Exhibit 10.1

 

VUZIX CORPORATION
SERIES A PREFERRED STOCK PURCHASE AGREEMENT

 

This Series A Preferred Stock Purchase Agreement (this “Agreement”) is dated as
of January 2, 2015, between Vuzix Corporation, a Delaware corporation (the
“Company”), and Intel Corporation, a Delaware corporation (the “Purchaser”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the
“Securities Act”), and Rule 506 promulgated thereunder, the Company desires to
issue and sell to the Purchaser, and the Purchaser desires to purchase from the
Company, securities of the Company as more fully described in this Agreement
(the “Offering”).

 

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 Purchaser agree
as follows:

 

Article I.
DEFINITIONS

 

1.1           Definitions. The following terms have the meanings set forth in
this Section 1.1:

 

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.7.

 

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 405 under the
Securities Act.

 

“Board of Directors” means the board of directors of the Company.

 

“Business Day” means any day except any Saturday, any Sunday, any day which is a
federal legal holiday in the United States or any day on which banking
institutions in the State of California are authorized or required by law or
other governmental action to close.

 

“Certificate of Designation” means the Certificate of Designation of the
Company, attached as Exhibit A to this Agreement, setting forth the rights,
preferences and privileges of the Series A Preferred Stock.

 

“Closing” shall have the meaning ascribed to such term in Section 2.2(a).

 

“Closing Date” means the date on which all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchaser’s obligations to pay the Subscription
Amount at such Closing and (ii) the Company’s obligations to deliver the
Securities to be issued and sold at such Closing, in each case, have been
satisfied or waived.

 

 

 

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Commission” means the United States Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, par value $0.001 per
share, and any other class of securities into which such securities may
hereafter be reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, right,
option, warrant or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.

 

“Company Counsel” means Sichenzia Ross Friedman Ference LLP, 61 Broadway, 32nd
Floor, New York, NY 10006, Attn: Greg Sichenzia, Esq., facsimile: (212)
930-9725.

 

“Disclosure Schedules” means the Disclosure Schedules of the Company delivered
concurrently herewith.

 

“Evaluation Date” shall have the meaning ascribed to such term in Section
3.1(r).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

 

“Exempt Issuance” means the issuance of (a) with the prior written consent of
the Purchaser, securities of the Company as full or partial consideration in
connection with a strategic merger, acquisition, consolidation or purchase of
substantially all of the securities or assets of a corporation or other entity
or in connection with strategic license agreements or other partnering
arrangements so long as such issuances are not primarily for the purpose of
raising capital, (b) shares of Common Stock and options to officers, directors,
employees or service providers of the Company, prior to and after the Closing
Date up to the amounts and on the terms set forth on Schedule 4.15, (c)
securities issuable pursuant to this Agreement, including without limitation,
Section 4.15 and 4.16 hereof, or upon conversion of such securities (subject to
adjustment for forward and reverse stock splits and similar events that occur
after the date hereof) 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 and any term thereof have not been
amended since the date of this Agreement to increase the number of such
securities or to decrease the issue price, exercise price, exchange price or
conversion price of such securities and which securities and the principal terms
thereof are set forth on Schedule 3.1(g), or described in the SEC Reports filed
not later than ten (10) days before the Closing Date and (d) issuances set forth
on Schedule 4.15.

 

“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.

 

“Form 8-K” shall have the meaning ascribed to such term in Section 4.6.

 

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

 

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“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(z).

 

“Intellectual Property Rights” shall have the meaning ascribed to such term in
Section 3.1(o).

 

“Liens” means a lien, charge, pledge, security interest, encumbrance, right of
first refusal, preemptive right or other restriction.

 

“Listing Default” shall have the meaning ascribed to such term in Section 4.10.

 

“Material Adverse Effect” shall have the meaning assigned to such term in
Section 3.1(b).

 

“Material Permits” shall have the meaning ascribed to such term in Section
3.1(m).

 

“Money Laundering Laws” shall have the meaning ascribed to such term in
Section 3.1(gg).

 

“OFAC” shall have the meaning ascribed to such term in Section 3.1(ii).

 

“Participation Maximum” shall have the meaning ascribed to such term in Section
4.15(a).

 

“Permitted Indebtedness” means: (v) secured or unsecured equipment loans not in
excess of $300,000 in the aggregate, (w) standard operating loans or accounts
receivable factoring from a bank or financial institution licensed in the United
States regularly engaged in the business of extending such loans, secured with a
lien on the Company’s accounts receivable and/or inventory in connection with
which such credit facility was provided which shall be senior to the lien on the
accounts receivable and the inventory and junior on all other assets, (x) any
liabilities for borrowed money or amounts owed not in excess of $300,000 in the
aggregate (other than trade accounts payable incurred in the ordinary course of
business), (y) all guaranties, endorsements and other contingent obligations in
respect of indebtedness of others, whether or not the same are or should be
reflected in the Company’s consolidated balance sheet (or the notes thereto) not
affecting more than $300,000 in the aggregate, except guaranties by endorsement
of negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business; and (z) the present value of any lease payments
not in excess of $300,000 due under leases required to be capitalized in
accordance with GAAP.

 

“Permitted Lien” means the individual and collective reference to the following:
(a) Liens for Taxes that are either (i) not yet due or (ii) being contested in
good faith and by appropriate proceedings for which adequate reserves have been
established in the financial statements included in the SEC Reports in
accordance with GAAP, (b) Liens imposed by law which were incurred in the
ordinary course of the business of the Company or any of its Subsidiaries, such
as suppliers’, vendors’, carriers’, warehousemen’s and mechanics’ Liens,
statutory workmen’s, repairmen’s and landlords’ Liens, and other similar Liens
arising in the ordinary course of the business of the Company or any of its
Subsidiaries, and which (x) do not individually or in the aggregate materially
detract from the value of such property or assets or materially impair the use
thereof in the operation of the business of the Company and its consolidated
Subsidiaries or (y) are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing for the foreseeable
future the forfeiture or sale of the property or asset subject to such Lien, (c)
Liens incurred prior to the Closing Date in connection with Permitted
Indebtedness as described on Schedule 3.1(n), (d) Liens incurred in connection
with Permitted Indebtedness, provided that such Liens are not secured by assets
of the Company or its Subsidiaries other than the assets so acquired or leased,
(e) non-exclusive licenses granted by the Company in respect of its intellectual
property granted in the ordinary course of business in connection with the sale
of the Company’s products pursuant to the Company’s standard terms provided in
Schedule 3.1(o), (f) Liens disclosed on Schedule 3.1(n) to this Agreement and
(g) the Lien on accounts receivable and inventory in favor a bank or financial
institution listed in clause (w) of the definition of Permitted Indebtedness.

 

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“Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

 

“Pre-Notice” shall have the meaning ascribed to such term in Section 4.15.

 

“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an informal investigation or partial proceeding,
such as a deposition), whether commenced or threatened.

 

“Public Information Failure” shall have the meaning ascribed to such term in
Section 4.3(b).

 

“Public Information Failure Payments” shall have the meaning ascribed to such
term in Section 4.3(b).

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.9.

 

“Recognized Stock Exchange” means New York Stock Exchange, National Association
of Securities Dealers Automated Quotation System (“NASDAQ”), the NYSE MKT, the
NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market
or OTC Bulletin Board.

 

“Registration Statement” means a registration statement meeting the requirements
set forth in the Rights Agreement and covering the resale of the Underlying
Shares by the Purchaser as provided for in the Rights Agreement.

 

“Required Approvals” shall have the meaning ascribed to such term in Section
3.1(e).

 

“Required Consents” shall have the meaning ascribed to such term in Section
3.1(e).

 

“Required Minimum” means, as of any date, the maximum aggregate number of shares
of Common Stock then issued or potentially issuable in the future pursuant to
the Transaction Documents, including any Underlying Shares issuable upon
conversion in full of all shares of Series A Preferred Stock.

 

 

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“Rights Agreement” means the Investor’s Rights Agreement, dated the date hereof,
among the Company and the Purchaser, in the form of Exhibit B attached hereto.

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended or interpreted from time to time, or
any similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.

 

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Securities” means the Series A Preferred Stock of the Company, par value $0.001
per share, and the Underlying Shares.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

 

“Series A Preferred Stock” means the Series A Preferred Stock of the Company,
par value $0.001 per share.

 

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or
reservation of borrowable shares of Common Stock).

 

“Subscription Amount” means $24,813,000.

 

“Subsequent Financing” shall have the meaning ascribed to such term in Section
4.15.

 

“Subsequent Financing Notice” shall have the meaning ascribed to such term in
Section 4.15.

 

“Subsidiary” means with respect to any entity at any date, any direct or
indirect corporation, limited or general partnership, limited liability company,
trust, estate, association, joint venture or other business entity of which (A)
more than 30% of (i) the outstanding capital stock having (in the absence of
contingencies) ordinary voting power to elect a majority of the board of
directors or other managing body of such entity, (ii) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (iii) in the case of a
trust, estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity business is, at the
time of determination, owned or controlled directly or indirectly through one or
more intermediaries, by such entity, or (B) is under the actual control of the
Company.

 

“Tax” and “Taxes” shall have the meanings ascribed to such term in Section
3.1(aa).

 

“Trading Day” means a day on which the principal Trading Market is open for
trading.

 

“Trading Market” means any of the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the NYSE
MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global
Select Market, the New York Stock Exchange, the OTC Bulletin Board, the OTCQB,
or the OTCQX (or any successors to any of the foregoing).

 

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“Transaction Documents” means this Agreement, the Certificate of Designation,
the Rights Agreement, all exhibits and schedules thereto and hereto and any
other documents or agreements executed in connection with the transactions
contemplated hereunder.

 

“Transfer Agent” means Computershare Trust Company, N.A., and any successor
transfer agent of the Company.

 

“Underlying Shares” means the shares of Common Stock issued and issuable upon
conversion of the Series A Preferred Stock and any other shares of Common Stock
issued or issuable to the Purchaser in connection with or pursuant to the
Securities or Transaction Documents.

 

“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)), (b) if the OTC Bulletin Board is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then
listed or quoted for trading on the OTC Bulletin Board and if prices for the
Common Stock are then reported on the OTCQX, OTCQB or OTC Pink Marketplace
maintained by the OTC Markets Group, Inc. (or a similar organization or agency
succeeding to its functions of reporting prices), the volume weighted average
price of the Common Stock on the first such facility (or a similar organization
or agency succeeding to its functions of reporting prices), or (d) in all other
cases, the fair market value of a share of Common Stock as determined by an
independent appraiser selected in good faith by the Purchaser and reasonably
acceptable to the Company, the fees and expenses of which shall be paid by the
Company.

