Material Permits” has the meaning set forth in Section 3.1(v).
“Options” means any outstanding rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
“Person” has the meaning set forth in Section 3.1(aa).
“Placement Agents” has the meaning set forth in Section 3.1(l).
“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, a partial proceeding, such as a deposition),
whether commenced or threatened in writing.
“Prospectus” means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus including post-effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus.
“Registrable Securities” means the Common Shares and the Warrant Shares issued
or issuable pursuant to the Transaction Documents, together with any securities
issued or issuable upon any stock split, dividend or other distribution,
recapitalization or similar event with respect to the foregoing.

 

-4-

--------------------------------------------------------------------------------

 

“Registration Statement” means each registration statement required to be filed
under Article VI, including (in each case) the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.
“Regulation D” has the meaning set forth in the Preamble.
“Required Effectiveness Date” means (i) if the Registration Statement does not
become subject to review by the SEC, the date which is the earliest of
(a) ninety (90) days after the Closing Date or (b) three (3) Trading Days after
the Company receives notification from the SEC that the Registration Statement
will not become subject to review, or (ii) if the Registration Statement becomes
subject to review by the SEC, the date which is the earliest of (a) one hundred
and twenty (120) days after the Closing Date or (b) three (3) Trading Days after
the Company receives notification from the SEC that the SEC has no further
comment to the Registration Statement.
“Rule 144,” “Rule 415,” and “Rule 424” means Rule 144, Rule 415 and Rule 424,
respectively, promulgated by the SEC pursuant to the Securities Act, as such
Rules may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same effect as such Rule.
“SEC” has the meaning set forth in the Preamble.
“SEC Reports” has the meaning set forth in Section 3.1(g).
“Securities” has the meaning set forth in the Preamble.
“Securities Act” has the meaning set forth in the Preamble.
“Shares” means shares of the Company’s Common Stock.
“Short Sales” has the meaning set forth in Section 3.2(h).
“Subsidiary” means any direct or indirect subsidiary of the Company.
“Trading Day” means (i) a day on which the Common Stock is traded on a Trading
Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not
listed or quoted on a Trading Market (other than the OTC Bulletin Board), a day
on which the Common Stock is traded in the over-the-counter market, as reported
by the OTC Bulletin Board, or (iii) if the Common Stock is not listed or quoted
on any Trading Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the Pink Sheets LLC (or any similar
organization or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted as set
forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

 

-5-

--------------------------------------------------------------------------------

 

“Trading Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the
NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed
or quoted for trading on the date in question.
“Transaction” has the meaning set forth in Section 3.2(h).
“Transaction Documents” means this Agreement, the schedules and exhibits
attached hereto, the Warrants and the Transfer Agent Instructions.
“Transfer Agent” means Computershare, or any successor transfer agent for the
Company.
“Transfer Agent Instructions” means, with respect to the Company, the
Irrevocable Transfer Agent Instructions, in the form of Exhibit E, executed by
the Company and delivered to and acknowledged in writing by the Transfer Agent.
“Variable Rate Transaction” shall have the meaning ascribed to such term in
Section 4.5(b).
“Warrants” has the meaning set forth in the Preamble.
“Warrant Shares” has the meaning set forth in the Preamble.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. Subject to the terms and conditions set forth in this Agreement, at
the Closing the Company shall issue and sell to each Investor, and each Investor
shall, severally and not jointly, purchase from the Company, such number of
Common Shares and Warrants for the price set forth on such Investor’s signature
page to this Agreement. The date and time of the Closing and shall be
11:00 a.m., New York City Time, on the Closing Date. The Closing shall take
place at the offices of the Company’s Counsel.
2.2 Closing Deliveries.
(a) At the Closing, the Company shall deliver or cause to be delivered to each
Investor the following:
(i) a copy of the Company’s irrevocable instructions to the Transfer Agent
instructing the Transfer Agent to deliver, on an expedited basis, one or more
stock certificates, free and clear of all restrictive and other legends (except
as expressly provided in Section 4.1(b) hereof), evidencing such number of
Common Shares set forth on such Investor’s signature page to this Agreement,
registered in the name of such Investor;

 

-6-

--------------------------------------------------------------------------------

 

(ii) a Warrant, issued in the name of such Investor, pursuant to which such
Investor shall have the right to acquire such number of Warrant Shares set forth
on such Investor’s signature page to this Agreement;
(iii) duly executed Transfer Agent Instructions acknowledged by the Company’s
transfer agent;
(iv) a legal opinion of Company Counsel, in the form of Exhibit C, executed by
such counsel and delivered to the Investors;
(v) a certificate of the Secretary of the Company, dated as of the Closing Date,
(a) certifying the resolutions adopted by the Board of Directors of the Company
approving the transactions contemplated by this Agreement and the other
Transaction Documents and the issuance of the Securities, (b) certifying the
current versions of the certificate of incorporation, as amended and by-laws of
the Company and (c) certifying as to the signatures and authority of persons
signing the Transaction Documents and related documents on behalf of the
Company; and
(vi) a certificate of the Chief Executive Officer or Chief Financial Officer of
the Company, dated as of the Closing Date, certifying to the fulfillment of the
conditions specified in Section 5.1(a) and (b).
(b) At the Closing, each Investor shall deliver or cause to be delivered to the
Company the purchase price set forth on such Investor’s signature page to this
Agreement in United States dollars and in immediately available funds, by wire
transfer to an account designated in writing to such Investor by the Company for
such purpose.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company hereby represents
and warrants to the Investors and the Placement Agents as follows (which
representations and warranties shall be deemed to apply, where appropriate, to
each Subsidiary of the Company):
(a) Subsidiaries. The Company owns or controls, directly or indirectly, all of
the capital stock or comparable equity interests of each Subsidiary free and
clear of any Lien, and all issued and outstanding shares of capital stock or
comparable equity interest of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights; and the Company
owns or controls, directly or indirectly, only the following corporations,
partnerships, limited liability partnerships, limited liability companies,
associations or other entities: Cereplast International, S.A., a Luxembourg
company and Cereplast Europe, a French Company and wholly owned subsidiary of
Cereplast International, S.A., (each, a “Subsidiary”).
(b) Organization and Qualification. The Company and each Subsidiary is an entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the requisite legal authority to own and
use its properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation of any of the
provisions of its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. The Company and each Subsidiary is
duly qualified to do business and is in good standing as a foreign corporation
or other entity in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
would not, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect.

 

-7-

--------------------------------------------------------------------------------

 

(c) Authorization; Enforcement. The Company has the requisite corporate
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents to which it is a party and otherwise to carry out
its obligations hereunder and thereunder. The execution and delivery of each of
the Transaction Documents to which it is a party by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of the Company and
no further consent or action is required by the Company, its Board of Directors
or its stockholders. Each of the Transaction Documents to which it is a party
has been (or upon delivery will be) duly executed by the Company and is, or when
delivered in accordance with the terms hereof, will constitute, the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors’ rights generally,
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.
(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents to which it is a party by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby do not, and will
not, (i) conflict with or violate any provision of the Company’s or any
Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, (ii) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any agreement,
credit facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any Subsidiary
is a party or by which any property or asset of the Company or any Subsidiary is
bound, or affected, except to the extent that such conflict, default,
termination, amendment, acceleration or cancellation right would not reasonably
be expected to have a Material Adverse Effect, or (iii) result in a violation of
any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or any
Subsidiary is subject (including, assuming the accuracy of the representations
and warranties of the Investors set forth in Section 3.2 hereof, federal and
state securities laws and regulations and the rules and regulations of any
self-regulatory organization to which the Company or its securities are subject,
including all applicable Trading Markets), or by which any property or asset of
the Company or any Subsidiary are bound or affected, except to the extent that
such violation would not reasonably be expected to have a Material Adverse
Effect.
(e) The Securities. The Securities (including the Warrant Shares) are duly
authorized and, when issued and paid for in accordance with the applicable
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens and will not be subject to preemptive
or similar rights of stockholders (other than those imposed by the Investors).
The Company has reserved from its duly authorized capital stock the maximum
number of shares of Common Stock issuable upon exercise of the Warrants.

 

-8-

--------------------------------------------------------------------------------

 

(f) Capitalization. The aggregate number of shares and type of all authorized,
issued and outstanding classes of capital stock, options and other securities of
the Company (whether or not presently convertible into or exercisable or
exchangeable for shares of capital stock of the Company) is set forth in
Schedule 3.1(f) hereto. All outstanding shares of capital stock are duly
authorized, validly issued, fully paid and nonassessable and have been issued in
compliance in all material respects with all applicable securities laws. Except
as disclosed in Schedule 3.1(f) hereto, the Company did not have outstanding at
December 31, 2010 any other Options, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or entered into
any agreement giving any Person any right to subscribe for or acquire, any
shares of Common Stock, or securities or rights convertible or exchangeable into
shares of Common Stock. Except as set forth on Schedule 3.1(f) hereto, and
except for customary adjustments as a result of stock dividends, stock splits,
combinations of shares, reorganizations, recapitalizations, reclassifications or
other similar events, there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) and the issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to any
Person (other than the Investors) and will not result in a right of any holder
of securities to adjust the exercise, conversion, exchange or reset price under
such securities. To the knowledge of the Company, except as disclosed in the SEC
Reports and any Schedules 13D or 13G filed with the SEC pursuant to Rule 13d-1
of the Exchange Act by reporting persons or in Schedule 3.1(f) hereto, no Person
or group of related Persons beneficially owns (as determined pursuant to
Rule 13d-3 under the Exchange Act), or has the right to acquire, by agreement
with or by obligation binding upon the Company, beneficial ownership of in
excess of 5% of the outstanding Common Stock.
(g) SEC Reports; Financial Statements. Except as set forth on Schedule 3.1(g),
the Company has filed all reports required to be filed by it under the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the 12 months
preceding the date hereof on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Reports prior to the expiration
of any such extension and has filed all reports required to be filed by it under
the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the
two years preceding the date hereof. Such reports required to be filed by the
Company under the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, together with any materials filed or furnished by the Company under the
Exchange Act, whether or not any such reports were required being collectively
referred to herein as the “SEC Reports” and, together with this Agreement and
the Schedules to this Agreement, the “Disclosure Materials”. As of their
respective dates (or, if amended or superseded by a filing prior to the Closing
Date, then on the date of such filing), the SEC Reports filed by the Company
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the SEC promulgated
thereunder, and none of the SEC Reports, when filed (or, if amended or
superseded by a filing prior to the Closing Date, then on the date of such
filing) by the Company,

 

-9-

--------------------------------------------------------------------------------

 

contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the SEC with respect thereto as in effect at the time
of filing (or, if amended or superseded by a filing prior to the Closing Date,
then on the date of such filing). Such financial statements have been prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (“GAAP”), except as
may be otherwise specified in such financial statements, the notes thereto and
except that unaudited financial statements may not contain all footnotes
required by GAAP or may be condensed or summary statements, and fairly present
in all material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, year-end audit adjustments. All material
agreements to which the Company or any Subsidiary is a party or to which the
property or assets of the Company or any Subsidiary are subject are included as
part of or identified in the SEC Reports, to the extent such agreements are
required to be included or identified pursuant to the rules and regulations of
the SEC.
(h) Material Changes; Undisclosed Events, Liabilities or Developments; Solvency.
Since the date of the latest audited financial statements included within the
SEC Reports, except as disclosed in the SEC Reports or in Schedule 3.1(h)
hereto, (i) there has been no event, occurrence or development that,
individually or in the aggregate, has had or that would result in a Material
Adverse Effect, (ii) the Company has not incurred any material liabilities other
than (A) trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to be
reflected in the Company’s financial statements pursuant to GAAP or required to
be disclosed in filings made with the SEC, (iii) the Company has not altered its
method of accounting or changed its auditors, except as disclosed in its SEC
Reports, (iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders, in their capacities as such, or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock, and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company
stock-based plans. The Company has not taken any steps to seek protection
pursuant to any bankruptcy law nor does the Company have any knowledge or reason
to believe that its creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact which would reasonably lead a
creditor to do so. The Company is not as of the date hereof, and after giving
effect to the transactions contemplated hereby to occur at the applicable
Closing, will not be Insolvent (as defined below). For purposes of this
Section 3.1(h), “Insolvent” means (i) the present fair saleable value of the
Company’s assets is less than the amount required to pay the Company’s total
Indebtedness (as defined in Section 3.1(aa)), (ii) the Company is unable to pay
its debts and liabilities, subordinated, contingent or otherwise, as such debts
and liabilities become absolute and matured, (iii) the Company intends to incur
or believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) the Company has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.