 

Article II.
PURCHASE AND SALE OF SERIES A PREFERRED STOCK

 

2.1          Sale and Issuance of Series A Preferred Stock.

 

(a)          The Company has adopted and has filed with the Secretary of State
of the State of Delaware the Certificate of Designation, and the Certificate of
Designation is in full force and effect.

 

(b)          Subject to the terms and conditions of this Agreement, the
Purchaser agrees to purchase at the Closing and the Company agrees to sell and
issue to the Purchaser at the Closing 49,626 shares of Series A Preferred Stock
at a purchase price of $500.00 per share.

 

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2.2          Deliveries.

 

(a)          The purchase and sale of the Securities shall take place remotely
via the exchange of documents and signatures, at 10:00 a.m., on January 2, 2015,
or at such other time and place as the Company and the Purchaser mutually agree,
orally or in writing (which time and place are designated as the “Closing”).

 

(b)          At the Closing, the Company shall deliver or cause to be delivered,
to the Purchaser the following:

 

(i)          a certificate representing the Securities being purchased by the
Purchaser against payment of the purchase price therefor by wire transfer to a
bank account designated by the Company;

 

(ii)         this Agreement duly executed by the Company;

 

(iii)        a legal opinion of Company Counsel, substantially in the form of
Exhibit C attached hereto;

 

(iv)        the Rights Agreement duly executed by the Company;

 

(v)         a copy of the Certificate of Designation as filed with the Secretary
of State of the State of Delaware;

 

(vi)        a certificate of the secretary of the Company, in a form reasonably
satisfactory to the Purchaser, dated the Closing Date, certifying on behalf of
the Company (i) the Certificate of Incorporation of the Company and the
Certificate of Designation, (ii) the Bylaws of the Company and (iii) resolutions
of the Board of Directors of the Company approving this Agreement, the
Certificate of Designation, the Rights Agreement and the transactions
contemplated hereunder and thereunder;

 

(vii)       a certificate of an executive officer of the Company, in a form
reasonably satisfactory to the Purchaser, dated the Closing Date certifying on
behalf of the Company the matters set forth in Sections 2.3(b)(i) and
2.3(b)(ii); and

 

(viii)      the Required Consents.

 

(c)          At the Closing, the Purchaser shall deliver, or cause to be
delivered, to the Company the following:

 

(i)          this Agreement duly executed by the Purchaser;

 

(ii)         the Rights Agreement duly executed by the Purchaser;

 

(iii)        a certificate of an officer of the Purchaser, in a form reasonably
satisfactory to the Company, dated the Closing Date certifying on behalf of the
Purchaser the matters set forth in Sections 2.3(a)(i); and

 

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(iv)        the Subscription Amount by wire transfer to an account designated in
writing by the Company at least three business days prior to the Closing Date.

 

2.3          Closing Conditions.

 

(a)          The obligations of the Company hereunder to effect the Closing,
unless waived by the Company, are subject to the following conditions being met:

 

(i)          the accuracy in all material respects on the Closing Date of the
representations and warranties of the Purchaser contained herein (unless as of a
specific date therein in which case they shall be accurate as of such date);

 

(ii)         all obligations, covenants and agreements of the Purchaser required
to be performed at or prior to the Closing Date shall have been performed; and

 

(iii)        the delivery by the Purchaser of the items set forth in Section
2.2(c) of this Agreement.

 

(b)          The respective obligations of the Purchaser hereunder to effect the
Closing, unless waived by the Purchaser, are subject to the following conditions
being met:

 

(i)          the accuracy in all material respects (determined without regard to
any materiality, Material Adverse Effect or other similar qualifiers therein) on
the Closing Date of the representations and warranties of the Company contained
herein (unless as of a specific date therein in which case they shall be
accurate as of such date);

 

(ii)         all obligations, covenants and agreements of the Company required
to be performed at or prior to the Closing Date shall have been performed;

 

(iii)        the delivery by the Company of the items set forth in Section
2.2(b) of this Agreement;

 

(iv)        there shall have been no Material Adverse Effect with respect to the
Company since the date hereof; and

 

(v)         from the date hereof to the Closing Date, trading in the Common
Stock shall not have been suspended by the Commission or the Company’s principal
Trading Market, and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg L.P. shall not have been suspended
or limited, or minimum prices shall not have been established on securities
whose trades are reported by such service, or on any Trading Market, nor shall a
banking moratorium have been declared either by the United States or New York
State authorities nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in, any financial
market which, in each case, in the reasonable judgment of the Purchaser, makes
it impracticable or inadvisable to purchase the Securities at the Closing.

 

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Article III.
REPRESENTATIONS AND WARRANTIES

 

3.1          Representations and Warranties of the Company. Except as set forth
in the SEC Reports or the Disclosure Schedules, which Disclosure Schedules shall
be deemed a part hereof and shall qualify any representation made herein only to
the extent of the disclosure contained in the corresponding section of the
Disclosure Schedules, the Company hereby makes the following representations and
warranties to the Purchaser:

 

(a)          Subsidiaries. All of the direct and indirect subsidiaries of the
Company and the Company’s ownership interests therein are set forth on Schedule
3.1(a). The Company owns, directly or indirectly, all of the capital stock or
other equity interests of each Subsidiary free and clear of any Liens, other
than Permitted Liens, and all of the issued and outstanding shares of capital
stock of each Subsidiary are validly issued and are fully paid, non-assessable
and free of preemptive and similar rights to subscribe for or purchase
securities.

 

(b)          Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, with the requisite power and 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 nor default of
any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct 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, could not have or reasonably be expected to result
in: (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company’s ability to perform in any material respect on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or (iii),
a “Material Adverse Effect”) and, no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

 

(c)          Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by this Agreement and each of the other Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The execution
and delivery of this Agreement and each of the other Transaction Documents by
the Company and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary action on the part of the
Company and no further action is required by the Company, the Board of Directors
or the Company’s stockholders in connection herewith or therewith other than in
connection with the Required Approvals. This Agreement and each other
Transaction Document to which it is a party has been (or upon delivery will have
been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, 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.

 

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(d)          No Conflicts. The execution, delivery and performance by the
Company of this Agreement and the other Transaction Documents, the issuance and
sale of the Securities and the consummation by it of the transactions
contemplated hereby and thereby to which it is a party 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) subject to Required Approvals, conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, 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, or
(iii) subject to the Required Approvals, conflict with or 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 a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such
as could not have or reasonably be expected to result in a Material Adverse
Effect.

 

(e)          Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than: (i) the filings required pursuant to Section 4.6 of this Agreement,
(ii) the notice and/or application(s) to each applicable Trading Market for the
issuance and sale of the Securities and the listing of the Underlying Shares for
trading thereon in the time and manner required thereby, (iii) the waivers and
consents from the Persons set forth on Schedule 3.1(e) (the “Required
Consents”), each of has been obtained by the Company prior to the date of this
Agreement, and (iv) the filing of Form D with the Commission and such filings as
are required to be made under applicable state securities laws (collectively,
the “Required Approvals”).

 

(f)          Issuance of the Securities. The Securities 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 imposed by the Company. The Company has reserved from its
duly authorized capital stock a number of shares of Common Stock for issuance of
the Underlying Shares at least equal to the Required Minimum on the date hereof.

 

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(g)          Capitalization. The capitalization of the Company is as set forth
in Schedule 3.1(g). Except as set forth on Schedule 3.1(g), the Company has not
issued any capital stock since its most recently filed periodic report under the
Exchange Act. Except as set forth on Schedule 3.1(g), no Person has any right of
first refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
Except as disclosed on Schedule 3.1(g), there are no outstanding options,
warrants, scrip 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 giving any Person any right to subscribe for
or acquire any shares of Common Stock, or any material contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock or Common Stock
Equivalents. Except as set forth on Schedule 3.1(g), 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 Purchaser) and will not result in
a right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under any of such securities. All of the outstanding
shares of capital stock of the Company are duly authorized, validly issued,
fully paid and nonassessable, have been issued in material compliance with all
federal and state securities laws, and none of such outstanding shares was
issued in violation of any preemptive rights or similar rights to subscribe for
or purchase securities. No further approval or authorization of any stockholder,
the Board of Directors or others is required for the issuance and sale of the
Securities. There are no stockholders agreements, voting agreements or other
similar agreements with respect to the Company’s capital stock to which the
Company is a party or, to the knowledge of the Company, between or among any of
the Company’s stockholders.

 

(h)          SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by the Company under the Securities Act and the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof
(or such shorter period as the Company was required by law or regulation to file
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”) 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. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act, as applicable, and none of the SEC Reports, when filed,
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 Commission with respect thereto as in effect at the
time of 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 or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the 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, immaterial, year-end audit adjustments.

 

11

 

 

(i)          Material Changes; Undisclosed Events, Liabilities or Developments.
Since the date of the latest audited financial statements included within the
SEC Reports, except as specifically disclosed in a subsequent SEC Report filed
prior to the date hereof or on Schedule 3.1(i): (i) there has been no event,
occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect, (ii) the Company has not incurred any
material liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent with
past practice, (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or disclosed in filings made with the
Commission and (C) transaction expenses incurred in connection with the
Transaction Documents, (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders 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 as set forth on Schedule 3.1(g) pursuant to
existing Company stock option plans which issuances prior to the date of this
Agreement are described on Schedule 3.1(g). The Company does not have pending
before the Commission any request for confidential treatment of information.
Except for the issuance of the Securities contemplated by this Agreement or as
set forth on Schedule 3.1(i), no event, liability, fact, circumstance,
occurrence or development has occurred or exists or is reasonably expected to
occur or exist with respect to the Company or its Subsidiaries or their
respective businesses, properties, operations, assets or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws at the time this representation is made or deemed made that has
not been publicly disclosed at least two Trading Days prior to the date that
this representation is made.

 

(j)          Litigation. Except as set forth on Schedule 3.1(j), there is no
action, suit, inquiry, notice of violation, proceeding or investigation pending
or, to the knowledge of the Company, threatened against or affecting the
Company, any Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. Except as set forth in Schedule 3.1(j), since December 31, 2013,
neither the Company nor any Subsidiary, nor, to the Company’s knowledge, any
director or officer thereof, is or has been the subject of any Action involving
a claim of violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty. There has not been, and to the knowledge of
the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of
the Company. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
or any Subsidiary under the Exchange Act or the Securities Act.

 

12

 

 

(k)          Labor Relations. No labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company,
which could reasonably be expected to result in a Material Adverse Effect. None
of the Company’s or its Subsidiaries’ employees is a member of a union that
relates to such employee’s relationship with the Company or such Subsidiary, and
neither the Company nor any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good. To the knowledge of the Company, no
executive officer of the Company or any Subsidiary, is, or is now expected to
be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive
covenant in favor of any third party, which could reasonably be expected to
result in a Material Adverse Effect and the continued employment of each such
executive officer does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matters. The Company and its
Subsidiaries are in compliance with all applicable U.S. federal, state, local
and foreign laws and regulations relating to employment and employment
practices, terms and conditions of employment and wages and hours, except where
the failure to be in compliance could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

 

(l)          Compliance. Neither the Company nor any Subsidiary: (i) 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 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) is in
violation of any judgment, decree or order of any court, arbitrator or other
governmental authority or (iii) is or has been in violation of any statute,
rule, ordinance or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws relating to Taxes,
environmental protection, occupational health and safety, product quality and
safety and employment and labor matters, except in each case as could not have
or reasonably be expected to result in a Material Adverse Effect.

 

(m)          Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not reasonably be expected to result in a Material
Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any Material Permit.

 

(n)          Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property (if any) owned by them and
good and marketable title in all personal property owned by them that is
material to the business of the Company and the Subsidiaries, in each case free
and clear of all Liens, except for (i) Liens, except for Permitted Liens, as do
not materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
the Subsidiaries, and (iii) Permitted Liens. Any real property and facilities
held under lease by the Company and the Subsidiaries are held by them under
valid, subsisting and enforceable leases with which the Company and the
Subsidiaries are in compliance, except where the non-compliance would not
reasonably be expected to result in a Material Adverse Effect.

 

13

 

 

(o)          Intellectual Property.

 

(i)          The term “Intellectual Property Rights” includes:

 

(1)         the name of the Company and each Subsidiary, all fictional business
names, trading names, registered and unregistered trademarks, service marks, and
applications of the Company and each Subsidiary (collectively, “Marks”);

 

(2)         all patents, patent applications, and inventions and discoveries
that may be patentable of the Company and each Subsidiary including without
limitation, any such rights that are or that are purported to be owned or
exclusively licensed by the Company or any of its Subsidiaries (collectively,
“Patents”);

 

(3)         all copyrights in both published works and published works of the
Company and each Subsidiary (collectively, “Copyrights”);

 

(4)         all rights in mask works of the Company and each Subsidiary
(collectively, “Rights in Mask Works”); and

 

(5)         all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, process technology, plans,
drawings, and blue prints (collectively, “Trade Secrets”); owned, used, or
licensed by the Company and each Subsidiary as licensee or licensor.

 

(ii)         Agreements. There are no outstanding and, to Company’s knowledge,
no threatened disputes or disagreements with respect to any agreements relating
to any Intellectual Property Rights to which the Company is a party or by which
the Company is bound.

 

(iii)        Intellectual Property Rights Necessary for the Business. The
Intellectual Property Rights are all those necessary for the operation of the
Company’s businesses as it is currently conducted or as currently planned by the
Company to be conducted, pursuant to the Company’s written plans shared with
Purchaser. Except as set forth on Schedule 3.1(o), the Company is the owner of
all right, title, and interest in and to each of the Intellectual Property
Rights, free and clear of all liens, other than Permitted Liens, security
interests, charges, encumbrances, equities, and other adverse claims, and has
the right to use all of the Intellectual Property Rights. To the Company’s
knowledge, no employee of the Company has entered into any contract that
restricts or limits in any way the scope or type of work in which the employee
may be engaged or requires the employee to transfer, assign, or disclose
information concerning his work to anyone other than the Company.

 

14

 

 

(iv)        Patents. Except as set forth on Schedule 3.1(o), (i) the Company is
the sole and exclusive owner of all right, title and interest in and to each of
the Patents, free and clear of all Liens, other than Permitted Liens, and other
adverse claims and (ii) the Company has the sole and exclusive rights that are
necessary and sufficient to enforce the Patents. All of the issued Patents are
currently in compliance with formal legal requirements (including payment of
filing, examination, and maintenance fees and proofs of working or use), are
valid and enforceable, and are not subject to any maintenance fees or Taxes or
actions falling due within ninety days after the Closing Date. No Patent has
been or is now involved in any interference, reissue, reexamination, or
opposition proceeding. To the Company’s knowledge: (1) there is no potentially
interfering patent or patent application of any third party, and (2) no Patent
is infringed or has been challenged or threatened in any way. To the Company’s
knowledge after due inquiry, none of the products manufactured and sold, nor any
process or know-how used, by the Company infringes or is alleged to infringe any
patent or other proprietary right of any other Person.

 

(v)         Trademarks. Except as set forth on Schedule 3.1(o), the Company is
the owner of all right, title, and interest in and to each of the Marks, free
and clear of all Liens, other than Permitted Liens, and other adverse claims.
All Marks that have been registered with the United States Patent and Trademark
Office are currently in compliance with all formal legal requirements (including
the timely post-registration filing of affidavits of use and incontestability
and renewal applications), are valid and enforceable, and are not subject to any
maintenance fees or Taxes or actions falling due within ninety days after the
Closing Date. No Mark has been or is now involved in any opposition,
invalidation, or cancellation and, to the Company’s knowledge, no such action is
threatened with respect to any of the Marks. To the Company’s knowledge: (1)
there is no potentially interfering trademark or trademark application of any
third party, and (2) no Mark is infringed or has been challenged or threatened
in any way. To the Company’s knowledge, none of the Marks used by the Company
infringes or is alleged to infringe any trade name, trademark, or service mark
of any third party.

 

(vi)        Copyrights. Except as set forth on Schedule 3.1(o), the Company is
the owner of all right, title, and interest in and to each of the Copyrights,
free and clear of all Liens, other than Permitted Liens, and other adverse
claims. All the Copyrights have been registered and are currently in compliance
with formal requirements, are valid and enforceable, and are not subject to any
maintenance fees or Taxes or actions falling due within ninety days after the
date of the Closing. No Copyright is infringed or, to the Company’s knowledge,
has been challenged or threatened in any way. To the Company’s knowledge, none
of the subject matter of any of the Copyrights infringes or is alleged to
infringe any copyright of any third party or is a derivative work based on the
work of a third party. All works encompassed by the Copyrights have been marked
with the proper copyright notice.

 

(vii)       Trade Secrets. With respect to each Trade Secret, the documentation
relating to such Trade Secret is current, accurate, and sufficient in detail and
content in all material respects to identify and explain it and to allow its
full and proper use without reliance on the knowledge or memory of any
individual. The Company has taken all reasonable precautions to protect the
secrecy, confidentiality, and value of its Trade Secrets. The Company has good
title and an absolute right to use the Trade Secrets. The Trade Secrets are not
part of the public knowledge or literature, and, to the Company’s knowledge,
have not been used, divulged, or appropriated either for the benefit of any
Person (other the Company) or to the detriment of the Company or in any manner
that otherwise compromises the secrecy and confidentiality thereof. No Trade
Secret is subject to any adverse claim or has been challenged or threatened in
any way.

 

15

 

 

(p)          Insurance. The Company and the Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged, including, but not limited to, directors and
officers insurance coverage. Neither the Company nor any Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.

 

(q)          Transactions With Affiliates and Employees. Except as set forth in
the SEC Reports, none of the officers or directors of the Company or any
Subsidiary and, to the knowledge of the Company, none of the employees of the
Company or any Subsidiary is presently a party to any transaction with the
Company or any Subsidiary (other than for services as employees, officers and
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, providing for the borrowing of money from or lending of
money to or otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee, stockholder, member or partner, in each case in
excess of $100,000 other than for: (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) other employee benefits, including stock option agreements
under any stock option plan of the Company except as disclosed on
Schedule 3.1(g).

 

(r)          Sarbanes-Oxley; Internal Accounting Controls. The Company and the
Subsidiaries are in material compliance with any and all applicable requirements
of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and
any and all applicable rules and regulations promulgated by the Commission
thereunder that are effective as of the date hereof and as of the Closing Date
except as disclosed in the Company’s SEC Reports. Except as described in the SEC
Reports, the Company and the Subsidiaries maintain 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 GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company and the Subsidiaries have established disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
the Subsidiaries and designed such disclosure controls and procedures to ensure
that information required to be disclosed by the Company in the reports it files
or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Commission’s rules and forms.
The Company’s certifying officers have evaluated the effectiveness of the
disclosure controls and procedures of the Company and the Subsidiaries as of the
end of the period covered by the most recently filed periodic report under the
Exchange Act (such date, the “Evaluation Date”). The Company presented in its
most recently filed periodic report under the Exchange Act the conclusions of
the certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no changes in the internal control over
financial reporting (as such term is defined in the Exchange Act) of the Company
and its Subsidiaries that have materially affected, or is reasonably likely to
materially affect, the internal control over financial reporting of the Company
and its Subsidiaries.

 

16

 

 

(s)          Certain Fees. Except as set forth on Schedule 3.1(s), no brokerage,
finder’s fees, commissions or due diligence fees are or will be payable by the
Company or any Subsidiary to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by the Transaction Documents. The Purchaser shall
have no obligation with respect to any such fees or with respect to any claims
made by or on behalf of other Persons for fees of a type contemplated in this
Section 3.1(s) that may be due in connection with the transactions contemplated
by the Transaction Documents.

 

(t)           Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Securities, will not be or
be an Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become an “investment company” subject to
registration under the Investment Company Act of 1940, as amended.

 

(u)          Registration Rights. No Person, other than the Purchaser and the
Persons listed on Schedule 3.1(u), has any right to cause the Company or any
Subsidiary to effect the registration under the Securities Act of any securities
of the Company or any Subsidiary.

 

(v)          Reporting Company/Shell Company. The Company is a publicly-held
company subject to reporting obligations pursuant to Sections 12(g) and 13 of
the Exchange Act. Pursuant to the provisions of the Exchange Act, except as set
forth on Schedule 3.1(v), the Company has timely filed all reports and other
materials required to be filed by the Company thereunder with the SEC during the
preceding twelve months. As of the Closing Date, the Company is not a “shell
company”, nor a former “shell company” as those terms are employed in Rule 144
under the Securities Act. 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.