 

-10-

--------------------------------------------------------------------------------

 

(i) Absence of Litigation. Except as disclosed in the SEC Reports, there is no
action, suit, claim, or Proceeding, or, to the Company’s knowledge, inquiry or
investigation, before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company or any Subsidiary that
could, individually or in the aggregate, to have a Material Adverse Effect.
(j) Compliance. Except as would not, individually or in the aggregate,
reasonably be expected to have or result in a Material Adverse Effect,
(i) neither the Company nor any Subsidiary is in default under or in violation
of (and no event has occurred that has not been waived that, with notice or
lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received written notice
of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) neither the Company nor any
Subsidiary is in violation of any order of any court, arbitrator or governmental
body, or (iii) neither the Company nor any Subsidiary is or has been in
violation of any statute, rule or regulation of any governmental authority.
(k) Title to Assets. Neither the Company nor any Subsidiary owns real property.
The Company and each Subsidiary has good and marketable title in all personal
property owned by them that is material to the business of the Company and each
Subsidiary, in each case free and clear of all Liens, except for Liens that do
not, individually or in the aggregate, have or result in a Material Adverse
Effect. Any real property and facilities held under lease by the Company or any
Subsidiary is held by it under valid, subsisting and enforceable leases of which
the Company and each Subsidiary is in material compliance.
(l) No General Solicitation; Placement Agents’ Fees. Neither the Company, nor
any of its Affiliates, nor any Person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D) in connection with the offer or sale of the Securities. The
Company shall be responsible for the payment of any placement agents’ fees,
financial advisory fees, or brokers’ commission (other than for persons engaged
by any Investor or its investment advisor) relating to or arising out of the
issuance of the Securities pursuant to this Agreement. The Company shall pay,
and hold each Investor harmless against, any liability, loss or expense
(including, without limitation, reasonable attorney’s fees and out-of-pocket
expenses) arising in connection with any such claim for fees arising out of the
issuance of the Securities pursuant to this Agreement. The Company acknowledges
that is has engaged Lazard Capital Markets LLC, Ardour Capital Investments and
Merriman Capital, Inc. as its exclusive placement agents (collectively, the
“Placement Agents”) in connection with the sale of the Securities. Other than
the Agents, the Company has not engaged any placement agent or other agent in
connection with the sale of the Securities.

 

-11-

--------------------------------------------------------------------------------

 

(m) Private Placement; Investment Company; U.S. Real Property Holding
Corporation. Neither the Company nor any of its Affiliates nor, any Person
acting on the Company’s behalf has, directly or indirectly, at any time within
the past six months, made any offer or sale of any security or solicitation of
any offer to buy any security under circumstances that would (i) eliminate the
availability of the exemption from registration under Regulation D under the
Securities Act in connection with the offer and sale by the Company of the
Securities as contemplated hereby or (ii) cause the offering of the Securities
pursuant to the Transaction Documents to be integrated with prior offerings by
the Company for purposes of any applicable law, regulation or stockholder
approval provisions, including, without limitation, under the rules and
regulations of any Trading Market. Assuming the accuracy of the representations
and warranties of the Investors set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Investors as contemplated hereby. The sale and issuance of the
Securities hereunder does not contravene the rules and regulations of any
Trading Market on which the Common Stock is listed or quoted. The Company is not
required to be registered as, and is not an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.
The Company is not required to be registered as a United States real property
holding corporation within the meaning of the Foreign Investment in Real
Property Tax Act of 1980.
(n) Form S-3 Eligibility. The Company is eligible to register the Common Shares
and the Warrant Shares for resale by the Investors using Form S-3 promulgated
under the Securities Act.
(o) Listing and Maintenance Requirements. The Company has not, in the twelve
months preceding the date hereof, received notice (written or oral) from any
Trading Market on which the Common Stock is or has been listed or quoted to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements.
(p) Registration Rights. Except as described in Schedule 3.1(p), the Company has
not granted or agreed to grant to any Person any rights (including “piggy-back”
registration rights) to have any securities of the Company registered with the
SEC or any other governmental authority that have not expired or been satisfied
or waived.
(q) Application of Takeover Protections. The Company and its Board of Directors
have taken all necessary action, if any, to render inapplicable any control
share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the
Company’s charter documents or the laws of its state of incorporation that is or
could become applicable to any of the Investors as a result of the Investors and
the Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including, without limitation, as a result of the
Company’s issuance of the Securities and the Investors’ ownership of the
Securities.

 

-12-

--------------------------------------------------------------------------------

 

(r) Disclosure. The Company confirms that neither it nor any officers, directors
or Affiliates, has provided any of the Investors (other than Excluded Investors
[or those certain investors who signed a confidentiality agreement with the
Company]) or their agents or counsel with any information that constitutes or
might constitute material, nonpublic information (other than the existence and
terms of the issuance of Securities, as contemplated by this Agreement). The
Company understands and confirms that each of the Investors (other than Excluded
Investors [or those certain investors who signed a confidentiality agreement
with the Company]) will rely on the foregoing representations in effecting
transactions in securities of the Company. All disclosure provided by the
Company to the Investors regarding the Company, its business and the
transactions contemplated hereby, including the Schedules to this Agreement
furnished by or on behalf of the Company, are true and correct in all material
respects and do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading. To
the Company’s knowledge, except for the transactions contemplated by this
Agreement, no event or circumstance has occurred or information exists with
respect to the Company or any Subsidiary or their businesses, properties,
operations or financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed. The Company acknowledges and
agrees that no Investor (other than Excluded Investors) makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those set forth in the Transaction Documents.
(s) Acknowledgment Regarding Investors’ Purchase of Securities. Based upon the
assumption that the transactions contemplated by this Agreement are consummated
in all material respects in conformity with the Transaction Documents, the
Company acknowledges and agrees that each of the Investors (other than Excluded
Investors) is acting solely in the capacity of an arm’s length purchaser with
respect to the Transaction Documents and the transactions contemplated hereby
and thereby. The Company further acknowledges that no Investor (other than
Excluded Investors) is acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by any Investor (other than Excluded
Investors) or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated hereby and
thereby is merely incidental to the Investors’ purchase of the Securities. The
Company further represents to each Investor that the Company’s decision to enter
into this Agreement has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its advisors and
representatives.
(t) Patents and Trademarks. The Company and each Subsidiary owns, or possesses
adequate rights or licenses to use, all trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
other intellectual property rights (“Intellectual Property Rights”) necessary to
conduct their respective businesses as now conducted. None of the Company’s or
any Subsidiary’s Intellectual Property Rights have expired or terminated, or are
expected to expire or terminate within three years from the date of this
Agreement. The Company does not have any knowledge of any infringement by the
Company or any Subsidiary of Intellectual Property Rights of others. Except as
disclosed in the SEC Reports, there is no claim, action or proceeding being made
or brought, or to the knowledge of the Company, being threatened, against the
Company or any Subsidiary regarding its Intellectual Property Rights.
(u) Insurance. The Company and each Subsidiary is insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses and locations in which
the Company and each Subsidiary is engaged.

 

-13-

--------------------------------------------------------------------------------

 

(v) Regulatory Permits. The Company and each Subsidiary possesses all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as presently conducted and described in the SEC Reports
(“Material Permits”), except where the failure to possess such permits does not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, and neither the Company nor any Subsidiary has received
any written notice of proceedings relating to the revocation or modification of
any Material Permit.
(w) Transactions With Affiliates and Employees. Except as set forth or
incorporated by reference in the Company’s SEC Reports, none of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company that would be required to be reported on Form 10-K (other than
for ordinary course services as employees, officers or directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any such officer, director or
employee or, to the Company’s knowledge, any corporation, partnership, trust or
other entity in which any such officer, director, or employee has a substantial
interest or is an officer, director, trustee or partner.
(x) Internal Accounting Controls. The Company and each Subsidiary maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset 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.
(y) Sarbanes-Oxley Act. The Company is in compliance in all material respects
with applicable requirements of the Sarbanes-Oxley Act of 2002 and applicable
rules and regulations promulgated by the SEC thereunder, except where such
noncompliance would not have, individually or in the aggregate, a Material
Adverse Effect.
(z) Foreign Corrupt Practices. Neither the Company nor any Subsidiary nor, to
the knowledge of the Company, any director, officer, agent, employee or other
Person acting on behalf of the Company or any Subsidiary has, in the course of
its actions for, or on behalf of, the Company (i) used any corporate funds for
any unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity; (ii) made any direct or indirect unlawful
payment to any foreign or domestic government official or employee or to any
foreign or domestic political parties or campaigns from corporate funds;
(iii) violated or is in violation in any material respect of any provision of
the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any
unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.

 

-14-

--------------------------------------------------------------------------------

 

(aa) Indebtedness. Except as disclosed in the SEC Reports, neither the Company
nor any Subsidiary (i) has any outstanding Indebtedness (as defined below),
(ii) is in violation of any term of or is in default under any contract,
agreement or instrument relating to any Indebtedness, except where such
violations and defaults would not result, individually or in the aggregate, in a
Material Adverse Effect, and (iii) is a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which, in the
judgment of the Company’s officers, has or is expected to have a Material
Adverse Effect. For purposes of this Agreement: (x) “Indebtedness” of any Person
means, without duplication (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses
(A) through (F) above secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (A) through (G) above; (y) “Contingent Obligation” means,
as to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) “Person” means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, a government or any department or agency thereof
and any other legal entity.
(bb) Employee Relations. Neither the Company nor any Subsidiary is a party to
any collective bargaining agreement or employs any member of a union. The
Company believes that its relations with its employees are as disclosed in the
SEC Reports. Except as disclosed in the SEC Reports, during the period covered
by the SEC Reports, no executive officer of the Company or any Subsidiary has
notified the Company or any Subsidiary that such officer intends to leave the
Company or a Subsidiary, as applicable, or otherwise terminate such officer’s
employment with the Company or a Subsidiary, as applicable. To the knowledge of
the Company or any Subsidiary, no executive officer of the Company or any
Subsidiary is in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any Subsidiary to any liability with respect to any of
the foregoing matters.

 

-15-

--------------------------------------------------------------------------------

 

(cc) Labor Matters. The Company and each Subsidiary is in compliance in all
material respects with all federal, state, local and foreign laws and
regulations respecting labor, employment and employment practices and benefits,
terms and conditions of employment and wages and hours, except where failure to
be in compliance would not, either individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect.
(dd) Environmental Laws. The Company and each Subsidiary (i) is in compliance in
all material respects with any and all Environmental Laws (as hereinafter
defined), (ii) has received all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective businesses
and (iii) is in compliance in all material respects with all terms and
conditions of any such permit, license or approval where, in each of the
foregoing clauses (i), (ii) and (iii), the failure to so comply would be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. The term “Environmental Laws” means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(ee) Subsidiary Rights. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.
(ff) Tax Status. The Company and each Subsidiary (i) has made or filed all
foreign, federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject, (ii) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and (iii) has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.