 

(w)         Application of Takeover Protections. The Company and the Board of
Directors has taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s certificate of incorporation (or
similar charter documents) or the laws of its state of incorporation (including
without limitation, Section 203 of the Delaware General Corporation Law) that is
or could become applicable to the Purchaser as a result of the Purchaser 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, the Purchaser’s ownership of the Securities and any
acquisition in the future by Purchaser of the Company or of additional
securities of the Company.

 

17

 

 

(x)          Disclosure. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company confirms that neither it nor any other Person acting on its behalf has
provided the Purchaser or its agents or counsel with any information that it
believes constitutes or might constitute material, non-public information. The
Company understands and confirms that the Purchaser will rely on the foregoing
representation in effecting transactions in securities of the Company. All of
the disclosure furnished by or on behalf of the Company to the Purchaser
regarding the Company and its Subsidiaries, their respective businesses and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, when taken together as a whole, is true and correct and does not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The press releases
disseminated by the Company during the twelve months preceding the date of this
Agreement taken as a whole do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made and when made, not misleading. The Company acknowledges and
agrees that the Purchaser makes no and has made no representations or warranties
with respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.2 hereof.

 

(y)          No Integrated Offering. Assuming the accuracy of the Purchaser’s
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of: (i) the Securities Act which would require the registration of
any such securities under the Securities Act, or (ii) any applicable shareholder
approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated.

 

(z)          Solvency. Based on the consolidated financial condition of the
Company as of the Closing Date, and the Company’s good faith estimate of the
fair market value of its assets, after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder: (i) the fair
saleable value of the Company’s assets exceeds the amount that will be required
to be paid on or in respect of the Company’s existing debts and other
liabilities (including known contingent liabilities) as they mature, (ii) the
Company’s assets do not constitute unreasonably small capital to carry on its
business as now conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of the business
conducted by the Company, consolidated and projected capital requirements and
capital availability thereof, and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate all
of its assets, after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its liabilities when such
amounts are required to be paid. The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its debt). The
Company has no knowledge of any facts or circumstances which lead it to believe
that it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the Closing Date.
Schedule 3.1(z) sets forth as of the date hereof all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purposes of this Agreement,
“Indebtedness” means (x) any liabilities for borrowed money or amounts owed in
excess of $300,000 in the aggregate (other than trade accounts payable incurred
in the ordinary course of business), (y) all guaranties, endorsements and other
contingent obligations in respect of indebtedness of others, whether or not the
same are or should be reflected in the Company’s consolidated balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business; and (z) the present value of any lease payments in excess of $300,000
due under leases required to be capitalized in accordance with GAAP. Neither the
Company nor any Subsidiary is in default with respect to any Indebtedness.

 

18

 

 

(aa)        Tax Matters. The Company and each of its Subsidiaries (i) has filed
or caused to be filed all income and other material Tax Returns required to be
filed by it, and all such Tax Returns are true, correct and complete in all
material respects, (ii) has paid all Taxes that have become due and payable,
other than Taxes the nonpayment of which, individually or in the aggregate, are
not material, (iii) has established on the financial statements included in the
SEC Reports adequate reserves in accordance with GAAP for all Taxes accrued
through the dates of such financial statements, (iv) has set aside on its books
provision reasonably adequate for the payment of all material Taxes not yet due,
and (v) has no material liability for Taxes other than non-delinquent Taxes
incurred in the ordinary course of business consistent with amounts incurred and
paid in the most recent comparable period (adjusted solely for ordinary course
changes in the business of the Company and its Subsidiaries). With respect to
the Company and each of its Subsidiaries, there are no (A) proposed, threatened
or actual assessments, audits, examinations or disputes as to Taxes that have
not been finally resolved with all amounts owing with respect thereto either
fully paid or accrued in the financial statements included in the SEC Reports,
(B) adjustments under Section 481 of the Code or any similar adjustments, or (C)
waivers or extensions of the statute of limitations with respect to Taxes. The
Company does not know of any basis for the assertion by a taxing authority of a
material Tax deficiency against the Company or any Subsidiary. Neither the
Company nor any Subsidiary (nor any predecessor thereof) has been a
“distributing corporation” or a “controlled corporation” in connection with a
distribution governed or intended to be governed by Section 355 of the Code.
Neither the Company nor any Subsidiary (nor any predecessor thereof) has been a
member of an affiliated group of corporations, within the meaning of Section
1504 of the Code, or a member of a combined, consolidated or unitary group for
state, local or foreign Tax purposes, other than an affiliated group the common
parent of which is the Company. The Company and its Subsidiaries are in
compliance in all material respects with each Tax holiday, Tax rate reduction or
other agreement with a Taxing authority with respect to Taxes. For purposes
hereof, “Tax” (including “Taxes”) means (A) all federal, state, local, foreign
and other taxes (including but not limited to withholding taxes) and other
governmental assessments, fees, duties or charges of any kind or nature
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts with respect thereto, (B) any liability for payment of
amounts described in clause (A) whether as a result of transferee or successor
liability, joint and several liability for being a member of an affiliated,
consolidated, combined or unitary group for any period, or otherwise by
operation of law and (C) any liability for the payment of amounts described in
clause (A) or (B) as a result of any tax sharing, tax indemnity or tax
allocation agreement or any other express or implied agreement to pay or
indemnify any other person; and “Tax Return” means any return, declaration,
report, statement, information statement and other document required to be filed
with respect to Taxes, including any claims for refunds of Taxes and any
amendments or supplements of any of the foregoing.

 

19

 

 

(bb)       Foreign Corrupt Practices. Neither the Company nor any Subsidiary,
nor to the knowledge of the Company or any Subsidiary, any agent or other person
acting on behalf of the Company or any Subsidiary, has: (i) directly or
indirectly, used any funds for unlawful contributions, gifts, entertainment or
other unlawful expenses related to foreign or domestic political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to any foreign or domestic political parties or campaigns from
corporate funds, (iii) failed to disclose fully any contribution made by the
Company or any Subsidiary (or made by any person acting on its behalf of which
the Company is aware) which is in violation of law or (iv) violated in any
material respect any provision of FCPA.

 

(cc)        Accountants. The Company’s accounting firm is set forth on
Schedule 3.1(cc) of the Disclosure Schedules. To the knowledge and belief of the
Company, such accounting firm: (i) is a registered public accounting firm as
required by the Exchange Act and (ii) shall express its opinion with respect to
the financial statements to be included in the Company’s Annual Report for the
fiscal year ending December 31, 2014.

 

(dd)       Acknowledgment Regarding Purchaser’s Trading Activity. Anything in
this Agreement or elsewhere herein to the contrary notwithstanding, it is
understood and acknowledged by the Company that: (i) the Purchaser has not been
asked by the Company to agree, nor has the Purchaser agreed, to desist from
purchasing or selling, long and/or short, securities of the Company, or
“derivative” securities based on securities issued by the Company or to hold the
Securities for any specified term, (ii) past or future open market or other
transactions by the Purchaser, specifically including, without limitation, Short
Sales or “derivative” transactions, before or after the closing of this or
future private placement transactions, may negatively impact the market price of
the Company’s publicly-traded securities, and (iii) the Purchaser shall not be
deemed to have any affiliation with or control over any arm’s length
counter-party in any “derivative” transaction. The Company further understands
and acknowledges that (y) the Purchaser may engage in hedging activities at
various times during the period that the Securities are outstanding, including,
without limitation, during the periods that the value of the Underlying Shares
deliverable with respect to Securities are being determined, and (z) such
hedging activities (if any) could reduce the value of the existing stockholders’
equity interests in the Company at and after the time that the hedging
activities are being conducted. The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents, provided that such activities do not breach the
Purchaser’s representations made in Section 3.2 of this Agreement. There are no
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company and the Company is current with respect to
any fees owed to its accountants and lawyers which could affect the Company’s
ability to perform any of its obligations under any of the Transaction
Documents.

 

20

 

 

(ee)        Regulation M Compliance. The Company has not, and to its knowledge
no one acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result in the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) except as set forth on
Schedule 3.1(ee), paid or agreed to pay to any Person any compensation for
soliciting another to purchase any other securities of the Company.

 

(ff)         Money Laundering. The operations of the Company and its
Subsidiaries are and have been conducted at all times in compliance with
applicable financial record-keeping and reporting requirements of the Currency
and Foreign Transactions Reporting Act of 1970, as amended, applicable money
laundering statutes and applicable rules and regulations thereunder
(collectively, the “Money Laundering Laws”), and no action, suit or proceeding
by or before any court or governmental agency, authority or body or any
arbitrator involving the Company or any Subsidiary with respect to the Money
Laundering Laws is pending or, to the knowledge of the Company or any
Subsidiary, threatened.

 

(gg)        Stock Option Plans. Each stock option granted by the Company under
the stock option plan was granted (i) in accordance with the terms of such stock
option plan and (ii) with an exercise price at least equal to the fair market
value of the Common Stock on the date such stock option would be considered
granted under GAAP and applicable law. No stock option granted under any stock
option plan has been backdated. The Company has not knowingly granted, and there
is no and has been no Company policy or practice to knowingly grant, stock
options prior to, or otherwise knowingly coordinate the grant of stock options
with, the release or other public announcement of material information regarding
the Company or its Subsidiaries or their financial results or prospects.

 

(hh)        Office of Foreign Assets Control; International Traffic In Arms
Regulations. Neither the Company nor any Subsidiary nor, to the Company’s
knowledge, any director, officer, agent, employee or affiliate of the Company is
currently subject to any U.S. sanctions administered by the Office of Foreign
Assets Control of the U.S. Treasury Department (“OFAC”). None of the technical
data, software, products or services that comprise the Company’s products,
Intellectual Property Rights or services is directly related to defense
articles, technical data or defense services (as each term is defined in the
International Traffic In Arms Regulations 22 CFR Part §120).

 

(ii)          Private Placement. Assuming the accuracy of the Purchaser’s
representations and warranties 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 Purchaser as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.

 

(jj)          No General Solicitation. Neither the Company nor any person acting
on behalf of the Company has offered or sold any of the Securities by any form
of general solicitation or general advertising. The Company has offered the
Securities for sale only to the Purchaser.

 

(kk)        Indebtedness and Seniority. As of the date hereof, all Indebtedness
and Liens are as set forth on Schedule 3.1(kk).

 

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(ll)          Listing and Maintenance Requirements. The Common Stock is quoted
on the OTCBB under the symbol VUZI. Except as set forth on Schedule 3.1(ll), the
Company has not, in the twenty-four (24) months preceding the date hereof,
received notice 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.

 

(mm)      Survival. The foregoing representations and warranties shall survive
the Closing Date.

 

3.2          Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants as of the date hereof and as of the Closing Date
to the Company as follows (unless as of a specific date therein):

 

(a)          Organization; Authority. The Purchaser is a corporation duly
incorporated, validly existing and in good standing under the laws of Delaware
with full right, corporate 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 execution and delivery
of the Transaction Documents and performance by the Purchaser of the
transactions contemplated by the Transaction Documents have been duly authorized
by all necessary corporate action on the part of the Purchaser. Each Transaction
Document to which it is a party has been duly executed by the Purchaser, and
when delivered by the Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of the Purchaser,
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)          Understandings or Arrangements. The Purchaser understands that the
Securities are “restricted securities” and have not been registered under the
Securities Act or any applicable state securities law and is acquiring the
Securities as principal for its own account and not with a view to or for
distributing or reselling such Securities or any part thereof in violation of
the Securities Act or any applicable state securities law, has no present
intention of distributing any of such Securities in violation of the Securities
Act or any applicable state securities law and has no direct or indirect
arrangement or understandings with any other persons to distribute or regarding
the distribution of such Securities in violation of the Securities Act or any
applicable state securities law (this representation and warranty not limiting
the Purchaser’s right to sell the Securities pursuant to a registration
statement or otherwise in compliance with applicable federal and state
securities laws). The Purchaser is acquiring the Securities hereunder in the
ordinary course of its business.

 

22

 

 

(c)          Purchaser Status. At the time the Purchaser was offered the
Securities, it was, and as of the date hereof it is: (i) an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under
the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule
144A(a) under the Securities Act. The Purchaser is not required to be registered
as a broker-dealer under Section 15 of the Exchange Act. The Purchaser has the
authority and is duly and legally qualified to purchase and own the Securities.
The Purchaser is able to bear the risk of such investment for an indefinite
period and to afford a complete loss thereof. The Purchaser has had no position,
office or other material relationship within the past three years with the
Company or Persons (as defined below) known to the Purchaser to be affiliates of
the Company, and is not a member of the Financial Industry Regulatory Authority
or an “associated person” (as such term is defined under the FINRA Membership
and Registration Rules Section 1011).

 

(d)          Experience of the Purchaser. The Purchaser 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. The
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.

 

(e)          Information on Company. The Purchaser has been furnished with or
has had access to the EDGAR Website of the Commission to the Company’s filings
made with the Commission during the period from the date that is two years
preceding the date hereof through the tenth business day preceding the Closing
Date in which the Purchaser purchases Securities hereunder, including the
Company’s Annual Report on Form 10-K filed with the Commission on April 9, 2014
together with the Closing Form 8-K (hereinafter referred to collectively as the
“Reports”). The Purchaser is not deemed to have any knowledge of any information
not included in the Reports. In addition, the Purchaser considered all factors
the Purchaser deems material in deciding on the advisability of investing in the
Securities. The Purchaser was afforded (i) the opportunity to ask such questions
as the Purchaser deemed necessary of, and to receive answers from,
representatives of the Company concerning the merits and risks of acquiring the
Securities; (ii) the right of access to information about the Company and its
financial condition, results of operations, business, properties, management and
prospects sufficient to enable the Purchaser to evaluate the Securities; 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 acquiring the
Securities.

 

23

 

 

(f)           Compliance with Securities Act; Reliance on Exemptions. The
Purchaser understands and agrees that (i) the Securities have not been and are
not being registered under the Securities Act or any state securities laws, and
may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) Purchaser shall have delivered to the
Company (if requested by the Company) an opinion of counsel to Purchaser, in a
form reasonably acceptable to the Company, to the effect that such Securities to
be sold, assigned or transferred may be sold, assigned or transferred pursuant
to an exemption from such registration, or (C) Purchaser provides the Company
with reasonable assurance that such Securities can be sold, assigned or
transferred pursuant to Rule 144 or Rule 144A promulgated under the Securities
Act (or a successor rule thereto); (ii) any sale of the Securities made in
reliance on Rule 144 may be made only in accordance with the terms of Rule 144,
and further, if Rule 144 is not applicable, any resale of the Securities under
circumstances in which the seller (or the Person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the Commission promulgated thereunder; and (iii)
except as contemplated by the Rights Agreement, neither the Company nor any
other Person is under any obligation to register the Securities under the
Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder. The Purchaser understands and agrees
that the Securities are being offered and sold to the Purchaser in reliance on
specific exemptions from the registration requirements of United States federal
and state securities laws and regulations and that the Company is relying in
part upon the truth and accuracy of, and the Purchaser’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of the Purchaser to acquire the Securities.

 

(g)          Communication of Offer. The Purchaser is not purchasing the
Securities as a result of any “general solicitation” or “general advertising,”
as such terms are defined in Regulation D, which includes, but is not limited
to, any advertisement, article, notice or other communication regarding the
Securities published in any newspaper, magazine or similar media or on the
internet or broadcast over television, radio or the internet or presented at any
seminar or any other general solicitation or general advertisement.

 

(h)          No Governmental Review. The Purchaser understands that no United
States federal or state agency or any other governmental or state agency has
passed on or made recommendations or endorsement of the Securities or the
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.

 

(i)           No Conflicts. The execution, delivery and performance of this
Agreement and performance under the other Transaction Documents and the
consummation by the Purchaser of the transactions contemplated hereby and
thereby or relating hereto or thereto do not and will not (i) result in a
violation of the Purchaser’s charter documents, bylaws or other organizational
documents, if applicable, (ii) conflict with nor constitute a default (or an
event which with notice or lapse of time or both would become a default) under
any agreement to which the Purchaser is a party, nor (iii) result in a violation
of any law, rule, or regulation, or any order, judgment or decree of any court
or governmental agency applicable to the Purchaser or its properties (except for
such conflicts, defaults and violations as would not, individually or in the
aggregate, have a material adverse effect on the Purchaser). The Purchaser is
not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or
perform under the other Transaction Documents nor to purchase the Securities in
accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, the Purchaser is assuming and relying upon
the accuracy of the relevant representations and agreements of the Company
herein.

 

24

 

 

(j)           Certain Transactions and Confidentiality. Other than consummating
the transactions contemplated hereunder, the Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with the Purchaser, executed any purchases or sales, including
Short Sales, of the securities of the Company during the period commencing
December 1, 2014 and ending immediately prior to the execution hereof.
Notwithstanding the foregoing, the Purchaser has separate portfolio managers who
manage separate portions of the Purchaser’s investment assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of the Purchaser’s investment assets;
accordingly, the representation set forth above shall only apply with respect to
the portion of assets managed by the portfolio manager that made the investment
decision to purchase the Securities covered by this Agreement.

 

(k)          Survival. The foregoing representations and warranties shall
survive the Closing Date.

 

The Company acknowledges and agrees that the representations contained in
Section 3.2 shall not modify, amend or affect the Purchaser’s right to rely on
the Company’s representations and warranties contained in this Agreement or any
representations and warranties contained in any other Transaction Document or
any other document or instrument executed and/or delivered in connection with
this Agreement or the consummation of the transaction contemplated hereby.

 

Article IV.
OTHER AGREEMENTS OF THE PARTIES

 

4.1          Transfer Restrictions.

 

(a)          The Securities may only be disposed of in compliance with state and
federal securities laws. In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, to the Company
or to an Affiliate of the Purchaser or in connection with a pledge as
contemplated in Section 4.1(b), the Company may require the transferor thereof
to provide to the Company, at the Company’s expense, an opinion of counsel
selected by the transferor and reasonably acceptable to the Company, the form
and substance of which opinion shall be reasonably satisfactory to the Company,
to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act. As a condition of transfer, any
such transferee shall agree in writing to be bound by the terms of this
Agreement, and the Rights Agreement and shall have the rights and obligations of
the Purchaser under this Agreement and the Rights Agreement.

 

(b)          The Purchaser agrees to the imprinting, so long as is required by
this Section 4.1, of a legend on any of the Securities in the following form:

 

“[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE
BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO
THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR
ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.”

 

25

 

 

The Company acknowledges and agrees that the Purchaser may from time to time
pledge pursuant to 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 the Rights Agreement and, if required under the terms of such arrangement,
such Purchaser may transfer, pledge or secure Securities to the pledgees or
secured parties. Such a pledge or transfer would not be subject to approval of
the Company and no legal opinion of legal counsel of the pledgee, secured party
or pledgor shall be required in connection therewith. Further, no notice shall
be required of such pledge. At the appropriate Purchaser’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, if the Securities are subject to
registration pursuant to the Rights Agreement, the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) under the Securities Act or
other applicable provision of the Securities Act to appropriately amend the list
of selling stockholders thereunder.

 

(c)          Certificates evidencing the Underlying Shares shall not contain any
legend (including the legend set forth in Section 4.1(b) hereof): (i) following
any sale of such Underlying Shares pursuant to Rule 144, (ii) if such Underlying
Shares are eligible for sale under Rule 144, without the requirement for the
Company to be in compliance with the current public information required under
Rule 144 as to such Underlying Shares and without volume or manner-of-sale
restrictions or (iii) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company shall cause
its counsel to issue a legal opinion to the Transfer Agent promptly after the
Legend Removal Date if required by the Transfer Agent to effect the removal of
the legend hereunder upon the occurrence of the sale of the Underlying Shares.
If all or any shares of the Series A Preferred Stock are converted at a time
when there is an effective registration statement to cover the resale of the
Underlying Shares, or if such Underlying Shares may be sold under Rule 144
without the requirement for the Company to be in compliance with the current
public information and any other limitations or requirements set forth in Rule
144, including, without limitation, volume or manner of sale restrictions, or if
such legend is not otherwise required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the staff of the Commission), then such Underlying Shares shall be reissued
without the legends. The Company agrees that following the Legend Removal Date
or such time as such legend is no longer required under this Section 4.1(c), it
will, no later than seven Trading Days following the delivery by the Purchaser
to the Company or the Transfer Agent of a certificate representing Underlying
Shares, as applicable, issued with a restrictive legend, together with any
reasonable certifications requested by the Company, the Company’s counsel or the
Transfer Agent (such seventh Trading Day, the “Legend Removal Date”), deliver or
cause to be delivered to the Purchaser a certificate representing such shares
that is free from all restrictive and other legends. 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 4. Certificates
for Underlying Shares subject to legend removal hereunder shall be transmitted
by the Transfer Agent to the Purchaser by crediting the account of the
Purchaser’s prime broker with the Depository Trust Company System as directed by
the Purchaser.