 

-16-

--------------------------------------------------------------------------------

 

3.2 Representations and Warranties of the Investors. Each Investor hereby, as to
itself only and for no other Investor, represents and warrants to the Company as
follows:
(a) Organization; Authority. Such Investor is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate, partnership or other power and
authority to enter into and to consummate the transactions contemplated by the
Transaction Documents and otherwise to carry out its obligations hereunder and
thereunder. The purchase by such Investor of the Securities hereunder has been
duly authorized by all necessary corporate, partnership or other action on the
part of such Investor. This Agreement has been duly executed and delivered by
such Investor and constitutes the valid and binding obligation of such Investor,
enforceable against it in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b) No Public Sale or Distribution. Such Investor is (i) acquiring the Common
Shares and the Warrants and (ii) upon exercise of the Warrants will acquire the
Warrant Shares issuable upon exercise thereof, in the ordinary course of
business for its own account and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered under the Securities Act or under an exemption from such
registration and in compliance with applicable federal and state securities
laws, and such Investor does not have a present arrangement to effect any
distribution of the Securities to or through any person or entity; provided,
however, that by making the representations herein, such Investor does not agree
to hold any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption under the Securities
Act.
(c) Investor Status. At the time such Investor was offered the Securities, it
was, at the date hereof it is, and on the date which it exercises any Warrants
it will be an “accredited investor” as defined in Rule 501(a) under the
Securities Act (as amended by the Dodd—Frank Wall Street Reform and Consumer
Protection Act) or a “qualified institutional buyer” as defined in Rule 144A(a)
under the Securities Act. Such Investor is not a registered broker dealer
registered under Section 15(a) of the Exchange Act, or a member of FINRA, Inc.
or an entity engaged in the business of being a broker dealer. Except as
otherwise disclosed in writing to the Company on Exhibit B-2 (attached hereto)
on or prior to the date of this Agreement, such Investor is not affiliated with
any broker dealer registered under Section 15(a) of the Exchange Act, or a
member of FINRA Inc. or an entity engaged in the business of being a broker
dealer.
(d) General Solicitation. Such Investor is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media, broadcast
over television or radio, disseminated over the Internet or presented at any
seminar or any other general solicitation or general advertisement.
(e) Experience of Such Investor. Such Investor, either alone or together with
its representatives has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. Such Investor understands that it must bear
the economic risk of this investment in the Securities indefinitely, and is able
to bear such risk and is able to afford a complete loss of such investment.

 

-17-

--------------------------------------------------------------------------------

 

(f) Access to Information. Such Investor acknowledges that it has reviewed the
Disclosure Materials and has been afforded: (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information (other than material non-public
information [for those certain investors who did not enter into a
confidentiality agreement with the Company]) about the Company and each
Subsidiary and their respective financial condition, results of operations,
business, properties, management and prospects sufficient to enable it to
evaluate its investment; and (iii) the opportunity to obtain such additional
information that the Company possesses or can acquire without unreasonable
effort or expense that is necessary to make an informed investment decision with
respect to the investment. Neither such inquiries nor any other investigation
conducted by or on behalf of such Investor or its representatives or counsel
shall modify, amend or affect such Investor’s right to rely on the truth,
accuracy and completeness of the Disclosure Materials and the Company’s
representations and warranties contained in the Transaction Documents. Such
Investor acknowledges receipt of copies of the SEC Reports.
(g) No Governmental Review. Such Investor understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(h) No Conflicts. The execution, delivery and performance by such Investor of
this Agreement and the consummation by such Investor of the transactions
contemplated hereby will not (i) result in a violation of the organizational
documents of such Investor or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which such Investor
is a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws) applicable to
such Investor, except in the case of clauses (ii) and (iii) above, for such that
are not material and do not otherwise affect the ability of such Investor to
consummate the transactions contemplated hereby.
(i) Prohibited Transactions; Confidentiality. No Investor, directly or
indirectly, and no Person acting on behalf of or pursuant to any understanding
with any Investor, has engaged in any purchases or sales in the securities,
including derivatives, of the Company (including, without limitation, any Short
Sales (a “Transaction”) involving any of the Company’s securities) since the
time that such Investor was first contacted by the Company, any Placement Agent
or any other Person regarding an investment in the Company. Such Investor
covenants that neither it nor any Person acting on its behalf or pursuant to any
understanding with such Investor will engage, directly or indirectly, in any
Transactions in the securities of the Company (including Short Sales) prior to
the time the transactions contemplated by this Agreement are publicly disclosed.
“Short Sales” include, without limitation, all “short sales” as defined in
Rule 200 promulgated under Regulation SHO under the Exchange Act and all types
of direct and indirect stock pledges, forward sale contracts, options, puts,
calls, short sales, swaps, derivatives and similar arrangements (including on a
total return basis), and sales and other transactions through non-U.S.
broker-dealers or foreign regulated brokers.

 

-18-

--------------------------------------------------------------------------------

 

(j) Restricted Securities. The Investors understand that the Securities are
characterized as “restricted securities” under the U.S. federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act only
in certain limited circumstances.
(k) Legends. It is understood that, except as provided in Section 4.1(b) of this
Agreement, certificates evidencing such Securities may bear the legend set forth
in Section 4.1(b).
(l) No Legal, Tax or Investment Advice. Such Investor understands that nothing
in this Agreement or any other materials presented by or on behalf of the
Company to the Investor in connection with the purchase of the Securities
constitutes legal, tax or investment advice. Such Investor has consulted such
legal, tax and investment advisors as it, in its sole discretion, has deemed
necessary or appropriate in connection with its purchase of the Securities. Such
Investor understands that the Placement Agents have acted solely as the agents
of the Company in this placement of the Securities, and that no Placement Agent
makes any representation or warranty with regard to the merits of this
transaction or as to the accuracy of any information such Investor may have
received in connection therewith. Such Investor acknowledges that he has not
relied on any information or advice furnished by or on behalf of any Placement
Agent.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Investors covenant that the Securities will only be disposed of pursuant
to an effective registration statement under, and in compliance with the
requirements of, the Securities Act or pursuant to an available exemption from
the registration requirements of the Securities Act, and in compliance with any
applicable state securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or to the Company, or
pursuant to Rule 144, the Company may require the transferor to provide to the
Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration under the Securities Act.
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register on the books of the Company and with its Transfer Agent, without any
such legal opinion, except to the extent that the transfer agent requests such
legal opinion, any transfer of Securities by an Investor to an Affiliate of such
Investor, provided that the transferee certifies to the Company that it is an
“accredited investor” as defined in Rule 501(a) under the Securities Act and
provided that such Affiliate does not request any removal of any existing
legends on any certificate evidencing the Securities.

 

-19-

--------------------------------------------------------------------------------

 

(b) The Investors agree to the imprinting, until no longer required by this
Section 4.1(b), of the following legend on any certificate evidencing any of the
Securities:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
“ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
Certificates evidencing the Common Shares and the Warrant Shares shall not be
required to contain such legend or any other legend (i) while a registration
statement (including the Registration Statement) covering the resale of the
Common Shares and the Warrant Shares is effective under the Securities Act,
(ii) following any sale of such Securities pursuant to Rule 144 provided that
the Company shall cause its counsel to deliver a legal opinion to its transfer
agent upon receipt by the Company and its counsel of such documents, reasonably
acceptable to the Company, upon which its counsel shall base its opinion to the
effect that the Securities can be sold under Rule 144, (iii) if the Securities
are eligible for sale under Rule 144, or (iv) if the holder provides the Company
with such documents, reasonably acceptable to the Company on which its counsel
may rely to issue a legal opinion to the effect that the legend is not required
under applicable requirements of the Securities Act. The Company shall cause its
counsel to issue the legal opinion included in the Transfer Agent Instructions
to the Transfer Agent on the Effective Date. Following the Effective Date and
provided the registration statement referred to in clause (i) above is then in
effect, or at such earlier time as a legend is no longer required for certain
Securities, the Company will no later than three Trading Days following the
delivery by an Investor to the Company or the Transfer Agent (if delivery is
made to the Transfer Agent a copy shall be contemporaneously delivered to the
Company) of (i) a legended certificate representing such Securities (and, in the
case of a requested transfer, endorsed or with stock powers attached, signatures
guaranteed, and otherwise in form necessary to affect transfer), and (ii) an
opinion of counsel to the extent required by Section 4.1(a), deliver or cause to
be delivered to such Investor a certificate representing such Securities that is
free from all restrictive and other legends or by crediting the account of the
Investor’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission system. The Company may not make any notation on its
records or give instructions to the Transfer Agent that enlarge the restrictions
on transfer set forth in this Section.

 

-20-

--------------------------------------------------------------------------------

 

If within three Trading Days after receipt by the Company or its Transfer Agent
of a legended certificate and the other documents as specified in Clauses
(i) and (ii) of the paragraph immediately above, the Company shall fail to cause
to be issued and delivered to such Investor a certificate representing such
Securities that is free from all restrictive and other legends, and if on or
after such Trading Day the Investor purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Investor of shares of Common Stock that the Investor anticipated receiving from
the Company without any restrictive legend (the “Covering Shares”), then the
Company shall, within three Trading Days after the Investor’s request and in the
Investor’s discretion, either (i) pay cash to the Investor in an amount equal to
the Investor’s total purchase price (including brokerage commissions, if any)
for the shares of Common Stock so purchased (the “Buy-In Price”), at which point
the Company’s obligation to deliver such shares shall terminate, or
(ii) promptly honor its obligation to deliver to the Investor such shares and
pay cash to the Investor in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common Stock, times
(B) the Closing Bid Price on the date of the required delivery.
(c) The Company will not object to and shall permit (except as prohibited by
law) an Investor to pledge or grant a security interest in some or all of the
Securities in connection with a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities to a
financial institution that is an “accredited investor” as defined in Rule 501(a)
under the Securities Act and who agrees to be bound by the provisions of this
Agreement, and if required under the terms of such arrangement, the Company will
not object to and shall permit (except as prohibited by law) such Investor to
transfer pledged or secured Securities to the pledgees or secured parties.
Except as required by law, such a pledge or transfer would not be subject to
approval of the Company, no legal opinion of the pledgee, secured party or
pledgor shall be required in connection therewith (but such legal opinion shall
be required in connection with a subsequent transfer or foreclosure following
default by the Purchaser transferee of the pledge), and no notice shall be
required of such pledge. Each Investor acknowledges that the Company shall not
be responsible for any pledges relating to, or the grant of any security
interest in, any of the Securities or for any agreement, understanding or
arrangement between any Investor and its pledgee or secured party. At the
appropriate Investor’s expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities,
including the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) of the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders
thereunder. Provided that the Company is in compliance with the terms of this
Section 4.1(c), the Company’s indemnification obligations pursuant to
Section 6.4 shall not extend to any Proceeding or Losses arising out of or
related to this Section 4.1(c).
4.2 Furnishing of Information. Until the date that any Investor owning Common
Shares or Warrant Shares may sell all of them under Rule 144 of the Securities
Act (or any successor provision), the Company covenants to use its commercially
reasonable efforts to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act. The Company further
covenants that it will take such further action as any holder of Securities may
reasonably request to satisfy the provisions of this Section 4.2.