 

26

 

 

(d)          In addition to the Purchaser’s other available remedies, the
Company shall pay to the Purchaser, in cash, as partial liquidated damages and
not as a penalty, for each $1,000 of Underlying Shares (based on the higher of
the actual purchase price or VWAP of the Common Stock on the date such
Securities are submitted to the Transfer Agent) delivered for removal of the
restrictive legend and subject to Section 4.1(c), $10 per Trading Day for each
Trading Day after the Legend Removal Date until such certificate is delivered
without a legend (the “Unlegended Shares”). Nothing herein shall limit the
Purchaser’s right to pursue actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and the Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.

 

(e)          In lieu of delivering physical certificates representing the
Unlegended Shares, upon request of the Purchaser, so long as the certificates
therefor do not bear a legend and the Purchaser is not obligated to return such
certificate for the placement of a legend thereon, the Company shall cause its
transfer agent to electronically transmit the Unlegended Shares by crediting the
account of Purchaser’s prime broker with the Depository Trust Company through
its Deposit Withdrawal At Custodian system, provided that the Company’s Common
Stock is DTC eligible and the Company’s transfer agent participates in the
Deposit Withdrawal at Custodian system. Such delivery must be made on or before
the Legend Removal Date.

 

(f)           In the event the Purchaser shall request delivery of Unlegended
Shares as described in this Section 4.1 and the Company is required to deliver
such Unlegended Shares, the Company may not refuse to deliver Unlegended Shares
based on any claim that such Purchaser or anyone associated or affiliated with
such Purchaser has not complied with Purchaser’s obligations under the
Transaction Documents, or for any other reason, unless, an injunction or
temporary restraining order from a court, on notice, restraining and or
enjoining delivery of such Unlegended Shares shall have been sought and obtained
by the Company and the Company has posted a surety bond for the benefit of such
Purchaser in the amount of the greater of (i) 120% of the amount of the
aggregate purchase price of the Underlying Shares to be subject to the
injunction or temporary restraining order, or (ii) the VWAP of the Common Stock
on the trading day before the issue date of the injunction multiplied by the
number of Unlegended Shares to be subject to the injunction, which bond shall
remain in effect until the completion of arbitration/litigation of the dispute
and the proceeds of which shall be payable to such Purchaser to the extent
Purchaser obtains judgment in Purchaser’s favor.

 

27

 

 

(g)          In addition to any other rights available to Purchaser, if the
Company fails to deliver to the Purchaser Unlegended Shares as required pursuant
to this Agreement and after the Legend Removal Date the Purchaser, or a broker
on the Purchaser’s behalf, purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Purchaser of the shares of Common Stock which the Purchaser was entitled to
receive in unlegended form from the Company (a “Buy-In”), then the Company shall
promptly pay in cash to the Purchaser (in addition to any remedies available to
or elected by the Purchaser) the amount, if any, by which (A) the Purchaser’s
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (B) the aggregate purchase price of the shares
of Common Stock delivered to the Company for reissuance as Unlegended Shares
together with interest thereon at a rate of 15% per annum accruing until such
amount and any accrued interest thereon is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). For example, if the Purchaser
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to $10,000 of purchase price of shares of Common
Stock delivered to the Company for reissuance as Unlegended Shares, the Company
shall be required to pay the Purchaser $1,000, plus interest, if any. The
Purchaser shall provide the Company written notice indicating the amounts
payable to the Purchaser in respect of the Buy-In.

 

(h)          The Purchaser agrees with the Company that the Purchaser will sell
any Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery requirements, or an
exemption therefrom, and that if Securities are sold pursuant to a Registration
Statement, they will be sold in compliance with the plan of distribution set
forth therein, and acknowledges 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 upon this understanding.

 

4.2          [Reserved.]

 

4.3          Furnishing of Information; Public Information.

 

(a)          For the shorter of (i) three years after the Closing Date or (ii)
until the time that the Purchaser no longer owns Securities, the Company
covenants to file all periodic reports with the Commission pursuant to Section
15(d) of the Exchange Act or alternatively, if registered under Section 12(b) or
12(g) of the 1934 Act, maintain the registration of the Common Stock under
Section 12(b) or 12(g) of the Exchange Act and 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 even if the Company is not then subject to the reporting
requirements of the Exchange Act.

 

(b)          At any time commencing on the Closing Date and ending at such time
that all of the Securities may be sold without the requirement for the Company
to be in compliance with Rule 144(c)(1) and otherwise without restriction or
limitation pursuant to Rule 144, if the Company shall fail for any reason to
satisfy the current public information requirement under Rule 144(c) (a “Public
Information Failure”) then, in addition to the Purchaser’s other available
remedies, the Company shall pay to the Purchaser, in cash, as partial liquidated
damages and not as a penalty, by reason of any such delay in or reduction of its
ability to sell the Securities, an amount in cash equal to one-half percent
(0.5%) of the aggregate Subscription Amount of the Securities held by the
Purchaser on the day of a Public Information Failure and on every thirtieth
(30th) day (pro-rated for periods totaling less than thirty days) thereafter
until the earlier of (a) the date such Public Information Failure is cured and
(b) such time that such public information is no longer required for the
Purchaser to transfer the Underlying Shares pursuant to Rule 144. The payments
to which the Purchaser shall be entitled pursuant to this Section 4.3(b) are
referred to herein as “Public Information Failure Payments.” Public Information
Failure Payments shall be paid on the earlier of (i) the last day of the
calendar month during which such Public Information Failure Payments are
incurred and (ii) the third (3rd) Business Day after the event or failure giving
rise to the Public Information Failure Payments is cured. In the event the
Company fails to make Public Information Failure Payments in a timely manner,
such Public Information Failure Payments shall bear interest at the rate of 1.5%
per month (prorated for partial months) until paid in full. Nothing herein shall
limit the Purchaser’s right to pursue actual damages for the Public Information
Failure, and the Purchaser shall have the right to pursue all remedies available
to it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief.

 

28

 

 

4.4          Integration. The Company shall not 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 or that would be integrated with
the offer or sale of the Securities for purposes of the rules and regulations of
any Trading Market such that it would require shareholder approval prior to the
closing of such other transaction unless shareholder approval is obtained before
the closing of such subsequent transaction.

 

4.5          Conversion and Exercise Procedures. No additional legal opinion,
other information or instructions shall be required of the Purchaser to convert
its shares of Series A Preferred Stock into Underlying Shares other than
reasonable information (which may include a legal opinion) requested by the
Transfer Agent or required by applicable law. The Company shall honor
conversions of the Series A Preferred Stock and shall deliver Underlying Shares
in accordance with the terms, conditions and time periods set forth in the
Transaction Documents.

 

4.6          Securities Laws Disclosure; Publicity. The Company shall, by 9:00
a.m. (New York City time) on the second Trading Day immediately following the
Closing Date, issue a press release disclosing the material terms of the
transactions contemplated hereby, and shall file a Current Report on Form 8-K
including the Transaction Documents as exhibits thereto within one Business Day
of the date hereof (“Form 8-K”). A form of the Form 8-K is annexed hereto as
Exhibit D. Such Exhibit D will be identical to the Form 8-K which will be filed
with the Commission except for the omission of signatures thereto by the Company
and auditors providing the financial statements. From and after the issuance of
such press release and filing of the Form 8-K, the Company represents to the
Purchaser that it shall have publicly disclosed all material, non-public
information delivered to the Purchaser 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.

 

4.7          Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that the
Purchaser is an “Acquiring Person” under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that the Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or in any other manner.

 

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4.8          Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder for general corporate purposes and to
accelerate the Company’s on-going development of its technology and shall not
use such proceeds: (a) for the satisfaction of any portion of the Company’s debt
(other than payment of trade payables in the ordinary course of the Company’s
business and prior practices or Permitted Indebtedness when and as it comes due
without acceleration or prepayment), (b) for the redemption of any Common Stock
or Common Stock Equivalents, (c) for the settlement of any outstanding
litigation or (d) in violation of FCPA or OFAC regulations.

 

4.9          Indemnification of the Purchaser. Subject to the provisions of this
Section 4.9, the Company will indemnify and hold the Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls the Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“Purchaser Party”) harmless from any and all losses (including diminution in
value of any Purchaser Party’s rights or property (including the Securities),
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys’ fees and costs of investigation that any the Purchaser Party may
suffer or incur as a result of or relating to (a) any breach or inaccuracy of
any of the representations, warranties, covenants or agreements made by the
Company in this Agreement or in the other Transaction Documents or (b) any
action instituted against Purchaser Parties in any capacity, or any of them or
their respective Affiliates, by any stockholder of the Company who is not an
Affiliate of the Purchaser Party, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of the Purchaser Party’s representations, warranties or covenants under
the Transaction Documents or any agreements or understandings the Purchaser
Party may have with any such stockholder or any violations by the Purchaser
Party of state or federal securities laws or any conduct by the Purchaser Party
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, the Purchaser Party shall
promptly notify the Company in writing, and except to the extent such action
relates to Taxes of any Purchaser Party, the Company shall have the right to
assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party. Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of counsel,
a material conflict on any material issue between the position of the Company
and the position of the Purchaser Party, in which case the Company shall be
responsible for the reasonable fees and expenses of no more than one such
separate counsel. The Company will not be liable to any Purchaser Party under
this Agreement (y) for any settlement by the Purchaser Party effected without
the Company’s prior written consent, which shall not be unreasonably withheld or
delayed; or (z) to the extent, but only to the extent that a loss, claim, damage
or liability is attributable to any Purchaser Party’s breach of its
representations, warranties or covenants under the Transaction Documents. The
indemnification required by this Section 4.9 shall be made by periodic payments
of the amount thereof during the course of the investigation or defense, as and
when bills are received or are incurred. The indemnity agreements contained
herein shall be in addition to any cause of action or similar right of any
Purchaser Party against the Company or others and any liabilities the Company
may be subject to pursuant to law. The Company and the Purchaser agree to treat
any indemnity payment made pursuant to this Section 4.9 as an adjustment to the
price paid by the Purchaser to acquire the Securities in the Offering.

 

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4.10        Reservation and Listing of Securities.

 

(a)          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 then be required to fulfill its obligations in full under the
Transaction Documents, but not less than the Required Minimum.

 

(b)          If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than the Required Minimum
on such date (such date, the “Authorized Share Failure”), then the Company shall
promptly take all action necessary to increase the Company’s authorized shares
of Common Stock to an amount sufficient to allow the Company to reserve and have
available the Required Minimum as of such date. Without limiting the generality
of the foregoing sentence, as soon as practicable after the date of the
occurrence of an Authorized Share Failure, but in no event later than ninety
(90) days after the occurrence of such Authorized Share Failure, the Company
shall hold a meeting of its stockholders or conduct a consent solicitation for
the approval of an increase in the number of authorized shares of Common Stock
to have available the Required Minimum.

 

(c)          The Company shall, if applicable: (i) in the time and manner
required by the principal Trading Market, prepare and file with such Trading
Market an additional shares listing application covering a number of shares of
Common Stock at least equal to the Required Minimum on the date of such
application, (ii) take all steps necessary to cause such shares of Common Stock
to be approved for listing or quotation on such Trading Market as soon as
possible thereafter, (iii) provide to the Purchaser evidence of such listing or
quotation and (iv) maintain the listing or quotation of such Common Stock on any
date at least equal to the Required Minimum on such date on such Trading Market
or another Trading Market. The Company will then take all action necessary to
continue the listing or quotation and trading of its Common Stock on a Trading
Market until at least three years after the Closing Date, and will comply in all
respects with the Company’s reporting, filing and other obligations under the
bylaws or rules of the Trading Market at least until the shorter of (i) such
time as the Purchaser no longer holds the Securities or (ii) three years after
the Closing Date. In the event the aforedescribed listing is not continuously
maintained for three years after the Closing Date (a “Listing Default”), then in
addition to any other rights the Purchaser may have hereunder or under
applicable law, on the first day of a Listing Default and on each monthly
anniversary of each such Listing Default date (if the applicable Listing Default
shall not have been cured by such date) until the applicable Listing Default is
cured, the Company shall pay to the Purchaser an amount in cash, as partial
liquidated damages and not as a penalty, equal to 2% of the aggregate
Subscription Amount held by the Purchaser on the day of a Listing Default and on
every thirtieth day (pro-rated for periods less than thirty days) thereafter
until the date such Listing Default is cured. If the Company fails to pay any
liquidated damages pursuant to this Section in a timely manner, the Company will
pay interest thereon at a rate of 1.5% per month (pro-rated for partial months)
to the Purchaser.

 

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4.11        Form D; Blue Sky Filings. The Company agrees to timely file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Securities for, sale to the Purchaser
at the Closing under applicable securities or “Blue Sky” laws of the states of
the United States, and shall provide evidence of such actions promptly upon
request of the Purchaser.

 

4.12        Derivative Liabilities. Provided the Company has successfully
uplisted to a Recognized Stock Exchange (“Uplisting”) and eliminated from its
balance sheet all derivative liabilities, then, for a period of six months
following the Uplisting, except in connection with an Exempt Issuance, the
Company undertakes that it will not enter into any transaction which could
result in the Company recognizing a derivative liability.

 

4.13        Capital Changes. Until the one year anniversary of the Closing Date,
the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without 10 days prior written notice to the
Purchaser, unless such reverse split is made in conjunction with the listing of
the Common Stock on a national securities exchange.

 

4.14        Certain Transactions and Confidentiality. The Purchaser covenants
that neither it, nor any Affiliate acting on its behalf or pursuant to any
understanding with it will execute any purchases or sales, including Short
Sales, of any of the Company’s securities during the period commencing with the
execution of this Agreement and ending at such time that the transactions
contemplated by this Agreement are first publicly announced pursuant to the
initial press release or Form 8-K as described in Section 4.6.

 

4.15        Participation in Future Financings.

 

(a)          From the date hereof, upon any proposed issuance by the Company or
any of its Subsidiaries of Common Stock, or Common Stock Equivalents for cash
consideration, Indebtedness or a combination thereof, other than (i) a rights
offering to all holders of Common Stock and Series A Preferred Stock (which may
include extending such rights to holders of Common Stock Equivalents) or (ii) an
Exempt Issuance (a “Subsequent Financing”), the Purchaser shall have the right
to participate in such Subsequent Financing up to its pro rata amount,
calculated as its percentage equity ownership of the Company’s outstanding
equity (assuming the conversion of all outstanding Series A Preferred Stock into
shares of Common Stock) (the “Participation Maximum”) on the same terms,
conditions and price provided for in the Subsequent Financing, unless the
Subsequent Financing is an underwritten public offering (an “Underwritten
Subsequent Financing”), in which case the Company shall offer the Purchaser the
right to participate in such public offering when it is lawful for the Company
to do so, but the Purchaser shall not be entitled to purchase any particular
amount of such public offering.

 

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(b)         At least ten (10) Trading Days prior to the closing of the
Subsequent Financing, the Company shall deliver to the Purchaser a written
notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which
Pre-Notice shall ask the Purchaser if it wants to review the details of such
financing (such additional notice, a “Subsequent Financing Notice”). Upon the
request of the Purchaser, and only upon a request by the Purchaser, for a
Subsequent Financing Notice, the Company shall promptly, but no later than one
(1) Trading Day after such request, deliver a Subsequent Financing Notice to the
Purchaser. The requesting Purchaser shall be deemed to have acknowledged that
the Subsequent Financing Notice may contain material non-public information. The
Subsequent Financing Notice shall describe in reasonable detail the proposed
terms of such Subsequent Financing, the amount of proceeds intended to be raised
thereunder and the Person or Persons through or with whom such Subsequent
Financing is proposed to be effected and shall include a term sheet or similar
document relating thereto as an attachment.

 

(c)          If the Purchaser wishes to participate in such Subsequent Financing
it must provide written notice to the Company by not later than 5:30 p.m. (New
York City time) on the fifth (5th) Trading Day after the Purchaser has received
the Subsequent Financing Notice that the Purchaser is willing to participate in
the Subsequent Financing, the amount of the Purchaser’s participation, and
representing and warranting that the Purchaser has such funds ready, willing,
and available for investment on the terms set forth in the Subsequent Financing
Notice. If the Company receives no such notice from the Purchaser as of such
fifth (5th) Trading Day, the Purchaser shall be deemed to have notified the
Company that it does not elect to participate and the Company may effect the
Subsequent Financing on the terms and with the Persons set forth in the
Subsequent Financing Notice.

 

(d)          If by 5:30 p.m. (New York City time) on the fifth (5th ) Trading
Day after the Purchaser has received the Subsequent Financing Notice, the
Company has received written notification by the Purchaser of its willingness to
participate in the Subsequent Financing (or to cause its designees to
participate), then the Company shall effect the Subsequent Financing with the
Purchaser (in the amount indicated in its notification up to the Participation
Maximum) and, with respect to the remaining portion of such Subsequent Financing
on the terms and with the Persons set forth in the Subsequent Financing Notice.

 

(e)          The Company must provide the Purchaser with a second Subsequent
Financing Notice, and the Purchaser will again have the right of participation
set forth above in this Section 4.15, if the Subsequent Financing subject to the
initial Subsequent Financing Notice is amended in any material respect or is not
consummated for any reason on the terms set forth in such Subsequent Financing
Notice within thirty (30) Trading Days after the date of the initial Subsequent
Financing Notice.

 

(f)          Notwithstanding anything to the contrary in this Section 4.15 and
unless otherwise agreed to by the Purchaser, the Company shall either confirm in
writing to the Purchaser that the transaction with respect to the Subsequent
Financing has been abandoned or shall publicly disclose its intention to issue
the securities in the Subsequent Financing, in either case in such a manner such
that the Purchaser will not be in possession of any material, non-public
information, by the tenth (10th) Business Day following delivery of the
Subsequent Financing Notice. If by such tenth (10th) Business Day, no public
disclosure regarding a transaction with respect to the Subsequent Financing has
been made, and no notice regarding the abandonment of such transaction has been
received by the Purchaser, such transaction shall be deemed to have been
abandoned and the Purchaser shall not be deemed to be in possession of any
material, non-public information with respect to the Company or any of its
Subsidiaries.

 

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4.16        Catch-Up Option.

 

(a)          With respect to each Exempt Issuance or Underwritten Subsequent
Financing in which the Purchaser was not afforded the opportunity to participate
pursuant to Section 4.15, the Purchaser shall be afforded by the Company the
right and opportunity, but not the obligation, and in no event (except as
provided in Section 4.16(e)), not more than two opportunities per calendar year
to acquire additional securities from the Company (the “Catch-Up Option”) in
such amount sufficient to maintain the Purchaser’s ownership percentage of the
Company, calculated as its percentage equity ownership of the Company’s
outstanding equity (assuming the conversion of all outstanding Series A
Preferred Stock into shares of Common Stock), equal to the ownership percentage
that the Purchaser had immediately prior to such applicable financing (the
“Ownership Threshold”). If there is more than one such Exempt Issuance and/or
Underwritten Subsequent Financing during the applicable period, then the
calculations of the number of shares and the price of such shares pursuant to
this Section 4.16 shall be made with respect each such financing.

 

(b)          The price per share and type of security to be sold pursuant to the
Catch-Up Option shall be equal to the price per share and type as was sold or
issued in the earlier applicable financing that reduced the Purchaser’s
percentage ownership below the Ownership Threshold; provided however, that if
such effective price per share of Common Stock in the applicable financing is
lower than the then current market value of the Company’s Common Stock as of the
date of the issuance to the Purchaser (“Current FMV”) and if the Company is
subject to any requirements relating to the listing of its Common Stock pursuant
to the Exchange Act or a Trading Market that would prohibit the Company from
selling securities to the Purchaser at a price per share below the Current FMV,
then the price per share to be used in connection with the Catch-Up Option shall
be the Current FMV.

 

(c)          The Company shall deliver to the Purchaser as soon as reasonably
practicable, but in any event within forty-five (45) days after the end of each
second and fourth fiscal quarter, a schedule (the “Schedule”) setting forth the
number and type of securities issued in each Exempt Issuance or Underwritten
Subsequent Financing in which the Purchaser was not afforded the opportunity to
participate during the prior two fiscal quarters, as well as the amount of
securities necessary for the Purchaser to maintain its Ownership Threshold
pursuant to this Section 4.16. By written notification received by the Company
within twenty (20) days after receipt of the Schedule, the Purchaser may elect
to exercise the Catch-Up Option and purchase the applicable securities from the
Company.