 

-21-

--------------------------------------------------------------------------------

 

4.3 Integration. The Company shall not, and shall use its commercially
reasonable efforts to ensure that no Affiliate thereof shall, sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any security
(as defined in Section 2 of the Securities Act) that would be integrated with
the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the
Investors or that would be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of any Trading Market.
4.4 Reservation of Securities. The Company shall maintain a reserve from its
duly authorized shares of Common Stock for issuance pursuant to the Transaction
Documents in such amount as may be required to fulfill its obligations to issue
such Shares under the Transaction Documents. In the event that at any time the
then authorized shares of Common Stock are insufficient for the Company to
satisfy its obligations to issue such Shares under the Transaction Documents,
the Company shall promptly take such actions as may be required to increase the
number of authorized shares.
4.5 Securities Laws Disclosure; Publicity. The Company shall, at or before 9:00
a.m., New York time, on the first Trading Day following execution of this
Agreement, issue a press release disclosing all material terms of the
transactions contemplated hereby. On the Closing Date, the Company shall file a
Current Report on Form 8-K with the SEC (the “8-K Filing”) describing the terms
of the transactions contemplated by the Transaction Documents and including as
exhibits to such Current Report on Form 8-K the Transaction Documents (including
the schedules and the names, and addresses of the Investors and the amount(s) of
Securities respectively purchased) and the form of Warrants, in the form
required by the Exchange Act. Thereafter, the Company shall timely file any
filings and notices required by the SEC or applicable law with respect to the
transactions contemplated hereby and provide copies thereof to the Investors
promptly after filing. Except as herein provided, neither the Company nor any
Subsidiary shall publicly disclose the name of any Investor, or include the name
of any Investor in any press release without the prior written consent of such
Investor (which consent shall not be unreasonably withheld or delayed), unless
otherwise required by law, regulatory authority or Trading Market. From and
after the issuance of the Press Release, the Company shall have disclosed all
material, non-public information (if any) delivered to any of the Investors by
the Company or any of its Subsidiaries, or any of their respective officers,
directors, employees or agents in connection with the transactions contemplated
by the Transaction Documents. The Company shall not, and the Company shall cause
each of its Subsidiaries and each of its and their respective officers,
directors, employees and agents not to, provide any Investor with any material,
non-public information regarding the Company or any of its Subsidiaries from and
after the issuance of the Press Release without the express prior written
consent of such Investor.
4.6 Use of Proceeds. The Company intends to use the net proceeds from the sale
of the Securities for working capital and general corporate purposes. The
Company also may use a portion of the net proceeds, currently intended for
general corporate purposes, to acquire or invest in technologies, products or
services that complement its business, although the Company has no present plans
or commitments and is not currently engaged in any material negotiations with
respect to these types of transactions. Pending these uses, the Company intends
to invest the net proceeds from this offering in short-term, interest-bearing,
investment-grade securities, or as otherwise pursuant to the Company’s customary
investment policies.

 

-22-

--------------------------------------------------------------------------------

 

4.7 Subsequent Equity Sales
(a) From the date hereof until the later of (i) 90 days after the Closing Date
or (ii) 30 days after the Registration Statement (or in the event the Company is
required to file more than one registration statements pursuant to
Section 6.1(a), the initial Registration Statement that is filed) is declared
effective, neither the Company nor any Subsidiary shall issue, enter into any
agreement to issue or announce the issuance or proposed issuance of any shares
of Common Stock or Common Stock Equivalents.
(b) From the date hereof until such time as no Investor holds any of the
Warrants, the Company shall be prohibited from effecting or entering into an
agreement to effect any issuance by the Company or any of its Subsidiaries of
Common Stock or Common Stock Equivalents for cash consideration (or a
combination of units hereof) involving a Variable Rate Transaction. “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 sell
securities at a future determined price. Any Investor shall be entitled to
obtain injunctive relief against the Company to preclude any such issuance,
which remedy shall be in addition to any right to collect damages.
(c) Notwithstanding the foregoing, this Section 4.5 shall not apply in respect
of an Exempt Issuance, except that no Variable Rate Transaction shall be an
Exempt Issuance.
ARTICLE V
CONDITIONS
5.1 Conditions Precedent to the Obligations of the Investors. The obligation of
each Investor to acquire Securities at the Closing is subject to the
satisfaction or waiver by such Investor, at or before the Closing, of each of
the following conditions:
(a) Representations and Warranties. The representations and warranties of the
Company contained herein shall be true and correct in all material respects as
of the date when made and as of the Closing as though made on and as of such
date; and
(b) Performance. The Company and each other Investor shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied
or complied with by it at or prior to the Closing.

 

-23-

--------------------------------------------------------------------------------

 

(c) No Suspensions of Trading in Common Stock; Listing. Trading in the Common
Stock shall not have been suspended by the SEC or any Trading Market (except for
any suspensions of trading of not more than one Trading Day solely to permit
dissemination of material information regarding the Company) at any time since
the date of execution of this Agreement, and the Common Stock shall have been at
all times since such date listed for trading on a Trading Market.
(d) Absence of Litigation. No action, suit or proceeding by or before any court
or any governmental body or authority, against the Company or any Subsidiary or
pertaining to the transactions contemplated by this Agreement or their
consummation, shall have been instituted on or before the Closing Date, which
action, suit or proceeding would, if determined adversely, have a Material
Adverse Effect.
5.2 Conditions Precedent to the Obligations of the Company. The obligation of
the Company to sell the Securities at the Closing is subject to the satisfaction
or waiver by the Company, at or before the Closing, of each of the following
conditions:
(a) Representations and Warranties. The representations and warranties of the
Investors contained herein shall be true and correct in all material respects as
of the date when made and as of the Closing Date as though made on and as of
such date; and
(b) Performance. The Investors shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions required by
the Transaction Documents to be performed, satisfied or complied with by the
Investors at or prior to the Closing.
ARTICLE VI
REGISTRATION RIGHTS
6.1 Registration Statement.
(a) As promptly as possible, and in any event on or prior to the Filing Date,
the Company shall prepare and file with the SEC a Registration Statement
covering the resale of all Registrable Securities for an offering to be made on
a continuous basis pursuant to Rule 415; provided, however, that if at any time
the SEC takes the position that the offering of some or all of the Registrable
Shares in a Registration Statement is not eligible to be made on a delayed or
continuous basis under the provisions of Rule 415 as a result of a
characterization by the SEC of the transaction described by the Registration
Statement as a primary offering by the Company, the Company shall use its Best
Efforts to persuade the SEC that the offering contemplated by the Registration
Statement is a valid secondary offering and not an offering “by or on behalf of
the issuer” as defined in Rule 415. In the event that, despite the Company’s
Best Efforts and compliance with the terms of this Section 6.1(a) the SEC
refuses to alter its position, the Company shall, upon obtaining consent of the
Investors, (i) remove from the Registration

 

-24-

--------------------------------------------------------------------------------

 

Statement such portion of the Registrable Shares (the “Cut Back Shares”) and/or
(ii) agree to such restrictions and limitations on the registration and resale
of the Registrable Shares as the SEC may require to assure the Company’s
compliance with the requirements of Rule 415. Unless otherwise directed by the
Investors, the Registrable Securities shall first be reduced by Registrable
Securities represented by the Common Stock and second by Registrable Securities
represented by Warrants. Any Registrable Shares not able to be included in the
Registration Statement shall reduce the number of Registrable Shares of each
Investor covered by such Registration Statement on a pro-rata basis based on the
number of Registrable Shares purchased by each Investor and the Company shall
have no liability to any Investor pursuant to Section 6.1(d) or otherwise as a
result of the Registration Statement covering less than all of the Registrable
Shares under the circumstances described in this proviso. Within nine
(9) months, or such earlier time as permitted by the SEC, of the initial
registration filed hereunder being declared effective, the Company shall file an
additional registration statement containing the Cut Back Shares. With regard to
the new Registration Statement, all of the provisions of this Section 6.1 shall
again be applicable to the Cut Back Shares. The Registration Statement shall be
on Form S-3 (except if the Company is not then eligible to register for resale
the Registrable Securities on Form S-3, in which case such registration shall be
on another appropriate form in accordance with the Securities Act and the
Exchange Act) and shall contain (except if otherwise directed by the Investors
or requested by the SEC) the “Plan of Distribution” in substantially the form
attached hereto as Exhibit D.
(b) The Company shall use its commercially reasonable efforts to cause the
Registration Statement to be declared effective by the SEC as promptly as
possible after the filing thereof, but in any event prior to the Required
Effectiveness Date, and shall use its commercially reasonable efforts to keep
the Registration Statement continuously effective under the Securities Act until
the earlier of the date that all Common Shares and Warrant Shares covered by
such Registration Statement have been sold or can be sold publicly under
Rule 144 (the “Effectiveness Period”); provided that, upon notification by the
SEC that a Registration Statement will not be reviewed or is no longer subject
to further review and comments, the Company shall request acceleration of such
Registration Statement within three (3) Trading Days after receipt of such
notice and request that it become effective on 4:00 p.m. New York City time on
the Effective Date and file a prospectus supplement for any Registration
Statement, whether or not required under Rule 424 (or otherwise), by 9:00 a.m.
New York City time the day after the Effective Date.
(c) The Company shall notify the Investors in writing promptly (and in any event
within two Trading Days) after receiving notification from the SEC that the
Registration Statement has been declared effective.

 

-25-

--------------------------------------------------------------------------------

 

(d) Subject to Section 6.1(a) above, should an Event (as defined below) occur,
then upon the occurrence of such Event, and on every monthly anniversary thereof
until the applicable Event is cured, the Company shall pay to each Investor an
amount in cash, as liquidated damages and not as a penalty, equal to one percent
(1.0%) of (i) the number of Common Shares held by such Investor as of the date
of such Event, multiplied by (ii) the purchase price paid by such Investor for
such Common Shares then held; provided, however, that the total amount of
payments pursuant to this Section 6.1(d) shall not exceed, when aggregated with
all such payments paid to all Investors, ten percent (10%) of the aggregate
purchase price of the Securities purchased pursuant to this Agreement. The
payments to which an Investor shall be entitled pursuant to this Section 6.1(d)
are referred to herein as “Event Payments.” Any Event Payments payable pursuant
to the terms hereof shall apply on a pro rated basis for any portion of a month
prior to the cure of an Event. In the event the Company fails to make Event
Payments in a timely manner, such Event Payments shall bear interest at the rate
of one percent (1.5%) per month (prorated for partial months) until paid in
full. All pro rated calculations made pursuant to this paragraph shall be based
upon the actual number of days in such pro rated month. Notwithstanding the
foregoing, the maximum payment to an Investor associated with all Events in the
aggregate shall not exceed (i) in any 30-day period, an aggregate of 1.0% of the
purchase price paid by such Investor for its Common Shares then held (plus
interest accrued thereon, if applicable) and (ii) 10.0% of the purchase paid by
such Investor for its Common Shares then held.
For such purposes, each of the following shall constitute an “Event”:
(i) the Registration Statement is not filed on or prior to the Filing Date;
(ii) the Registration Statement is not declared effective on or prior to the
Required Effectiveness Date;
(iii) except as provided for in Section 6.1(e) (the “Excluded Events”), after
the Effective Date and during the Effectiveness Period, an Investor is not
permitted to sell Registrable Securities under the Registration Statement (or a
subsequent Registration Statement filed in replacement thereof) for any reason
(other than the fault of such Investor) for seven (7) or more Trading Days
(whether or not consecutive);
(iv) except as a result of the Excluded Events, the Common Stock is not listed
or quoted, or is suspended from trading, on an Eligible Market for a period of
seven Trading Days (which need not be consecutive Trading Days) during the
Effectiveness Period;
(v) with respect to an Investor, the Company fails for any reason to deliver a
certificate evidencing the Securities to such Investor within three Trading Days
after delivery of such certificate is required pursuant to any Transaction
Document or the exercise rights of the Investors pursuant to the Warrants are
otherwise suspended for any reason;
(vi) during the Effectiveness Period, except as a result of the Excluded Events,
the Company fails to have any Shares listed or quoted on an Eligible Market; or
(vii) The Company shall fail to remain current in its reporting requirements
with the SEC during the twelve month period commencing on the Closing Date.

 

-26-

--------------------------------------------------------------------------------

 

(e) Notwithstanding anything in this Agreement to the contrary, after 45
consecutive Trading Days of continuous effectiveness of the initial Registration
Statement filed and declared effective pursuant to this Agreement, the Company
may, by written notice to the Investors, suspend sales under a Registration
Statement after the Effective Date thereof and/or require that the Investors
immediately cease the sale of shares of Common Stock pursuant thereto and/or
defer the filing of any subsequent Registration Statement if the Company is
engaged in a material merger, acquisition or sale and the Board of Directors
determines in good faith, by appropriate resolutions, that, as a result of such
activity, (A) it would be materially detrimental to the Company (other than as
relating solely to the price of the Common Stock) to maintain a Registration
Statement at such time or (B) it is in the best interests of the Company to
suspend sales under such registration at such time. Upon receipt of such notice,
each Investor shall immediately discontinue any sales of Registrable Securities
pursuant to such registration until such Investor is advised in writing by the
Company that the current Prospectus or amended Prospectus, as applicable, may be
used. In no event, however, shall this right be exercised to suspend sales
beyond the period during which (in the good faith determination of the Company’s
Board of Directors) the failure to require such suspension would be materially
detrimental to the Company. The Company’s rights under this Section 6(e) may be
exercised for a period of no more than fifteen (15) Trading Days at a time and
not more than three times in any twelve-month period, without such suspension
being considered as part of an Event Payment determination. Immediately after
the end of any suspension period under this Section 6(e), the Company shall take
all necessary actions (including filing any required supplemental prospectus) to
restore the effectiveness of the applicable Registration Statement and the
ability of the Investors to publicly resell their Registrable Securities
pursuant to such effective Registration Statement.
(f) The Company shall not, from the date hereof until the Effective Date of the
Registration Statement, prepare and file with the SEC a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than any registration
statement or post-effective amendment to a registration statement (or supplement
thereto) relating to the Company’s employee benefit plans registered on Form
S-8.
6.2 Registration Procedures. In connection with the Company’s registration
obligations hereunder, the Company shall:
(a) Not less than three Trading Days prior to the filing of a Registration
Statement or any related Prospectus or any amendment or supplement thereto,
furnish via email to those Investors who have supplied the Company with email
addresses copies of all such documents proposed to be filed, which documents
(other than any document that is incorporated or deemed to be incorporated by
reference therein) will be subject to the review of such Investors. The Company
shall reflect in each such document when so filed with the SEC such comments
regarding the Investors and the plan of distribution as the Investors may
reasonably and promptly propose no later than two Trading Days after the
Investors have been so furnished with copies of such documents as aforesaid.
(b) (i) Subject to Section 6.1(e), prepare and file with the SEC such
amendments, including post-effective amendments, to each Registration Statement
and the Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective, as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the SEC such
additional Registration Statements in order to register for resale under the
Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424;
(iii) respond as promptly as reasonably possible, and in any event within twelve
(12) Trading Days (except to the extent that the Company reasonably requires
additional time to respond to accounting comments), to any comments received
from the SEC with respect to the Registration Statement or any amendment
thereto; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Investors thereof set forth in the Registration Statement as so amended or in
such Prospectus as so supplemented.

 

-27-

--------------------------------------------------------------------------------

 

(c) Notify the Investors as promptly as reasonably possible, and (if requested
by the Investors confirm such notice in writing no later than two Trading Days
thereafter, of any of the following events: (i) the SEC notifies the Company
whether there will be a “review” of any Registration Statement; (ii) the SEC
comments in writing on any Registration Statement; (iii) any Registration
Statement or any post-effective amendment is declared effective; (iv) the SEC or
any other Federal or state governmental authority requests any amendment or
supplement to any Registration Statement or Prospectus or requests additional
information related thereto; (v) the SEC issues any stop order suspending the
effectiveness of any Registration Statement or initiates any Proceedings for
that purpose; (vi) the Company receives notice of any suspension of the
qualification or exemption from qualification of any Registrable Securities for
sale in any jurisdiction, or the initiation or threat of any Proceeding for such
purpose; or (vii) the financial statements included in any Registration
Statement become ineligible for inclusion therein or any Registration Statement
or Prospectus or other document contains any untrue statement of a material fact
or omits to state any 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.
(d) Use its commercially reasonable efforts to avoid the issuance of or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of
any Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, as soon as possible.
(e) If requested by an Investor, provide such Investor without charge, at least
one conformed copy of each Registration Statement and each amendment thereto,
including financial statements and schedules, and all exhibits to the extent
requested by such Person (including those previously furnished or incorporated
by reference) promptly after the filing of such documents with the SEC.
(f) Promptly deliver to each Investor, without charge, as many copies of the
Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably request. The
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Investors in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto to the extent permitted by federal and state
securities laws and regulations.

 

-28-

--------------------------------------------------------------------------------

 

(g) (i) In the time and manner required by each Trading Market, prepare and file
with such Trading Market an additional shares listing application covering all
of the Registrable Securities; (ii) take all steps necessary to cause such
Common Shares to be approved for listing on each Trading Market as soon as
possible thereafter; (iii) provide to each Investor evidence of such listing;
and (iv) except as a result of the Excluded Events, during the Effectiveness
Period, maintain the listing of such Common Shares on each such Trading Market
or another Eligible Market.
(h) Prior to any public offering of Registrable Securities, use its Best Efforts
to register or qualify or cooperate with the selling Investors in connection
with the registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Investor requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective for so long as required, but
not to exceed the duration of the Effectiveness Period, and to do any and all
other acts or things reasonably necessary or advisable to enable the disposition
in such jurisdictions of the Registrable Securities covered by a Registration
Statement; 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.
(i) Cooperate with the Investors to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to a Registration Statement, which certificates shall be
free, to the extent permitted by this Agreement and under law, of all
restrictive legends, and to enable such certificates to be in such denominations
and registered in such names as any such Investors may reasonably request.
(j) Upon the occurrence of any event described in Section 6.2(c)(vii), as
promptly as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(k) Cooperate with any reasonable due diligence investigation undertaken by the
Investors in connection with the sale of Registrable Securities, including,
without limitation, by making available documents and information; provided that
the Company will not deliver or make available to any Investor material,
nonpublic information unless such Investor requests in advance in writing to
receive material, nonpublic information and agrees to keep such information
confidential.
(l) Comply with all rules and regulations of the SEC applicable to the
registration of the Securities.

 

-29-

--------------------------------------------------------------------------------

 

(m) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of any particular Investor or to make any Event Payments
set forth in Section 6.1(c) to such Investor that such Investor furnish to the
Company the information specified in Exhibits B-1, B-2 and B-3 hereto and such
other information regarding itself, the Registrable Securities and other shares
of Common Stock held by it and the intended method of disposition of the
Registrable Securities held by it (if different from the Plan of Distribution
set forth on Exhibit D hereto) as shall be reasonably required to effect the
registration of such Registrable Securities and shall complete and execute such
documents in connection with such registration as the Company may reasonably
request.
(n) The Company shall comply with all applicable rules and regulations of the
SEC under the Securities Act and the Exchange Act, including, without
limitation, Rule 172 under the Securities Act, file any final Prospectus,
including any supplement or amendment thereof, with the SEC pursuant to Rule 424
under the Securities Act, promptly inform the Investors in writing if, at any
time during the Effectiveness Period, the Company does not satisfy the
conditions specified in Rule 172 and, as a result thereof, the Investors are
required to make available a Prospectus in connection with any disposition of
Registrable Securities and take such other actions as may be reasonably
necessary to facilitate the registration of the Registrable Securities
hereunder.
6.3 Registration Expenses. The Company shall pay all fees and expenses incident
to the performance of or compliance with Article VI of this Agreement by the
Company, including without limitation (a) all registration and filing fees and
expenses, including without limitation those related to filings with the SEC,
any Trading Market and in connection with applicable state securities or Blue
Sky laws, (b) printing expenses (including without limitation expenses of
printing certificates for Registrable Securities), (c) messenger, telephone and
delivery expenses, (d) fees and disbursements of counsel for the Company,
(e) fees and expenses of all other Persons retained by the Company in connection
with the consummation of the transactions contemplated by this Agreement,
(f) all listing fees to be paid by the Company to the Trading Market, and
(g) the reasonable fees and expenses of one counsel to the Investors in
connection with the review of the Registration Statement, which fees and
expenses shall not exceed $5,000.
6.4 Indemnification
(a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Investor, the
officers, directors, partners, members, agents and employees of each of them,
each Person who controls any such Investor (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, partners, members, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all Losses, as incurred, arising out of or relating to (i) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (ii) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or

 

-30-

--------------------------------------------------------------------------------

 

thereby, (iii) any cause of action, suit or claim brought or made against such
Indemnified Party (as defined in Section 6.4(c) below) by a third party
(including for these purposes a derivative action brought on behalf of the
Company), arising out of or resulting from (x) the execution, delivery,
performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (y) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, or (z) the
status of Indemnified Party as holder of the Securities (unless, and only to the
extent that, such action, suit or claim is based, including in part, upon a
breach of such Investor’s representations, warranties or covenants under the
Transaction Documents or any conduct by such Investor that constitutes fraud,
gross negligence or willful misconduct) or (iv) any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of Company prospectus or in any amendment or supplement
thereto or in any Company preliminary prospectus, or arising out of or relating
to any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that (A) such untrue statements, alleged untrue
statements, omissions or alleged omissions are based solely upon information
regarding such Investor furnished in writing to the Company by such Investor for
use therein, or to the extent that such information relates to such Investor or
such Investor’s proposed method of distribution of Registrable Securities and
was reviewed and expressly approved by such Investor in writing expressly for
use in the Registration Statement, or (B) with respect to any prospectus, if the
untrue statement or omission of material fact contained in such prospectus was
corrected on a timely basis in the prospectus, as then amended or supplemented,
if such corrected prospectus was timely made available by the Company to the
Investor, and the Investor seeking indemnity hereunder was advised in writing
not to use the incorrect prospectus prior to the use giving rise to Losses.
(b) Indemnification by Investors. Each Investor shall, severally and not
jointly, indemnify and hold harmless the Company and its directors, officers,
agents and employees to the fullest extent permitted by applicable law, from and
against all Losses (as determined by a court of competent jurisdiction in a
final judgment not subject to appeal or review) arising solely out of any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising out of or relating to any omission of a material fact
required to be stated therein or necessary to make the statements therein (in
the case of any Prospectus or form of prospectus or supplement thereto, in the
light of the circumstances under which they were made) not misleading, but only
to the extent that (i) such untrue statements or omissions are based solely upon
information regarding such Investor furnished to the Company by such Investor in
writing expressly for use therein, or to the extent that such information
relates to such Investor or such Investor’s proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing by
such Investor expressly for use in the Registration Statement (it being
understood that the information provided by the Investor to the Company in
Exhibits B-1, B-2 and B-3 and the Plan of Distribution set forth on Exhibit D,
as the same may be modified by such Investor and other information provided by
the Investor to the Company in or pursuant to the Transaction Documents
constitutes information reviewed and expressly approved by such Investor in
writing expressly for use in the Registration Statement), such Prospectus or
such form of prospectus or in any amendment or supplement thereto. In no event
shall the liability of any selling Investor hereunder be greater in amount than
the dollar amount of the net proceeds received by such Investor upon the sale of
the Registrable Securities giving rise to such indemnification obligation.

 

-31-

--------------------------------------------------------------------------------

 

(c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought
or asserted against any Person entitled to indemnity hereunder (an “Indemnified
Party”), such Indemnified Party shall promptly notify the Person from whom
indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying
Party shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to the Indemnified Party and the payment of all fees and
expenses incurred in connection with defense thereof; provided, that the failure
of any Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except (and
only) to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have proximately and materially adversely prejudiced the
Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (i) the Indemnifying Party has agreed in writing to pay such fees and
expenses; or (ii) the Indemnifying Party shall have failed promptly to assume
the defense of such Proceeding and to employ counsel reasonably satisfactory to
such Indemnified Party in any such Proceeding; or (iii) the named parties to any
such Proceeding (including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party, and such Indemnified Party shall have been
advised by counsel that a conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the defense
thereof and the reasonable fees and expenses of separate counsel shall be at the
expense of the Indemnifying Party). It shall be understood, however, that the
Indemnifying Party shall not, in connection with any one such Proceeding
(including separate Proceedings that have been or will be consolidated before a
single judge) be liable for the fees and expenses of more than one separate firm
of attorneys at any time for all Indemnified Parties, which firm shall be
appointed by a majority of the Indemnified Parties. The Indemnifying Party shall
not be liable for any settlement of any such Proceeding effected without its
written consent, which consent shall not be unreasonably withheld. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the
subject matter of such Proceeding.
All reasonable fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within 20 Trading
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).

 

-32-

--------------------------------------------------------------------------------

 

(d) Contribution. If a claim for indemnification under Section 6.4(a) or (b) is
unavailable to an Indemnified Party (by reason of public policy or otherwise),
then each Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses as well
as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section 6.4(c), any reasonable attorneys’ or other reasonable fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.
The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 6.4(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6.4(d), no Investor shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the net proceeds actually received by such Investor from the sale of the
Registrable Securities subject to the Proceeding exceed the amount of any
damages that such Investor 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.
The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6.5 Dispositions. Each Investor agrees that it will comply with the prospectus
delivery requirements of the Securities Act as applicable to it in connection
with sales of Registrable Securities pursuant to the Registration Statement and
shall sell its Registrable Securities in accordance with the Plan of
Distribution set forth in the Prospectus. Each Investor further agrees that,
upon receipt of a notice from the Company of the occurrence of any event of the
kind described in Sections 6.2(c)(v), (vi) or (vii), such Investor will
discontinue disposition of such Registrable Securities under the Registration
Statement until such Investor is advised in writing by the Company that the use
of the Prospectus, or amended Prospectus, as applicable, may be resumed. The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph. Each Investor, severally and not jointly with the other Investors,
agrees that the removal of the restrictive legend from certificates representing
Securities as set forth in this Section 4.1 is predicated upon the Company’s
reliance that the Investor will comply with the provisions of this subsection.
Both the Company and the Transfer Agent, and their respective directors,
officers, employees and agents, may rely on this subsection.

 

-33-

--------------------------------------------------------------------------------

 

6.6 No Piggyback on Registrations. Except for Compass Horizon Funding Company
LLC, neither the Company nor any of its security holders (other than the
Investors in such capacity pursuant hereto and the Excluded Investors) may
include securities of the Company in the Registration Statement other than the
Registrable Securities.
6.7 Piggy-Back Registrations. If at any time during the Effectiveness Period
there is not an effective Registration Statement covering all of the Registrable
Securities and the Company shall determine to prepare and file with the SEC a
registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, then the Company shall send to each Investor not then eligible to sell
all of their Registrable Securities under Rule 144 in a three-month period,
written notice of such determination and if, within ten days after receipt of
such notice, any such Investor shall so request in writing, the Company shall
include in such registration statement all or any part of such Registrable
Securities such Investor requests to be registered. Notwithstanding the
foregoing, in the event that, in connection with any underwritten public
offering, the managing underwriter(s) thereof shall impose a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement because, in such underwriter(s)’ judgment, marketing or other factors
dictate such limitation is necessary to facilitate public distribution, then the
Company shall be obligated to include in such Registration Statement only such
limited portion of the Registrable Securities with respect to which such
Investor has requested inclusion hereunder as the underwriter shall permit;
provided, however, that (i) the Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding securities, the
holders of which are not contractually entitled to inclusion of such securities
in such Registration Statement or are not contractually entitled to pro rata
inclusion with the Registrable Securities and (ii) after giving effect to the
immediately preceding proviso, any such exclusion of Registrable Securities
shall be made pro rata among the Investors seeking to include Registrable
Securities and the holders of other securities having the contractual right to
inclusion of their securities in such Registration Statement by reason of demand
registration rights, in proportion to the number of Registrable Securities or
other securities, as applicable, sought to be included by each such Investor or
other holder. If an offering in connection with which an Investor is entitled to
registration under this Section 6.7 is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering and shall enter into an underwriting agreement in a form and substance
reasonably satisfactory to the Company and the underwriter or underwriters. Upon
the effectiveness the registration statement for which piggy-back registration
has been provided in this Section 6.7, any Event Payments payable to an Investor
whose Securities are included in such registration statement shall terminate and
no longer be payable.

 

-34-

--------------------------------------------------------------------------------

 

ARTICLE VII
MISCELLANEOUS
7.1 Termination. This Agreement may be terminated by the Company or any
Investor, by written notice to the other parties, if the Closing has not been
consummated by the third Trading Day following the date of this Agreement;
provided that no such termination will affect the right of any party to sue for
any breach by the other party (or parties).
7.2 Fees and Expenses. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all Transfer
Agent fees, stamp taxes and other taxes and duties levied in connection with the
sale and issuance of the applicable Securities.
7.3 Entire Agreement. The Transaction Documents, together with the Exhibits and
Schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules. At or
after the Closing, and without further consideration, the Company will execute
and deliver to the Investors such further documents as may be reasonably
requested in order to give practical effect to the intention of the parties
under the Transaction Documents.
7.4 Notices. Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (a) the date of transmission, if such
notice or communication is delivered via facsimile or email at the facsimile
number or email address specified in this Section prior to 6:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile or
email at the facsimile number or email address specified in this Section on a
day that is not a Trading Day or later than 6:30 p.m. (New York City time) on
any Trading Day, (c) the Trading Day following the date of deposit with a
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The addresses, facsimile
numbers and email addresses for such notices and communications are those set
forth on the signature pages hereof, or such other address or facsimile number
as may be designated in writing hereafter, in the same manner, by any such
Person.
7.5 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the
Company and each of the Investors or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of any party to exercise any right hereunder in any
manner impair the exercise of any such right. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Investors under Article VI may be
given by Investors holding at least a majority of the Registrable Securities to
which such waiver or consent relates.

 

-35-

--------------------------------------------------------------------------------

 

7.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
7.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investors. Any Investor may assign its
rights under this Agreement to any Person to whom such Investor assigns or
transfers any Securities, provided (i) such transferor agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company after such assignment, (ii) the Company is furnished
with written notice of (x) the name and address of such transferee or assignee
and (y) the Registrable Securities with respect to which such registration
rights are being transferred or assigned, (iii) following such transfer or
assignment, the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws, (iv) such transferee agrees in writing to be bound, with respect to the
transferred Securities, by the provisions hereof that apply to the “Investors”
and (v) such transfer shall have been made in accordance with the applicable
requirements of this Agreement and with all laws applicable thereto.
7.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except that each Indemnified Party is an intended third party
beneficiary of Section 6.4 and (in each case) may enforce the provisions of such
Section directly against the parties with obligations thereunder.
7.9 Governing Law; Venue; Waiver of Jury Trial. THE CORPORATE LAWS OF THE STATE
OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE
COMPANY AND ITS STOCKHOLDERS. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE COMPANY
AND INVESTORS HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN
FOR THE ADJUDICATION OF ANY DISPUTE BROUGHT BY THE COMPANY OR ANY INVESTOR
HEREUNDER, 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 WAIVE, AND AGREE NOT TO ASSERT IN
ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE COMPANY OR ANY INVESTOR, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT
SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY
WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR
CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY
AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT
SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY AND INVESTORS
HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.

 

-36-

--------------------------------------------------------------------------------

 

7.10 Survival. The representations and warranties, agreements and covenants
contained herein shall survive the Closing.
7.11 Execution. This Agreement may be executed in two or more counterparts, all
of which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission or email attachment, such signature shall create a valid
and binding obligation of the party executing (or on whose behalf such signature
is executed) with the same force and effect as if such facsimile or
email-attached signature page were an original thereof.
7.12 Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
7.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Investor exercises a right, election, demand or option
owed to such Investor by the Company under a Transaction Document and the
Company does not timely perform its related obligations within the periods
therein provided, then, prior to the performance by the Company of the Company’s
related obligation, such Investor may rescind or withdraw, in its sole
discretion from time to time upon written notice to the Company, any relevant
notice, demand or election in whole or in part without prejudice to its future
actions and rights.
7.14 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and the execution by the holder
thereof of a customary lost certificate affidavit of that fact and an agreement
to indemnify and hold harmless the Company for any losses in connection
therewith. The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with
the issuance of such replacement Securities.

 

-37-

--------------------------------------------------------------------------------

 

7.15 Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Investors
and the Company will be entitled to seek specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agree to waive in any
action for specific performance of any such obligation (other than in connection
with any action for a temporary restraining order) the defense that a remedy at
law would be adequate.
7.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Investor hereunder or any Investor enforces or exercises its
rights hereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company
by a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
7.17 Adjustments in Share Numbers and Prices. In the event of any stock split,
subdivision, dividend or distribution payable in shares of Common Stock (or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof, each
reference in any Transaction Document to a number of shares or a price per share
shall be amended to appropriately account for such event.
7.18 Independent Nature of Investors’ Obligations and Rights. The obligations of
each Investor under any Transaction Document are several and not joint with the
obligations of any other Investor, and no Investor shall be responsible in any
way for the performance of the obligations of any other Investor under any
Transaction Documents. The decision of each Investor to purchase Securities
pursuant to this Agreement has been made by such Investor independently of any
other Investor and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other Investor
or by any agent or employee of any other Investor, and no Investor or any of its
agents or employees shall have any liability to any other Investor (or any other
person) relating to or arising from any such information, materials, statements
or opinions. Nothing contained herein or in any Transaction Document, and no
action taken by any Investor pursuant thereto, shall be deemed to constitute the
Investors as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Investors are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Document. Each Investor acknowledges that no
other Investor has acted as agent for such Investor in connection with making
its investment hereunder and that no other Investor will be acting as agent of
such Investor in connection with monitoring its investment hereunder. Each
Investor shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Investor to be joined as an additional party in any Proceeding for such purpose.

 

-38-

--------------------------------------------------------------------------------

 

[SIGNATURE PAGES TO FOLLOW]

 

-39-

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

              CEREPLAST, INC.
 
       
 
  By:   /s/ Frederic Scheer
 
       
 
      Name: Frederic Scheer
Title: Chief Executive Officer
 
            Address for Notice:
 
            300 N. Continental Blvd.     Suite 300     El Segundo, CA 90245    
Tel: 310-676-5000     Fax: 310-615-9800     Attn: Heather Sheehan, CFO
 
            With a copy to:
 
            Sichenzia Ross Friedman Ference LLP     61 Broadway, 32nd Floor    
New York, NY 10006     Tel: 212-930-9700     Fax: 212-930-9725     Attn: Gregory
Sichenzia, Esq.

COMPANY SIGNATURE PAGE

 

 

--------------------------------------------------------------------------------

 

Investor Signature Page
By its execution and delivery of this signature page, the undersigned Investor
hereby joins in and agrees to be bound by the terms and conditions of the
Securities Purchase Agreement dated as of January 24, 2011 (the “Purchase
Agreement”) by and among Cereplast, Inc. and the Investors (as defined therein),
as to the number of shares of Common Stock and Warrants set forth below, and
authorizes this signature page to be attached to the Purchase Agreement or
counterparts thereof.

            Name of Investor:      
 
       
 
    By:           Name:           Title:      

             
 
  Address:        
 
     
 
             
 
                                   
 
  Telephone No.:        
 
     
 
                 
 
  Facsimile No.:        
 
     
 
                 
 
  Email Address:        
 
     
 
                 
 
  Number of Shares:        
 
     
 
   

             
 
  Number of Warrants:        
 
     
 
   

         
 
  Aggregate Purchase Price:   $                                        

Delivery Instructions (if different than above):

         
c/o:
       
 
 
 
   

         
Address:
       
 
 
 
   
 
       
 
 
 
   

         
Telephone No.:
       
 
 
 
   

         
Facsimile No.:
       
 
 
 
   

         
Other Special Instructions:
       
 
 
 
   

 

 

--------------------------------------------------------------------------------

 

Exhibits:

  A   
Form of Warrant
    B    
Instruction Sheet for Investors
    C   
Opinion of Company Corporate Counsel
    D   
Plan of Distribution
    E   
Company Transfer Agent Instructions

 

-2-

--------------------------------------------------------------------------------

 

Exhibit A
FORM OF WARRANT

 

 

--------------------------------------------------------------------------------

 

Exhibit B
INSTRUCTION SHEET FOR INVESTOR
(to be read in conjunction with the entire Securities Purchase Agreement)

A.  
Complete the following items in the Securities Purchase Agreement:

  1.  
Complete and execute the Investor Signature Page. The Agreement must be executed
by an individual authorized to bind the Investor.
    2.  
Exhibit B-1 — Stock Certificate Questionnaire:

Provide the information requested by the Stock Certificate Questionnaire;

  3.  
Exhibit B-2 — Registration Statement Questionnaire:

Provide the information requested by the Registration Statement Questionnaire.

  4.  
Exhibit B-3 — Investor Certificate:

Provide the information requested by the Investor Certificate.

  5.  
Return, via facsimile, the signed Securities Purchase Agreement including the
properly completed Exhibits B-1 through B-3, to:

Facsimile:
Telephone:
Attn:

  6.  
After completing instruction number five (5) above, deliver the original signed
Securities Purchase Agreement including the properly completed Exhibits B-1
through B-3 to:

Address:

B.  
Instructions regarding the wire transfer of funds for the purchase of the
Securities will be telecopied to the Investor by the Company at a later date.

 

-2-

--------------------------------------------------------------------------------

 

Exhibit B-1
Cereplast, Inc.
STOCK CERTIFICATE QUESTIONNAIRE

         
Please provide us with the following information:
       
 
       
1. The exact name that the Securities are to be registered in (this is the name
that will appear on the stock and warrant certificate(s)). You may use a nominee
name if appropriate:
                                              
 
       
2. The relationship between the Investor of the Securities and the Registered
Holder listed in response to item 1 above:
                                              
 
       
3. The mailing address, telephone and telecopy number and email address of the
Registered Holder listed in response to item 1 above:
                                              
 
       
 
                                              
 
       
 
                                              
 
       
 
                                              
 
       
 
                                              
 
       
4. The Tax Identification Number of the Registered Holder listed in response to
item 1 above:
                                              

 

 

--------------------------------------------------------------------------------

 

Exhibit B-2
Cereplast, Inc.
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the Registration Statement, please provide us with the
following information regarding the Investor.
1. Please state your organization’s name exactly as it should appear in the
Registration Statement:
 
Except as set forth below, your organization does not hold any equity securities
of the Company on behalf of another person or entity.
State any exceptions here:
 
If the Investor is not a natural person, please identify the natural person or
persons who will have voting and investment control over the Securities owned by
the Investor:
 
2. Address of your organization:

                       
 
                     
 
           
 
  Telephone:        
 
     
 
   

             
 
  Fax:        
 
     
 
   

             
 
  Contact Person:        
 
     
 
   

 

 

--------------------------------------------------------------------------------

 

3. Have you or your organization had any position, office or other material
relationship within the past three years with the Company or its affiliates?
(Include any relationships involving you or any of your affiliates, officers,
directors, or principal equity holders (5% or more) that has held any position
or office or has had any other material relationship with the Company (or its
predecessors or affiliates) during the past three years.)
                     Yes                                        
                     No
If yes, please indicate the nature of any such relationship below:
4. Are you the beneficial owner of any other securities of the Company? (Include
any equity securities that you beneficially own or have a right to acquire
within 60 days after the date hereof, and as to which you have sole voting
power, shared voting power, sole investment power or shared investment power.)
                     Yes                                        
                     No
If yes, please describe the nature and amount of such ownership as of a recent
date.
5. Except as set forth below, you wish that all the shares of the Company’s
common stock beneficially owned by you or that you have the right to acquire
from the Company be offered for your account in the Registration Statement.
State any exceptions here:
6. Have you made or are you aware of any arrangements relating to the
distribution of the shares of the Company pursuant to the Registration
Statement?
                     Yes                                        
                     No
If yes, please describe the nature and amount of such arrangements.

 

-2-

--------------------------------------------------------------------------------

 

7. FINRA Matters
(a) State below whether (i) you or any associate or affiliate of yours are a
member of FINRA, a controlling shareholder of a FINRA member, a person
associated with a member, a direct or indirect affiliate of a member, or an
underwriter or related person with respect to the proposed offering; (ii) you or
any associate or affiliate of yours owns any stock or other securities of any
FINRA member not purchased in the open market; or (iii) you or any associate or
affiliate of yours has made any outstanding subordinated loans to any FINRA
member. If you are a general or limited partnership, a no answer asserts that no
such relationship exists for you as well as for each of your general or limited
partners.
Yes:                                                             No:
                    
If “yes,” please identify the FINRA member and describe your relationship,
including, in the case of a general or limited partner, the name of the partner:
If you answer “no” to Question 7(a), you need not respond to Question 7(b).
(b) State below whether you or any associate or affiliate of yours has been an
underwriter, or a controlling person or member of any investment banking or
brokerage firm which has been or might be an underwriter for securities of the
Corporation or any affiliate thereof including, but not limited to, the common
stock now being registered.
Yes:                                                             No:
                    
If “yes,” please identify the FINRA member and describe your relationship,
including, in the case of a general or limited partner, the name of the partner.

 

-3-

--------------------------------------------------------------------------------

 

ACKNOWLEDGEMENT
The undersigned hereby agrees to notify the Company promptly of any changes in
the foregoing information which should be made as a result of any developments,
including the passage of time. The undersigned also agrees to provide the
Company and the Company’s counsel any and all such further information regarding
the undersigned promptly upon request in connection with the preparation,
filing, amending, and supplementing of the Registration Statement (or any
prospectus contained therein). The undersigned hereby consents to the use of all
such information in the Registration Statement.
The undersigned understands and acknowledges that the Company will rely on the
information set forth herein for purposes of the preparation and filing of the
Registration Statement.
The undersigned understands that the undersigned may be subject to serious civil
and criminal liabilities if the Registration Statement, when it becomes
effective, either contains an untrue statement of a material fact or omits to
state a material fact required to be stated in the Registration Statement or
necessary to make the statements in the Registration Statement not misleading.
The undersigned represents and warrants that all information it provides to the
Company and its counsel is currently accurate and complete and will be accurate
and complete at the time the Registration Statement becomes effective and at all
times subsequent thereto, and agrees during the Effectiveness Period and any
additional period in which the undersigned is making sales of Shares under and
pursuant to the Registration Statement, and agrees during such periods to notify
the Company immediately of any misstatement of a material fact in the
Registration Statement, and of the omission of any material fact necessary to
make the statements contained therein not misleading.
Dated:                     

         
 
 
 
Name    
 
       
 
 
 
Signature    
 
       
 
 
 
Name and Title of Signatory    

 

-4-

--------------------------------------------------------------------------------

 

Exhibit B-3
Cereplast, Inc.
CERTIFICATE FOR CORPORATE, PARTNERSHIP, LIMITED LIABILITY COMPANY,
TRUST, FOUNDATION AND JOINT INVESTORS
If the Investor is a corporation, partnership, limited liability company, trust,
pension plan, foundation, joint Investor (other than a married couple) or other
entity, an authorized officer, partner, or trustee must complete, date and sign
this Certificate.
CERTIFICATE
The undersigned certifies that the representations and responses below are true
and accurate:
(a) The Investor has been duly formed and is validly existing and has full power
and authority to invest in the Company. The person signing on behalf of the
undersigned has the authority to execute and deliver the Securities Purchase
Agreement on behalf of the Investor and to take other actions with respect
thereto.
(b) Indicate the form of entity of the undersigned:
                     Limited Partnership
                     General Partnership
                     Limited Liability Company
                     Corporation
                     Revocable Trust (identify each grantor and indicate under
what circumstances the trust is revocable by the grantor):        
                                                                            
                                        
                                        
                                        
                                                                                            
(Continue on a separate piece of paper, if necessary.)
                     Other type of Trust (indicate type of trust and, for trusts
other than pension trusts, name the grantors and beneficiaries):         
                                                                            
                                        
                                        
                                        
                                                                                            
(Continue on a separate piece of paper, if necessary.)
                     Other form of organization (indicate form of organization
(                                                 ).
                                                                           
                                        
                                        
                                        
                                                                     
                                           
(c) Indicate the approximate date the undersigned entity was formed:
                                        .

 

-5-

--------------------------------------------------------------------------------

 

(d) In order for the Company to offer and sell the Securities in conformance
with state and federal securities laws, the following information must be
obtained regarding your investor status. Please initial each category applicable
to you as an investor in the Company.

                        
1. A bank as defined in Section 3(a)(2) of the Securities Act, or any savings
and loan association or other institution as defined in Section 3(a)(5)(A) of
the Securities Act whether acting in its individual or fiduciary capacity;
                          
2. A broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934;
                          
3. An insurance company as defined in Section 2(13) of the Securities Act;
                          
4. An investment company registered under the Investment Company Act of 1940 or
a business development company as defined in Section 2(a)(48) of that Act;
                          
5. A Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act
of 1958;
                          
6. A plan established and maintained by a state, its political subdivisions, or
any agency or instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of $5,000,000;
                          
7. An employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment advisor, or if the
employee benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by persons that are
accredited investors;
                          
8. A private business development company as defined in Section 202(a)(22) of
the Investment Advisers Act of 1940;
                          
9. Any partnership or corporation or any organization described in Section
501(c)(3) of the Internal Revenue Code or similar business trust, not formed for
the specific purpose of acquiring the Shares, with total assets in excess of
$5,000,000;
                          
10. A trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Shares, whose purchase is directed by a
sophisticated person as described in Rule 506(b)(2)(ii) of the Exchange Act;

 

-6-

--------------------------------------------------------------------------------

 

                        
11. An entity in which all of the equity owners qualify under any of the above
subparagraphs. If the undersigned belongs to this investor category only, list
the equity owners of the undersigned, and the investor category which each such
equity owner
satisfies:                                                                                  
                                                             
                                        
                                        
                                        
                                                                                                                                            
(Continue on a separate piece of paper, if necessary.)

Please set forth in the space provided below the (i) states, if any, in the U.S.
in which you maintained your principal office during the past two years and the
dates during which you maintained your office in each state, (ii) state(s), if
any, in which you are incorporated or otherwise organized and (iii) state(s), if
any, in which you pay income taxes.
 
 
 
Dated:                                        , 2011

     
 
Print Name of Investor
   
 
   
 
Name:
   
Title:
   
(Signature and title of authorized officer, partner or trustee)
   

 

-7-

--------------------------------------------------------------------------------

 

Exhibit C
OPINION OF COMPANY COUNSEL
[To be addressed to Investors and Placement Agent]

 

-8-

--------------------------------------------------------------------------------

 

Exhibit D
PLAN OF DISTRIBUTION
The selling stockholders may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:

•  
ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;

•  
block trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to facilitate
the transaction;

•  
purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;

•  
an exchange distribution in accordance with the rules of the applicable
exchange;

•  
privately negotiated transactions;

•  
short sales;

•  
broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;

•  
a combination of any such methods of sale; and

•  
any other method permitted pursuant to applicable law.

The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved. Any
profits on the resale of shares of common stock by a broker-dealer acting as
principal might be deemed to be underwriting discounts or commissions under the
Securities Act. Discounts, concessions, commissions and similar selling
expenses, if any, attributable to the sale of shares will be borne by a selling
stockholder. The selling stockholders may agree to indemnify any agent, dealer
or broker-dealer that participates in transactions involving sales of the shares
if liabilities are imposed on that person under the Securities Act.

 

 

--------------------------------------------------------------------------------

 

The selling stockholders may from time to time pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock from time to time under
this prospectus after we have filed a supplement to this prospectus under
Rule 424(b)(3) or other applicable provision of the Securities Act of 1933
supplementing or amending the list of selling stockholders to include the
pledgee, transferee or other successors in interest as selling stockholders
under this prospectus.
The selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus
and may sell the shares of common stock from time to time under this prospectus
after we have filed a supplement to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933 supplementing or
amending the list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this prospectus.
The selling stockholders and any broker-dealers or agents that are involved in
selling the shares of common stock may be deemed to be “underwriters” within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares of common stock purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration of the
shares of common stock. We have agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
The selling stockholders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares of common stock, nor is there
an underwriter or coordinating broker acting in connection with a proposed sale
of shares of common stock by any selling stockholder. If we are notified by any
selling stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares of common stock, if required, we will file
a supplement to this prospectus. If the selling stockholders use this prospectus
for any sale of the shares of common stock, they will be subject to the
prospectus delivery requirements of the Securities Act.
The anti-manipulation rules of Regulation M under the Securities Exchange Act of
1934 may apply to sales of our common stock and activities of the selling
stockholders.

 

-2-

--------------------------------------------------------------------------------

 

Exhibit E
COMPANY TRANSFER AGENT INSTRUCTIONS
Computershare, Inc.
350 Indiana Street, Suite 750,
Golden CO 80401
Attention: Essential Registry Team
Ladies and Gentlemen:
Reference is made to that certain Securities Purchase Agreement, dated as of
January 26, 2011 (the “Agreement”), by and among Cereplast, Inc., a Nevada
corporation (the “Company”), and the investors named on the Schedule of
Investors attached thereto (collectively, the “Holders”), pursuant to which the
Company is issuing to the Holders shares (the “Common Shares”) of Common Stock
of the Company, par value $0.001 per share (the “Common Stock”), and Warrants
(the “Warrants”), which are exercisable into shares of Common Stock.
In connection with the consummation of the transactions contemplated by the
Agreement, this letter shall serve as our irrevocable authorization and
direction to you:
(i) to issue an aggregate of 2,596,500 shares of our Common Stock in the names
and denominations set forth on Annex I attached hereto. The certificates should
bear the legend set forth in Section 4.1(b) of the Agreement and “stop transfer”
instructions should be placed against their subsequent transfer. Kindly deliver
the certificates to the respective delivery addresses set forth on Annex I via
hand delivery or overnight courier. We confirm that these shares will be validly
issued, fully paid and non-assessable upon issuance; and
(ii) to issue (provided that you are the transfer agent of the Company at such
time) certificates for shares of Common Stock upon transfer or resale of the
Common Shares and receipt by you of certificate(s) for the Common Shares so
transferred or sold (duly endorsed or accompanied by stock powers duly endorsed,
in each case with signatures guaranteed and otherwise in form eligible for
transfer); and
(iii) to issue (provided that you are the transfer agent of the Company at such
time) shares of Common Stock upon the exercise of the Warrants (the “Warrant
Shares”) to or upon the order of a Holder from time to time upon delivery to you
of a properly completed and duly executed Exercise Notice, in the form attached
hereto as Annex II, which has been acknowledged by the Company as indicated by
the signature of a duly authorized officer of the Company thereon.

 

 

--------------------------------------------------------------------------------

 

You acknowledge and agree that so long as you have previously received
(a) written confirmation from the Company’s legal counsel that either (i) a
registration statement covering resales of the Common Shares and the Warrant
Shares has been declared effective by the Securities and Exchange Commission
(the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”),
or (ii) the Common Shares and the Warrant Shares are eligible for sale in
conformity with Rule 144 under the Securities Act (“Rule 144”) and (b) if
applicable, a copy of such registration statement, then, unless otherwise
required by law, within three (3) business days of your receipt of certificates
representing the Common Shares and the Warrant Shares, you shall issue the
certificates representing the Common Shares and the Warrant Shares to the
Holders or their transferees, as the case may be, registered in the names of
such Holders or transferees, as the case may be, and such certificates shall not
bear any legend restricting transfer of the Common Shares and the Warrant Shares
thereby and should not be subject to any stop-transfer restriction. Any
certificates tendered for transfer shall be endorsed or with stock powers
attached, signatures guaranteed, and otherwise in form necessary to affect
transfer.
A form of written confirmation from the Company’s outside legal counsel that a
registration statement covering resales of the Common Shares and the Warrant
Shares has been declared effective by the SEC under the Securities Act is
attached hereto as Annex III.
Please be advised that the Holders are relying upon this letter as an inducement
to enter into the Agreement and, accordingly, each Holder is a third party
beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your agreement
to act in accordance with these instructions. Should you have any questions
concerning this matter, please contact our counsel, Gregory Sichenzia, Esq., at
(212) 930-9700.

            Very truly yours,

CEREPLAST, INC.
      By:   /s/ Frederic Scheer         Name:   Frederic Scheer        Title:  
Chief Executive Officer   

THE FOREGOING INSTRUCTIONS ARE
ACKNOWLEDGED AND AGREED TO
this 1st day of February, 2011
COMPUTERSHARE, INC.

             
By:
                     
 
  Name:        
 
     
 
   
 
  Title:        
 
     
 
   

Enclosures

 

-2-

--------------------------------------------------------------------------------

 

ANNEX I
SCHEDULE OF INVESTORS

                      NUMBER OF     NUMBER OF   NAME   SHARES     WARRANTS  
UBS O’Connor F/B/O O’Connor Global Multi-Strategy Alpha Master Limited
    210,000       52,500  
 
               
Prescott Group Aggressive Small Cap Master
    315,790       78,948  
 
               
Kingsbrook Opportunities Master Fund LP
    315,790       78,948  
 
               
Hudson Bay Master Fund Ltd
    150,000       37,500  
 
               
Saturn Capital, LLC
    173,422       43,356  
 
               
Galt Asset Management, LLC
    210,526       52,632  
 
               
Joseph Fusaro
    21,052       5,263  
 
               
HFR HE Ardsley Renewable Energy Master Trust
    43,900       10,975  
 
               
Ardsley Partners Renewable Energy Fund, L.P.
    130,700       32,675  
 
               
Ardsley Renewable Energy Offshore Fund, Ltd.
    35,400       8,850  
 
               
AQR Diversified Arbitrage Fund
    258,156       64,539  
 
               
AQR Opportunistic Premium Offshore Fund, L.P.
    27,078       6,770  
 
               
CNH Diversified Opportunities Master Account, L.P.
    4,000       1,000  
 
               
AST Academic Strategies Asset Allocation
    26,556       6,639  

 

-3-

--------------------------------------------------------------------------------

 

                      NUMBER OF     NUMBER OF   NAME   SHARES     WARRANTS  
Juniperhill Master Fund LP
    21,000       5,250  
 
               
Heller Capital Investments
    60,000       15,000  
 
               
Octagon Capital Partners
    90,000       22,500  
 
               
Capital Ventures International
    150,000       37,500  
 
               
Hartz Capital Investments, LLC
    125,000       31,250  
 
               
Empery Asset Master, LTD
    125,000       31,250  
 
               
Pacific Capital Management, LLC
    103,130       25,783  

 

-4-

--------------------------------------------------------------------------------

 

ANNEX II
FORM OF EXERCISE NOTICE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To: Cereplast, Inc.
The undersigned is the Holder of Warrant No.                      (the
“Warrant”) issued by Cereplast, Inc., a Nevada corporation (the “Company”).
Capitalized terms used herein and not otherwise defined have the respective
meanings set forth in the Warrant.
(1) The Warrant is currently exercisable to purchase a total of
                     Warrant Shares.
(2) The undersigned Holder hereby exercises its right to purchase
                     Warrant Shares pursuant to the Warrant.
(3) The Holder intends that payment of the Exercise Price shall be made as
(check one):
                     “Cash Exercise” under Section 10
                     “Cashless Exercise” under Section 10
(4) If the holder has elected a Cash Exercise, the holder shall pay the sum of
$                     to the Company in accordance with the terms of the
Warrant.
(5) Pursuant to this exercise, the Company shall deliver to the holder
                     Warrant Shares in accordance with the terms of the Warrant.
(6) Following this exercise, the Warrant shall be exercisable to purchase a
total of                      Warrant Shares.

          Dated:                                         ,                     
Name of Holder:

(Print)                                        
      By:           Name:           Title:           (Signature must conform in
all respects to name of holder as specified on the face of the Warrant)   

 

-5-

--------------------------------------------------------------------------------

 

         

ACKNOWLEDGED AND AGREED TO
this  _____  day of                     , 20  _____ 
CEREPLAST, INC.

             
By:
                     
 
  Name:        
 
     
 
   
 
  Title:        
 
     
 
   

 

-6-

--------------------------------------------------------------------------------

 

ANNEX III
FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT
Computershare, Inc.
350 Indiana Street, Suite 750,
Golden CO 80401
Attention: [                    ] Representative
Re: Cereplast, Inc.
Ladies and Gentlemen:
We are counsel to Cereplast, Inc., a Nevada corporation (the “Company”), and
have represented the Company in connection with that certain Securities Purchase
Agreement, dated as of January [                    ], 2011 (the “Securities
Purchase Agreement”), entered into by and among the Company and the buyers named
therein (collectively, the “Purchasers”) pursuant to which the Company issued to
the Purchasers shares of Common Stock of the Company, par value $0.001 per share
(the “Common Shares”) and Warrants (the “Warrants”), which are exercisable into
shares of Common Stock (the “Warrant Shares”). Pursuant to the Securities
Purchase Agreement, the Company agreed to register the resale of the Common
Shares and the Warrant Shares (collectively the “Registrable Securities”) under
the Securities Act of 1933, as amended (the “Securities Act”). In connection
with the Company’s obligations under the Securities Purchase Agreement, on
[                    ], 2011, the Company filed a Registration Statement on Form
S-3 (File No. 333-[                    ]) (the “Registration Statement”) with
the Securities and Exchange Commission (the “Commission”) relating to the
Registrable Securities which names each of the Purchasers as a selling
shareholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the Securities Act at
[                    ] [a.m.][p.m.] on [                    ], 20[  _____  ],
and we have no knowledge, after telephonic inquiry of a member of the staff,
that any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the
Commission and the Registrable Securities are available for resale under the
Securities Act pursuant to the Registration Statement.

 

-7-

--------------------------------------------------------------------------------

 

This letter shall serve as our standing notice to you that the Common Shares and
the Warrant Shares may be freely transferred by the Purchasers pursuant to the
Registration Statement so long as the Holders certify they will comply with the
plan of distribution description in connection with sales or transfers of the
Common Shares and the Warrant Shares set forth in the Registration Statement and
with the prospectus delivery requirements of the Securities Act, to the extent
such delivery requirement are applicable. You need not require further letters
from us to effect any future legend-free issuance or reissuance of shares of the
Common Shares and the Warrant Shares to the Purchasers or the transferees of the
Purchasers, as the case may be, as contemplated by the Company’s Irrevocable
Transfer Agent Instructions dated [                    ], 20[     ].

 

-8-

--------------------------------------------------------------------------------

 

Schedule 3.1(f)
CAPITALIZATION
The Company is authorized to issue (i) 495,000,000 shares of common stock of
which 12,992,196 are presently issued and outstanding, and (ii) 5,000,000 shares
of preferred stock of which 0 are presently issued and outstanding.
As of the date hereof, the Company has 1,208,821 warrants outstanding and
options to purchase 140,000 shares of common stock of the Company.
Frederic Scheer beneficially owns 2,797,488 or 21.5% shares of common Stock of
the Company jointly with his wife, Jocelyne Scheer and through the Jocelyne and
Frederic Scheer Foundation.

 

 

--------------------------------------------------------------------------------

 

Schedule 3.1(g)
SEC REPORTS
Not applicable

 

-2-

--------------------------------------------------------------------------------

 

Schedule 3.1(h)
MATERIAL CHANGES
Not applicable.

 

-3-

--------------------------------------------------------------------------------

 

Schedule 3.1(p)
REGISTRATION RIGHTS
On December 21, 2010, the Company entered into a Venture Loan and Security
Agreement (the “Loan Agreement”) with Compass Horizon Funding Company, LLC
(“Horizon”). In connection therewith, the Company issued a seven year warrant to
purchase 140,000 shares of common stock of the Company to Horizon and granted
Horizon piggy back registration rights.

 

-4-