 

(d)          The Purchaser may elect to forgo, in whole or in part, the purchase
of securities pursuant to the Catch-Up Option in any six (6) month period
without forgoing its right to purchase securities at a subsequent date, and such
election to forgo such purchase, in whole or in part, shall in no way impact the
rights and obligations of the parties pursuant to this Section.

 

34

 

 

(e)          If at any time a Deemed Liquidation Event, as defined in the
Certificate of Designation, or other liquidation event is contemplated, and the
Purchaser’s ownership percentage in the Company is below the Ownership Threshold
as of the most recent Catch-Up Option that was made available to the Purchaser,
then the Company shall immediately prior to such Deemed Liquidation Event or
other liquidation event provide the Purchaser with the opportunity to purchase
securities pursuant to the Catch-Up Option.

 

(f)          The Company shall take all necessary steps and actions to ensure
that the appropriate amount of Common Stock is authorized and reserved at all
times to provide for the issuances pursuant to the Catch-Up Option.

 

4.17        Maintenance of Property. The Company shall keep all of its property,
which is necessary or useful to the conduct of its business, in good working
order and condition, ordinary wear and tear excepted.

 

4.18        Preservation of Corporate Existence. The Company shall preserve and
maintain its corporate existence, rights, privileges and franchises in the
jurisdiction of its incorporation, and qualify and remain qualified, as a
foreign corporation in each jurisdiction in which such qualification is
necessary in view of its business or operations and where the failure to qualify
or remain qualified might reasonably have a Material Adverse Effect upon the
financial condition, business or operations of the Company taken as a whole.

 

4.19        Further Registration Statements. The Company will not, without the
consent of the Purchaser, file with the Commission or with state regulatory
authorities any registration statements, or amend any already filed registration
statement to increase the amount of Common Stock registered therein, or reduce
the price of which such company securities are registered therein, until the
expiration of the “Exclusion Period,” which shall be defined as the 30-day
period from the effectiveness of Registration Statement.

 

4.20        Reimbursement. If the Purchaser becomes involved in any capacity in
any Proceeding by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar transactions by
the Purchaser to or with any current stockholder), solely as a result of the
Purchaser’s acquisition of the Securities under this Agreement, the Company will
reimburse the Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchaser who is
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchaser and any such Affiliate, and shall be binding upon and inure
to the benefit of any successors, assigns, heirs and personal representatives of
the Company, the Purchaser and any such Affiliate and any such Person. The
Company also agrees that neither the Purchaser nor any such Affiliates,
partners, directors, agents, employees or controlling persons shall have any
liability to the Company or any Person asserting claims on behalf of or in right
of the Company solely as a result of acquiring the Securities under this
Agreement.

 

35

 

 

4.21        Waivers from Note and Warrant Holders.

 

(a)          For purposes of this Section 4.21:

 

(i)          “Company Notes” means those certain convertible notes issued by the
Company to purchasers thereof pursuant to Securities Purchase Agreements, dated
as of June 3, 2014;

 

(ii)         “Company Warrants” means those certain warrants issued by the
Company pursuant to a public offering of its securities on July 30, 2013,
including warrants issued to certain holders of the Company’s then outstanding
debt upon conversion of such debt into equity;

 

(iii)        “Waived Notes” means those Company Notes covered by the Waiver and
Consents given by certain holders of the Company Notes and delivered by the
Company to the Purchaser in connection with the Closing under this Agreement, by
which such holders waived the Anti-dilution Provisions;

 

(iv)        “Waived Warrants” means those Company Warrants covered by the Waiver
and Consents given by certain holders of the Company Warrants and delivered by
the Company to the Purchaser in connection with the Closing under this
Agreement, by which such holders waived the Anti-dilution Provisions; and

 

(v)         “Anti-dilution Provisions” means, with respect to the Company Notes,
the anti-dilution protections and other rights set forth in Section 5(b) of the
Company Notes, and, with respect to the Company Warrants, the anti-dilution
protections and other rights set forth in Section 2(b) of the Company Warrants.

 

(b)          If additional shares of Common Stock or Common Stock Equivalents
are issued or deemed issued by reason of an adjustment to the conversion ratio
of any Waived Warrant or Waived Note as the result of the implementation of the
Anti-dilution Provisions, then in each such instance, the Company promptly shall
issue to the Purchaser, for no additional consideration, a number of shares of
Common Stock sufficient to maintain the Purchaser’s Ownership Threshold as of
immediately prior to such issuance or deemed issuance. If, for whatever reason,
the Company does not promptly issue such shares of Common Stock to the
Purchaser, then the Series A Conversion Price of the Series A Preferred Stock
under the Certificate of Designation shall be appropriately adjusted so as to
increase the number of shares of Common Stock issuable upon conversion of the
Series A Preferred Stock by an amount equal to the number of shares of Common
Stock that the Company was obligated to issue to the Purchaser pursuant to the
foregoing sentence, but did not so issue.

 

4.22        Collaborative Development Agreement.  Within the 45-day period
following the Closing, the Company and the Purchaser shall use their
commercially reasonable efforts to negotiate in good faith a collaborative
development agreement pursuant to which: (a)  the Company and the Purchaser
would collaborate with respect to the following three technologies of the
Company: (i) Flat Passive Waveguides, (ii) Curved Passive Waveguides and (iii)
Dynamic Waveguides (the "Specified Technologies"), and (b) the Company would
grant to the Purchaser the right to be the lead partner to commercialize the
Specified Technologies for a period of time to be agreed upon by the Company and
the Purchaser, with the terms of such right (including the markets to be agreed
upon, which shall include fashion and athletics) to be further specified in such
agreement.

 

36

 

 

Article V.
MISCELLANEOUS

 

5.1          Fees and Expenses. The Company shall pay the Purchaser’s expenses
(whether external or internal) arising in connection with the transactions
contemplated by this Agreement and the other Transaction Documents; provided,
that (i) the Closing occurs, and (ii) in no event shall the Company be required
to pay more than $75,000 to the Purchaser for such expenses in the aggregate.
Such fee shall be paid concurrently with the Closing by means of a deduction of
such amount from the Subscription Amount to be wired by the Purchaser to the
Company at the Closing. Other than the foregoing, 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 (including, without limitation, any fees
required for same day processing of any instruction letter delivered by the
Company and any conversion or exercise notice delivered by the Purchaser), stamp
taxes and other Taxes levied in connection with the delivery of any Securities
to the Purchaser.

 

5.2          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 thereof 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.

 

5.3          Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company, to: Vuzix Corporation, 2166
Brighton Henrietta Townline Road, Rochester, NY 14623, Attn: Paul J. Travers,
President and Chief Executive Officer, facsimile: 585-359-4172, with a copy by
fax only to (which shall not constitute notice): Sichenzia Ross Friedman Ference
LLP, 61 Broadway, 32nd Floor, New York, NY 10006, Attn: Greg Sichenzia, Esq.,
facsimile: (212) 930-9725, and (ii) if to the Purchaser, to: Intel Corporation,
2200 Mission College Blvd., Santa Clara, CA 95052, Attn: Portfolio Manager
RN6-46, facsimile: (408) 765-6038, with copies to: Intel Corporation, 2200
Mission College Blvd., Santa Clara, CA 95052, Attn: General Counsel, facsimile:
(408) 765-1859, with an additional copy by fax or electronic mail only to (which
shall not constitute notice): Gibson, Dunn & Crutcher LLP, 1881 Page Mill Road,
Palo Alto, CA 94304, Attn: Gregory T. Davidson.

 

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5.4          Amendments; Waivers. No provision of the Transaction Documents may
be waived, modified, supplemented or amended except in a written instrument
signed by the Company and the Purchaser. 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.

 

5.5          Headings. 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.

 

5.6          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 Purchaser (other than by merger).
Following the Closing, the Purchaser may assign any or all of its rights under
this Agreement to any Person to whom the Purchaser assigns or transfers any
Securities, provided that such transferee agrees in writing to be bound, with
respect to the transferred Securities, by the provisions of the Transaction
Documents that apply to the “Purchaser.”

 

5.7          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 as otherwise set forth in Section 4.9.

 

5.8          Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, partners, members,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, Borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any action, suit or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or is an inconvenient venue for such proceeding. 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 other manner permitted by law. If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then, in addition to the obligations of the Company
under Section 4.9, the prevailing party in such action, suit or proceeding shall
be reimbursed by the other party for its reasonable attorneys’ fees and other
costs and expenses incurred with the investigation, preparation and prosecution
of such action or proceeding.

 

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5.9          Survival. The representations and warranties contained herein shall
survive the Closing.

 

5.10        Execution. This Agreement may be executed in counterparts, each 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 each other party, it being understood that the parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, 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 “.pdf” signature page were an original thereof.

 

5.11        Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.

 

5.12        Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other Transaction Documents, whenever the Purchaser exercises a right,
election, demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided, then
the Purchaser may, at any time prior to the Company’s performance of such
obligations, 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.

 

5.13        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 (in the case of mutilation), 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. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.

 

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5.14        Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchaser
and the Company will be entitled to 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
contained in the Transaction Documents and hereby agree to waive and not to
assert in any action for specific performance of any such obligation the defense
that a remedy at law would be adequate.

 

5.15        Payment Set Aside. To the extent that the Company makes a payment or
payments to the Purchaser pursuant to any Transaction Document or the Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

 

5.16        Liquidated Damages. The Company’s obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.

 

5.17        Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such right
may be exercised on the next succeeding Business Day.

 

5.18        Construction. The parties agree that each of them and/or their
respective counsel have reviewed and had an opportunity to revise the
Transaction Documents and, therefore, the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of the Transaction Documents or any
amendments thereto. In addition, each and every reference to share prices and
shares of Common Stock in any Transaction Document shall be subject to
adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after
the date of this Agreement.

 

5.19        Equitable Adjustment. Trading volume amounts, price/volume amounts
and similar figures in the Transaction Documents shall be equitably adjusted
(but without duplication) to offset the effect of stock splits, similar events
and as otherwise described in this Agreement.

 

(Signature Page Follows)

 

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

 

VUZIX CORPORATION

 

By:       Name:     Title:  

  

INTEL CORPORATION

 

By:       Name:        Title: