Exhibit 10.1

 

AKOUSTIS TECHNOLOGIES, INC.

 

6.5% Convertible Senior Secured Notes due 2023

 

Purchase Agreement

 

May 10, 2018

 

Oppenheimer & Co. Inc. 

As Representative of the 

several Initial Purchasers listed 

in Schedule 1 hereto

 

c/o Oppenheimer & Co. Inc. 

85 Broad Street 

New York, New York 10004 

 

Ladies and Gentlemen:

 

Akoustis Technologies, Inc., a Delaware corporation (the “Company”) proposes to
issue and sell to the several Initial Purchasers listed in Schedule 1 hereto
(the “Initial Purchasers”), for whom you are acting as Representative (the
“Representative”), an aggregate of $15.0 million principal amount of its 6.5%
Convertible Senior Secured Notes due 2023 (the “Notes”) and the Guarantors (as
hereinafter defined) propose to issue and sell to the Initial Purchasers
Guarantees (as hereinafter defined) with respect to the Notes (the Notes and the
Guarantees, collectively, the “Securities”). The Notes will be convertible into
shares (the “Underlying Securities”) of common stock of the Company, par value
$0.001 per share (the “Common Stock”), subject to certain limitations as set
forth in the Indenture (as defined herein). The Securities will be issued
pursuant to an Indenture to be dated as of the Closing Date (as defined below)
(the “Indenture”), among the Company, the Guarantors party thereto and The Bank
of New York Mellon Trust Company, N.A., as trustee (the “Trustee”).

 

Pursuant to the Indenture, the Company will have the right, at its option, to
pay (i) interest on the Notes, (ii) certain make-whole payments in connection
with certain conversions of the Notes and (iii) certain payments in connection
with conversions of the Notes in connection with a qualifying fundamental
transaction (as defined in the Indenture) in cash and/or freely tradable shares
(as defined hereinafter) of Common Stock, subject to certain limitations set
forth in the Indenture. As used herein, the term “freely tradable shares” means
shares of Common Stock approved for listing or inclusion upon official notice of
issuance on any national securities exchange or U.S. trading market on which the
Common Stock is then listed or included and (i) registered pursuant to a
registration statement filed by the Company with the Securities and Exchange
Commission (the “Commission”) pursuant to the Securities Act of 1933, as amended
(the “Securities Act”), and declared effective by the Commission and which may
be immediately sold or otherwise disposed of by the Holders (as defined
hereinafter) without further registration or other restriction under the
Securities Act and applicable state securities laws, or (ii) issued pursuant to
a transaction exempt from the registration and prospectus delivery requirements
of the Securities Act which may be immediately sold or otherwise disposed of by
the Holders without further registration or other restriction under the
Securities Act and applicable state securities laws. Any freely tradable shares
issued pursuant to the Indenture are hereinafter referred to as the “Additional
Shares.”

 

Pursuant to the Indenture, all existing and future subsidiaries (as hereinafter
defined) of the Company will fully and unconditionally guarantee, on a senior
secured basis, to each holder of the Notes and the Trustee, the payment and
performance of the Company’s obligations under the Indenture and the Notes (each
existing subsidiary of the Company being referred to herein as a “Guarantor” and
each such guarantee being referred to herein as a “Guarantee”).

 

Pursuant to the terms of the Collateral Documents (as defined below), all of the
obligations under the Securities and the Indenture will be secured, to the
extent permitted by law, by a first priority lien and security interest in
substantially all of the assets of the Company and its existing and future
subsidiaries, subject to permitted liens or permitted encumbrances, as
applicable, including a first priority lien and security interest in the capital
stock of the Company’s existing and future subsidiaries in favor of The Bank of
New York Mellon Trust Company, N.A., as collateral agent (the “Collateral
Agent”). As used herein, the term “Collateral Documents” means the agreements,
documents and instruments listed on Schedule I hereto. Capitalized terms used
herein and not otherwise defined herein have the respective meanings ascribed
thereto in the Indenture or the Collateral Documents, as applicable.

 

 

 

 

Holders of the Securities and the Underlying Securities will have the
registration rights set forth in a registration rights agreement applicable to
the Securities and the Underlying Securities (the “Registration Rights
Agreement”), to be executed and delivered by the Company and the Guarantors on
the Closing Date (as defined below). Pursuant to the Registration Rights
Agreement, the Company and the Guarantors will agree, among other things, to

 

(i)            file a registration statement (the “Registration Statement”) with
the Commission within 90 days of the Closing Date covering the resale of the
Securities and the Underlying Securities; and

 

(ii)           use their respective best efforts to cause the Registration
Statement to be declared effective within 180 days of the Closing Date.

 

If the Securities and the Underlying Securities are not registered for resale
within that time period, or if the Company and the Guarantors fail to maintain
the effectiveness and availability of the Registration Statement (subject to
certain grace periods), the Company will pay additional interest at a rate per
annum of 0.50% for the first 90 day period following the occurrence of the
relevant event and, thereafter, at a rate per annum of 1.0% until such event is
cured. Pursuant to the Registration Rights Agreement, the Company will agree to
maintain the registration of the Securities and the Underlying Securities until
the earliest of the date that (i) all of such securities have been sold either
pursuant to the Registration Statement or Rule 144 under the Securities Act or
are no longer outstanding, (ii) such securities may be sold without restriction
by each holder pursuant to Rule 144 in a single transaction and certain other
conditions have been satisfied, or (iii) is two years after the Registration
Statement is declared effective.

 

This agreement (this “Agreement”), the Indenture, the Collateral Documents, the
Registration Rights Agreement, the Securities and all agreements ancillary
thereto are collectively referred to herein as the “Transaction Documents.”

 

The Company and the Guarantors hereby confirm their joint and several agreement
with the several Initial Purchasers concerning the purchase and sale of the
Securities, as follows:

 

1.            The Securities will be sold to the Initial Purchasers without
being registered under the Securities Act, in reliance upon an exemption
therefrom. The Company has prepared a preliminary offering memorandum dated May
1, 2018 (the “Preliminary Offering Memorandum”) and will prepare an offering
memorandum dated the date hereof (the “Offering Memorandum”) setting forth
information concerning the Company, the Securities and the Underlying
Securities. Copies of the Preliminary Offering Memorandum have been, and copies
of the Offering Memorandum will be, delivered by the Company to the Initial
Purchasers pursuant to the terms of this Agreement. The Company hereby confirms
that it has authorized the use of the Preliminary Offering Memorandum, the other
Time of Sale Information (as defined below) and the Offering Memorandum in
connection with the offering and resale of the Securities by the Initial
Purchasers in the manner contemplated by this Agreement. References herein to
the Preliminary Offering Memorandum, the Time of Sale Information and the
Offering Memorandum shall be deemed to refer to and include any document
incorporated by reference therein and any reference to “amend,” “amendment” or
“supplement” with respect to the Preliminary Offering Memorandum and the
Offering Memorandum shall be deemed to refer to and include any documents filed
after such date and incorporated by reference therein.

 

At or prior to 8:00 a.m. New York City time on May 10, 2018 (the “Time of
Sale”), the Company had prepared the following information (collectively, the
“Time of Sale Information”): the Preliminary Offering Memorandum, as
supplemented and amended by the term sheet attached as Annex A hereto.

 

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2.             Purchase and Resale of the Securities by the Initial Purchasers.

 

(a)          The Company and the Guarantors jointly and severally agree to issue
and sell the Securities to the several Initial Purchasers as provided in this
Agreement, and each Initial Purchaser, on the basis of the representations,
warranties and agreements set forth herein and subject to the conditions set
forth herein, agrees, severally and not jointly, to purchase from the Company
and the Guarantors the respective principal amount of Securities set forth
opposite such Initial Purchaser’s name in Schedule 1 hereto at an aggregate
price equal to 93.75% of the principal amount thereof (the “Purchase Price”).

 

(b)          The Company and the Guarantors understand that the Initial
Purchasers intend to offer the Securities for resale on the terms set forth in
the Time of Sale Information. Each Initial Purchaser, severally and not jointly,
represents, warrants and agrees that:

 

(i)         it is a qualified institutional buyer within the meaning of Rule
144A under the Securities Act (a “QIB”) and an accredited investor within the
meaning of Rule 501(a) of Regulation D under the Securities Act (“Regulation
D”);

 

(ii)        it has not solicited offers for, or offered or sold, and will not
solicit offers for, or offer or sell, the Securities by means of any form of
general solicitation or general advertising within the meaning of Rule 502(c) of
Regulation D or in any manner involving a public offering within the meaning of
Section 4(a)(2) of the Securities Act; and

 

(iii)       it has not solicited offers for, or offered or sold, and will not
solicit offers for, or offer or sell, the Securities as part of their initial
offering except within the United States to persons whom it reasonably believes
to be QIBs in transactions pursuant to Rule 144A under the Securities Act (“Rule
144A”) and in connection with each such sale, it has taken or will take
reasonable steps to ensure that the purchaser of the Securities is aware that
such sale is being made in reliance on Rule 144A.

 

(c)          Each Initial Purchaser acknowledges and agrees that the Company and
the Guarantors and, for purposes of the opinions to be delivered to the Initial
Purchasers pursuant to Sections 6(e) and 6(g), counsel for the Company and the
Guarantors and counsel for the Initial Purchasers, respectively, may rely upon
the accuracy of the representations and warranties of the Initial Purchasers,
and compliance by the Initial Purchasers with their agreements, contained in
paragraph (b) above, and each Initial Purchaser hereby consents to such
reliance.

 

(d)         The Company and the Guarantors acknowledge and agree that the
Initial Purchasers may offer and sell Securities to or through any affiliate of
an Initial Purchaser and that any such affiliate may offer and sell Securities
purchased by it to or through any Initial Purchaser; provided that such offers
and sales shall be made in accordance with the provisions of this Agreement.

 

(e)          Payment for the Securities shall be made by wire transfer in
immediately available funds to the account specified by the Company to the
Representative in the case of the Securities, at the offices of Lowenstein
Sandler LLP, 1251 Avenue of the Americas, New York, New York 10020 at 10:00
a.m., New York City time, on May 14, 2018, or at such other time or place on the
same or such other date, not later than the fifth business day after the date of
this Agreement, as the Representative and the Company may agree upon in writing.
The time and date of such payment for the Securities is referred to herein as
the “Closing Date.”

 

(f)           Payment for the Securities to be purchased on the Closing Date
shall be made against delivery to the nominee of The Depository Trust Company
(“DTC”) for the respective accounts of the several Initial Purchasers of the
Securities to be purchased on the Closing Date, of one or more global notes
representing the Securities (collectively, the “Global Note”), with any transfer
taxes payable in connection with the sale of such Securities duly paid by the
Company. The Global Note will be made available for inspection by the
Representative at the office of Oppenheimer & Co. Inc., set forth above, not
later than 1:00 p.m., New York City time, on the business day prior to the
Closing Date.

 

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(g)           The Company and the Guarantors acknowledge and agree that each
Initial Purchaser is acting solely in the capacity of an arm’s length
contractual counterparty to the Company and the Guarantors with respect to the
offering of Securities contemplated hereby (including in connection with
determining the terms of the offering) and not as a financial advisor or a
fiduciary to, or an agent of, the Company, the Guarantors or any other person.
Additionally, neither the Representative nor any other Initial Purchaser is
advising the Company, any Guarantor or any other person as to any legal, tax,
investment, accounting or regulatory matters in any jurisdiction. The Company
and the Guarantors shall consult with their own advisors concerning such matters
and shall be responsible for making its own independent investigation and
appraisal of the transactions contemplated hereby, and neither the
Representative nor any other Initial Purchaser shall have any responsibility or
liability to the Company or the Guarantors with respect thereto. Any review by
the Representative or any Initial Purchaser of the Company, the Guarantors, the
transactions contemplated hereby or other matters relating to such transactions
will be performed solely for the benefit of the Representative or such Initial
Purchaser and shall not be on behalf of the Company or the Guarantors.

 

3.          Representations and Warranties of the Company and the Guarantors.
The Company and the Guarantors, jointly and severally, represent and warrant to
each Initial Purchaser that:

 

(a)           Preliminary Offering Memorandum. The Preliminary Offering
Memorandum, as of its date, did not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided that the Company and the Guarantors make no representation
and warranty with respect to any statements or omissions made in reliance upon
and in conformity with information relating to any Initial Purchaser furnished
to the Company in writing by such Initial Purchaser through the Representative
expressly for use in the Preliminary Offering Memorandum, it being understood
and agreed that the only such information furnished by any Initial Purchaser
consists of the information described as such in Section 7(b) hereof.

 

(b)          Time of Sale Information. The Time of Sale Information, at the Time
of Sale, did not, and as of the Closing Date, will not, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided that the Company and the Guarantors
make no representation and warranty with respect to any statements or omissions
made in reliance upon and in conformity with information relating to any Initial
Purchaser furnished to the Company in writing by such Initial Purchaser through
the Representative expressly for use in such Time of Sale Information, it being
understood and agreed that the only such information furnished by any Initial
Purchaser consists of the information described as such in Section 7(b) hereof.
No statement of material fact included in the Offering Memorandum has been
omitted from the Time of Sale Information and no statement of material fact
included in the Time of Sale Information that is required to be included in the
Offering Memorandum has been omitted therefrom.

 

(c)           Additional Written Communications. Neither the Company nor any of
the Guarantors (including their respective agents and representatives, other
than the Initial Purchasers in their capacity as such) has made, used, prepared,
authorized, approved or referred to and will not prepare, make, use, authorize,
approve or refer to any “written communication” (as defined in Rule 405 under
the Securities Act) that constitutes an offer to sell or solicitation of an
offer to buy the Securities (each such communication by the Company or any
Guarantor or their respective agents and representatives (other than a
communication referred to in clauses (i), (ii) and (iii) below) an “Issuer
Written Communication”) other than (i) the Preliminary Offering Memorandum, (ii)
the Offering Memorandum, (iii) a term sheet substantially in the form of Annex A
hereto, which constitutes part of the Time of Sale Information, and (iv) each
electronic road show and any other written communications approved in writing in
advance by the Representative. Each such Issuer Written Communication does not
conflict with the information contained in the Time of Sale Information, and
when taken together with the Time of Sale Information, did not, and at the
Closing Date, will not, contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided that the Company and the Guarantors make no representation and warranty
with respect to any statements or omissions made in each such Issuer Written
Communication in reliance upon and in conformity with information relating to
any Initial Purchaser furnished to the Company in writing by such Initial
Purchaser through the Representative expressly for use in such Issuer Written
Communication, it being understood and agreed that the only such information
furnished by any Initial Purchaser consists of the information described as such
in Section 7(b) hereof.

 

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(d)          Offering Memorandum. As of the date of the Offering Memorandum and
as of the Closing Date, the Offering Memorandum does not and will not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that the
Company makes no representation and warranty with respect to any statements or
omissions made in reliance upon and in conformity with information relating to
any Initial Purchaser furnished to the Company in writing by such Initial
Purchaser through the Representative expressly for use in the Offering
Memorandum, it being understood and agreed that the only such information
furnished by any Initial Purchaser consists of the information described as such
in Section 7(b) hereof.

 

(e)          Incorporated Documents. The documents incorporated by reference in
the Offering Memorandum or the Time of Sale Information, when filed with the
Commission conformed, or will conform, as the case may be, in all material
respects to the requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder (collectively, the
“Exchange Act”), and such documents did not, or will not, as the case may be,
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.

 

(f)            Financial Statements. The financial statements of the Company
(including all notes and schedules thereto) included or incorporated by
reference in the Time of Sale Information and the Offering Memorandum present
fairly the financial position of the Company and its consolidated subsidiaries
at the dates indicated and the statement of operations, stockholders’ equity and
cash flows of the Company and its consolidated subsidiaries for the periods
specified, it being understood that unaudited interim financial statements are
subject to normal year-end adjustments; and such financial statements and
related schedules and notes thereto, and the unaudited financial information
included or incorporated by reference in the Time of Sale Information and the
Offering Memorandum, have been prepared in conformity with generally accepted
accounting principles (“GAAP”), consistently applied throughout the periods
covered thereby, except as may be otherwise specified therein or to the extent
unaudited interim financial statements exclude footnotes or may be condensed or
summary statements. The summary and selected financial data included in the Time
of Sale Information and the Offering Memorandum present fairly the information
shown therein as at the respective dates and for the respective periods
specified and have been presented on a basis consistent with the consolidated
financial statements set forth in the Offering Memorandum and other financial
information.

 

(g)          Independent Accountant. Marcum LLP (“Marcum”) whose reports are
included or incorporated by reference as part of the Time of Sale Information
and Offering Memorandum is and, during the periods covered by its reports, was
an independent registered public accounting firm as required by the Securities
Act and the published rules and regulations thereunder (the “Rules”).

 

(h)           No Material Adverse Effect. Subsequent to the respective dates as
of which information is given in the Time of Sale Information and the Offering
Memorandum, (i) there has not been any event which could have a Material Adverse
Effect (as defined below); (ii) neither the Company nor any of its subsidiaries
has sustained any loss or interference with its assets, businesses or properties
(whether owned or leased) from fire, explosion, earthquake, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or any
court or legislative or other governmental action, order or decree which would
have a Material Adverse Effect; and (iii) since the date of the latest balance
sheet included in the Time of Sale Information and the Offering Memorandum,
neither the Company nor its subsidiaries has (A) issued any securities or
incurred any liability or obligation, direct or contingent, for borrowed money,
except such liabilities or obligations incurred in the ordinary course of
business, (B) entered into any transaction not in the ordinary course of
business or (C) declared or paid any dividend or made any distribution on any
shares of its stock or redeemed, purchased or otherwise acquired or agreed to
redeem, purchase or otherwise acquire any shares of its capital stock.

 

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(i)           Organization and Good Standing. The Company and each of its
subsidiaries, including each entity (corporation, partnership, joint venture,
association or other business organization) controlled directly or indirectly by
the Company (each, a “subsidiary”), is duly organized, validly existing and in
good standing under the laws of their respective jurisdictions of incorporation
or organization and each such entity has all requisite power and authority to
carry on its business as is currently being conducted as described in the Time
of Sale Information and the Offering Memorandum, and to own, lease and operate
its properties. The Company and each of its subsidiaries is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the nature of the business conducted by it or location of the assets or
properties owned, leased or licensed by it requires such qualification, except
for such jurisdictions where the failure to so qualify individually or in the
aggregate would not have a material adverse effect on (A) the assets,
properties, condition, financial or otherwise, or in the results of operations,
business affairs or business prospects of the Company and its subsidiaries
considered as a whole (B) the ability of the Comp-any and the Guarantors to
perform their obligations under any Transaction Document, (C) the validity or
enforceability of any Transaction Document, (D) the attachment, perfection or
priority of any of the Liens or the security interests intended to be created by
the Collateral Documents, or (E) the consummation of any of the transactions
contemplated under any of the Transaction Documents (each, a “Material Adverse
Effect”); and to the Company’s knowledge, 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.

 

(j)          Capitalization. The Company has authorized and outstanding capital
stock as set forth under the caption “Capitalization” in the Time of Sale
Information and the Offering Memorandum. All of the issued and outstanding
shares of Common Stock have been duly and validly issued and are fully paid and
nonassessable. There are no statutory preemptive or other similar rights to
subscribe for or to purchase or acquire any shares of Common Stock of the
Company or any of its subsidiaries or any such rights pursuant to its
certificate of incorporation or by-laws or any agreement or instrument to or by
which the Company or any of its subsidiaries is a party or bound. Except as
disclosed in the Time of Sale Information and the Offering Memorandum and except
for the Additional Shares, there is no outstanding option, warrant or other
right calling for the issuance of, and there is no commitment, plan or
arrangement to issue, any share of stock of the Company or any of its
subsidiaries or any security convertible into, or exercisable or exchangeable
for, such stock. The exercise price of each employee option to acquire Common
Stock (each, a “Company Stock Option”) is no less than the fair market value of
a share of Common Stock as determined on the date of grant of such Company Stock
Option. All grants of Company Stock Options were validly issued and properly
approved by the board of directors of the Company in material compliance with
all applicable laws and the terms of the plans under which such Company Stock
Options were issued and were recorded on the Company Financial Statements in
accordance with GAAP, and no such grants involved any “back dating”, “forward
dating,” “spring loading” or similar practices with respect to the effective
date of grant. The Common Stock and the Securities conform in all material
respects to all statements in relation thereto contained in the Time of Sale
Information and the Offering Memorandum. All of the issued shares of capital
stock of, or other ownership interests in, each Guarantor have been duly and
validly authorized and issued and are fully paid and, in the case of stock,
non-assessable and are owned, directly or indirectly, by the Company, free and
clear of any lien, charge, mortgage, pledge, security interest, claim,
limitation on voting rights, equity, trust or other encumbrance, preferential
arrangement, defect or restriction of any kind whatsoever, other than Permitted
Liens.

 

(k)          Due Authorization. The Company and the Guarantors have the full
right, power and authority to execute and deliver this Agreement and the other
Transaction Documents and to perform their obligations hereunder and thereunder;
and all action required to be taken for the due and proper authorization,
execution and delivery by it of each of the Transaction Documents and the
consummation by it of the transactions contemplated thereby or by the Time of
Sale Information and the Offering Memorandum has been duly and validly taken.

 

(l)           Purchase Agreement. This Agreement has been duly authorized,
executed and delivered by the Company and the Guarantors.

 

(m)        The Securities. The Securities to be issued and sold by the Company
and the Guarantors hereunder have been duly authorized by the Company and the
Guarantors and, when duly executed, authenticated, issued and delivered as
provided in the Indenture and paid for as provided herein, will be duly and
validly issued and outstanding and will constitute valid and legally binding
obligations of each of the Company and the Guarantors enforceable against the
Company and the Guarantors in accordance with their terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or similar laws affecting creditors’ rights
generally or by equitable principles relating to enforceability (collectively,
the “Enforceability Exceptions”), and will be entitled to the benefits provided
by the Indenture, the Collateral Documents and the Registration Rights
Agreement.

 

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(n)          The Indenture, the Collateral Documents and the Registration Rights
Agreement. Each of the Indenture, the Collateral Documents and the Registration
Rights Agreement have been duly authorized by the Company and the Guarantors
and, when duly executed and delivered in by each of the parties thereto, will
constitute a valid and legally binding agreement of each of the Company and the
Guarantors, enforceable against each of the Company and the Guarantors in
accordance with its terms, except as enforceability may be limited by the
Enforceability Exceptions.

 

(o)          The Underlying Securities; Additional Shares. Upon issuance,
authentication and delivery of the Securities in accordance with this Agreement
and the Indenture, the Securities will be convertible into the Underlying
Securities, subject to certain conditions set forth in, and in accordance with
the terms of, the Securities and the Indenture; the Company has duly authorized
and reserved for issuance by all necessary corporate action 4,444,217 shares of
Common Stock (appropriately adjusted for any stock dividend, stock split, stock
combination, reclassification or other similar transaction occurring after the
date hereof) (the “Maximum Share Reserve”) for issuance upon conversion of the
Securities and for issuance as Additional Shares. 3,000,000 shares of the
Maximum Share Reserve (appropriately adjusted for any stock dividend, stock
split, stock combination, reclassification or other similar transaction
occurring after the date hereof) shall be reserved exclusively for issuance upon
conversion of the Securities (the “Maximum Conversion Share Reserve”). Up to all
of the remaining 1,444,217 shares (appropriately adjusted for any stock
dividend, stock split, stock combination, reclassification or other similar
transaction occurring after the date hereof) of the Maximum Share Reserve may be
reserved for issuance as Additional Shares (the “Maximum Additional Share
Reserve”). When issued upon conversion of the Securities in accordance with the
terms of the Securities and the Indenture, the Underlying Securities will be
validly issued, fully paid and non-assessable, free and clear of any pledge,
lien, encumbrance, security interest or other claim; and the issuance of such
Underlying Securities will not be subject to any preemptive or similar rights.
When issued in accordance with the terms of the Securities and the Indenture,
the Additional Shares will be validly issued, fully paid and non-assessable,
free and clear of any pledge, lien, encumbrance, security interest or other
claim; and the issuance of such Additional Shares will not be subject to any
preemptive or similar rights.

 

(p)          Descriptions of the Transaction Documents. There is no document,
contract or other agreement required to be described in Time of Sale Information
or the Offering Memorandum, which is not described as required by the Securities
Act or Rules. Each description of a contract, document or other agreement in the
Time of Sale Information or the Offering Memorandum accurately reflects, in all
respects, the terms of the underlying contract, document or other agreement.
Each contract, document or other agreement described in the Time of Sale
Information or the Offering Memorandum or incorporated by reference is in full
force and effect and is valid and enforceable by and against the Company or its
subsidiary, as the case may be, in accordance with its terms. When executed and
delivered, the Transaction Documents will conform in all material respect to the
descriptions thereof in the Time of Sale Information and the Offering
Memorandum.

 

(q)          No Violation or Default. Neither the Company nor any subsidiary (i)
is in violation of its certificate or articles of incorporation, by-laws,
certificate of formation, limited liability company agreement, partnership
agreement or other organizational documents, (ii) is in default under, and no
event has occurred which, with notice or lapse of time, or both, would
constitute a default under, or result in the creation or imposition of any lien,
charge, mortgage, pledge, security interest, claim, limitation on voting rights,
equity, trust or other encumbrance, preferential arrangement, defect or
restriction of any kind whatsoever, upon, any property or assets of the Company
or any subsidiary pursuant to, any bond, debenture, note, indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which it is a
party or by which it is bound or to which any of its properties or assets is
subject or (iii) is in violation of any statute, law, rule, regulation,
ordinance, directive, judgment, decree or order of any judicial, regulatory or
other legal or governmental agency or body, foreign or domestic, except (in the
case of clauses (ii) and (iii) above) for violations or defaults that could not
(individually or in the aggregate) reasonably be expected to have a Material
Adverse Effect.

 

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(r)           No Conflicts; No Approvals. The execution, delivery and
performance by the Company and the Guarantors of each of the Transaction
Documents, the issuance and sale of the Securities, the issuance of any
Underlying Securities upon conversion thereof, the issuance of the Additional
Shares, and the consummation of the transactions contemplated by the Transaction
Documents or the Time of Sale Information and the Offering Memorandum will not
(i) give rise to a right to terminate or accelerate the due date of any payment
due under, or conflict with or result in the breach of any term or provision of,
or constitute a default under, or require any consent or waiver (other than such
consents or waivers which have already been obtained and are in full force and
effect) under, or result in the execution or imposition of any Lien upon any
properties or assets of the Company or its subsidiaries (except for Liens
pursuant to the Collateral Documents) pursuant to the terms of, (x) any
indenture, mortgage, deed of trust or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which either the Company or
its subsidiaries or any of their properties or businesses is bound, or (y) any
franchise, license, permit, judgment, decree, order, statute, rule or regulation
applicable to the Company or any of its subsidiaries or (ii) violate any
provision of the charter or by-laws of the Company or any of its subsidiaries.
No consent, approval, authorization or order of any governmental authority, or
third party is required (i) for the issuance and sale by the Company and the
Guarantors of the Securities to the Initial Purchasers or the issuance of the
Underlying Securities and the Additional Shares, (ii) the issuance by the
Guarantors of the Guarantees, or (iii) the consummation by the Company and the
Guarantors of the other transactions contemplated by the Transaction Documents,
except such as have been obtained and such as may be required under state
securities or “Blue Sky” laws in connection with the purchase and resale of the
Securities by the Initial Purchasers.

 

(s)          Legal Proceedings. Other than as described in the Offering
Memorandum, there are no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is the subject which, if determined adversely
to the Company or any of its subsidiaries would reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect; and, to the
knowledge of the Company, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.

 

(t)           Title to Property. Except as disclosed in the Time of Sale
Information and the Offering Memorandum, the Company and each of its
subsidiaries has good and marketable title to all property owned by it, in each
case free and clear of all Liens, other than Permitted Liens or Permitted
Encumbrances, as applicable. Except as disclosed in the Time of Sale Information
and the Offering Memorandum, all property held under lease by any of the Company
or any of its subsidiaries is held by such company under valid, existing and
enforceable leases, free and clear of all Lines, other than Permitted Liens or
Permitted Encumbrances, as applicable.

 

(u)         Intellectual Property. The Company and its subsidiaries own or
possess adequate rights to use all patents, patent applications, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), trademarks, trademark registrations, service marks, service mark
registrations, trade names, mask work rights and other intellectual property
necessary to carry on the business now operated by it or proposed to be operated
by it as described in the Time of Sale Information and the Offering Memorandum
(collectively, “Intellectual Property”), except where the lack of such ownership
or rights to use would not have a Material Adverse Effect. Except as disclosed
in the Time of Sale Information and the Offering Memorandum, there is no
litigation or other proceeding pending or, to the Company’s knowledge,
threatened by any third party challenging or questioning the ownership,
validity, or enforceability of the Company’s right to use or own any
Intellectual Property or asserting that the use of the Company’s Intellectual
Property by the Company or the operation of the Company’s business infringes
upon or misappropriates the Intellectual Property of any third party. Except as
disclosed in the Time of Sale Information and the Offering Memorandum, neither
the Company nor any subsidiary has received a written notice that any of, the
Intellectual Property (x) has expired, terminated or been abandoned, or (y) is
essential for the Company’s business and is expected to expire or terminate or
be abandoned within two (2) years from the date of this Agreement. Except as
disclosed in the Time of Sale Information and the Offering Memorandum, or as
would not, individually or in the aggregate have a Material Adverse Effect, to
the Company’s knowledge, (i) there is no infringement by third parties engaged
in commercial activity of any Intellectual Property of the Company relating to
the Company’s business and (ii) there are no non-commercial activities being
performed by any third parties which, upon commercialization thereof, would
reasonably be expected to infringe on the Intellectual Property of the Company.
The Company and its subsidiaries have taken all steps necessary to perfect its
ownership of and interest in the Intellectual Property.

 

(v)          No Undisclosed Relationships. No transaction has occurred between
or among the Company and any of its officers or directors, stockholders or any
affiliate or affiliates of any such officer or director or stockholder that is
required to be described in and is not described in the Time of Sale Information
and the Offering Memorandum.

 

8

 

 

(w)        Investment Company Act. The Company is not and, after giving effect
to the offering and sale of the Securities and the application of proceeds
thereof as described in the Time of Sale Information and the Offering
Memorandum, will not be required to register as an “investment company” within
the meaning of the Investment Company Act of 1940, as amended, and the rules and
regulations of the Commission thereunder.

 

(x)          Taxes. The Company and its subsidiaries have paid all federal,
state, local and foreign taxes and filed all returns required to be paid or
filed through the date hereof, except as currently being contested in good faith
and for which appropriate reserves have been established on the books and
records of the Company to the extent required by GAAP. The provisions for taxes
payable, if any, shown on the financial statements included or incorporated by
reference in the Time of Sale Information and the Offering Memorandum are
sufficient for all accrued and unpaid taxes, whether or not disputed, and for
all periods to and including the dates of such consolidated financial
statements. No material issues have been raised (and are currently pending) by
any taxing authority in connection with any of the returns or taxes asserted as
due from the Company or its subsidiaries, and no waivers of statutes of
limitation with respect to the returns or collection of taxes have been given by
or requested from the Company or its subsidiaries. The term “taxes” means all
federal, state, local, foreign, and other net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease,
service, service use, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, windfall profits, customs, duties or other
taxes, fees, assessments, or charges of any kind whatever, together with any
interest and any penalties, additions to tax, or additional amounts with respect
thereto. The term “returns” means all returns, declarations, reports,
statements, and other documents required to be filed by the Company and its
subsidiaries in respect to taxes.

 

(y)           Licenses and Permits. The Company and each of its subsidiaries
possesses all necessary authorizations, approvals, consents, orders, licenses,
certificates and permits of and from all governmental or regulatory bodies
(collectively, the “Permits”), to own, lease and license its assets and
properties and conduct its business, all of which are valid and in full force
and effect, except where the lack of such Permits, individually or in the
aggregate, would not have a Material Adverse Effect. Except as described in the
Time of Sale Information and the Offering Memorandum, neither the Company nor
any of its subsidiaries has received notice of any revocation or modification of
any such license, certificate, permit or authorization or has any reason to
believe that any such license, certificate, permit or authorization will not be
renewed in the ordinary course. Except as may be required under the Securities
Act and state and foreign Blue Sky laws, no other Permits are required to enter
into, deliver and perform this Agreement and to issue and sell the Securities.

 

(z)           No Labor Disputes. Neither the Company nor any of its subsidiaries
is involved in any labor dispute nor, to the knowledge of the Company, is any
such dispute threatened, which dispute would reasonably be expected have a
Material Adverse Effect. To the Company’s knowledge, no existing or imminent
labor disturbance by the employees of any of its principal suppliers or
contractors would reasonably be expected to have a Material Adverse Effect. To
the Company’s knowledge, there is no threatened or pending litigation between
the Company or its subsidiaries and any of its executive officers which, if
adversely determined, would have a Material Adverse Effect.

 

(aa)        Compliance with and Liability under Environmental Laws. Except as
disclosed in the Time of Sale Information and the Offering Memorandum, (i) the
Company and each of its subsidiaries is in compliance in all material respects
with all rules, laws and regulations relating to the use, treatment, storage and
disposal of toxic substances and protection of health or the environment
(“Environmental Laws”), which are applicable to its business; (ii) neither the
Company nor its subsidiaries has received any written notice from any
governmental authority or third party of an asserted claim under Environmental
Laws; (iii) the Company and each of its subsidiaries has received all permits,
licenses or other approvals required of it under applicable Environmental Laws
to conduct its business and is in compliance in all material respects with all
terms and conditions of any such permit, license or approval; and (iv) no
property which is or has been owned, leased or occupied by the Company or its
subsidiaries has been designated as a Superfund site pursuant to the
Comprehensive Environmental Response, Compensation of Liability Act of 1980, as
amended (42 U.S.C. Section 9601, et. seq.) (“CERCLA 1980”) or otherwise
designated as a contaminated site under applicable state or local law. Neither
the Company nor any of its subsidiaries has been named as a “potentially
responsible party” under the CERCLA 1980.

 

9

 

 

(bb)        Compliance with ERISA. The Company has fulfilled its obligations, if
any, in all material respects under the minimum funding standards of Section 302
of the United States Employee Retirement Income Security Act of 1974 (“ERISA”)
and the regulations and published interpretations thereunder with respect to
each “plan” as defined in Section 3(3) of ERISA and such regulations and
published interpretations in which its employees are eligible to participate and
each such plan is in compliance in all material respects with the presently
applicable provisions of ERISA and such regulations and published
interpretations. No “Reportable Event” (as defined in 12 ERISA) has occurred
with respect to any “Pension Plan” (as defined in ERISA) for which the Company
could have any liability.

 

(cc)         Disclosure Controls. The Company has established and maintains
disclosure controls and procedures (as such term is defined in Rule 13a-15 under
the Exchange Act), which are designed to ensure that material information
relating to the Company is made known to the Company’s principal executive
officer and its principal financial officer by others within the Company. Except
as disclosed in the Time of Sale Information and the Offering Memorandum, such
disclosure controls and procedures are effective.

 

The Company has carried out evaluations of the effectiveness of such disclosure
controls and procedures as required by Rule 13a-15 of the Exchange Act. Based on
the evaluation of its disclosure controls and procedures, except as disclosed in
the Time of Sale Information and the Offering Memorandum, the Company is not
aware of (i) any material weakness or significant deficiency in the design or
operation of internal controls which could adversely affect the Company’s
ability to record, process, summarize and report financial data or any material
weaknesses in internal controls; or (ii) any fraud, whether or not material,
that involves management or other employees who have a role in the Company’s
internal controls.

 

(dd)         Accounting Controls. The books, records and accounts of the Company
and its subsidiaries accurately and fairly reflect in all material respects the
transactions in, and dispositions of, the assets of, and the results of
operations of, the Company and its subsidiaries. Except as disclosed in the
Preliminary Offering Memorandum and the Offering Memorandum, the Company and
each of its subsidiaries maintains a system of internal accounting controls
sufficient to provide reasonable assurances 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 accordance 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.

 

(ee)          eXtensible Business Reporting Language. The interactive data in
eXtensible Business Reporting Language included or incorporated by reference in
the Time of Sale Information and the Offering Memorandum fairly presents the
information called for in all material respects and has been prepared in
accordance with the Commission’s rules and guidelines applicable thereto.

 

(ff)          Insurance. The Company and its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are customary in the businesses in which they are engaged
or propose to engage after giving effect to the transactions described in the
Time of Sale Information and Offering Memorandum; all policies of insurance and
fidelity or surety bonds insuring the Company or any of its subsidiaries or the
Company’s or its subsidiaries’ respective businesses, assets, employees,
officers and directors are in full force and effect; the Company and each of its
subsidiaries are in compliance with the terms of such policies and instruments
in all material respects; and neither the Company nor any subsidiary of the
Company has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business at a
cost that is not materially greater than the current cost. Neither the Company
nor any of its subsidiaries has been denied any insurance coverage which it has
sought or for which it has applied.

 

(gg)        No Unlawful Payments. Neither the Company nor any other person
associated with or acting on behalf of the Company (including, without
limitation, any director, officer, agent or employee of the Company or its
subsidiaries), has , directly or indirectly, while acting on behalf of the
Company or its subsidiaries (i) used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity; (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; (iii) violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any other unlawful
payment.

 

10

 

 

 

(hh)       Compliance with Anti-Money Laundering Laws. The operations of the
Company and its subsidiaries are and have been conducted at all times in
compliance with applicable financial recordkeeping and reporting requirements of
the Currency and Foreign Transactions Reporting Act of 1970, as amended, the
money laundering statutes of all jurisdictions, the rules and regulations
thereunder and any related or similar rules, regulations or guidelines, issued,
administered or enforced by any governmental agency (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 of its subsidiaries with respect to the Money Laundering Laws is pending,
or to the best knowledge of the Company, threatened.

 

(ii)          No Conflicts with Sanctions Laws. Neither the Company nor any of
its subsidiaries nor, to the knowledge of the Company, any director, officer,
agent, employee or affiliate of the Company or any of its subsidiaries is
currently subject to any United States sanctions administered by the Office of
Foreign Assets Control of the United States Treasury Department (“OFAC”); and
the Company will not directly or indirectly use the proceeds of the offering, or
lend, contribute or otherwise make available such proceeds to any subsidiary,
joint venture partner or other person or entity, for the purpose of financing
the activities of any person currently subject to any United States sanctions
administered by OFAC.

 

(jj)           No Restrictions on Subsidiaries. No subsidiary of the Company is
currently prohibited, directly or indirectly, under any agreement or other
instrument to which it is a party or is subject, from paying any dividends to
the Company, from making any other distribution on such subsidiary’s capital
stock, from repaying to the Company any loans or advances to such subsidiary
from the Company or from transferring any of such subsidiary’s properties or
assets to the Company or any other subsidiary of the Company, except for
restrictions imposed by governmental laws or regulations of countries outside
the United States or actions taken by companies in order to comply with such
laws and regulations, including but not limited to the subordination of certain
loans to creditors in the ordinary course of business, and such other
restrictions that would not reasonably be likely to result in a Material Adverse
Effect.

 

(kk)        No Broker’s Fees. Except as disclosed in the Time of Sale
Information and the Offering Memorandum, neither the Company nor any of its
subsidiaries is a party to any contract, agreement or understanding with any
person (other than this Agreement) that would give rise to a valid claim against
the Company or any of its subsidiaries or any Initial Purchaser for a brokerage
commission, finder’s fee or like payment in connection with the offering and
sale of the Securities or any of the transactions contemplated by the
Transaction Documents.

 

(ll)          Rule 144A Eligibility. On the Closing Date, the Securities will
not be of the same class as securities listed on a national securities exchange
registered under Section 6 of the Exchange Act or quoted in an automated
inter-dealer quotation system; and each of the Time of Sale Information, as of
the Time of Sale, and the Offering Memorandum, as of its date, contains or will
contain all the information that, if requested by a prospective purchaser of the
Securities, would be required to be provided to such prospective purchaser
pursuant to Rule 144A(d)(4) under the Securities Act.

 

(mm)      No Integration. Neither the Company nor any of its affiliates (as
defined in Rule 501(b) of Regulation D) has, directly or through any agent,
sold, offered for sale, solicited offers to buy or otherwise negotiated in
respect of, any security (as defined in the Securities Act), that is or will be
integrated with the sale of the Securities in a manner that would require
registration of the Securities under the Securities Act.

 

(nn)        No General Solicitation or Directed Selling Efforts. None of the
Company or any of its affiliates or any other person acting on its or their
behalf (other than the Initial Purchasers, as to which no representation is
made) has (i) solicited offers for, or offered or sold, the Securities by means
of any form of general solicitation or general advertising within the meaning of
Rule 502(c) of Regulation D or in any manner involving a public offering within
the meaning of Section 4(a)(2) of the Securities Act or (ii) engaged in any
directed selling efforts within the meaning of Regulation S under the Securities
Act (“Regulation S”), and all such persons have complied with the offering
restrictions requirement of Regulation S.

 

11

 

 

(oo)        Securities Law Exemptions. To the Company’s knowledge, neither the
Company nor any (i) director or executive officer of the Company, (ii) other
officer of the Company participating in the offering of the Securities, (iii)
any beneficial owner of 20% or more of the Company’s outstanding voting equity
securities, calculated on the basis of voting power, or (iv) promoter connected
with the Company in any capacity on the date hereof (collectively, “Insiders”)
is subject to any of the “Bad Actor” disqualifications described in Rule
506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”),
except for a Disqualification Event covered by Rule 506(d)(2)(i) or (d)(3) of
the Securities Act. The Company is not disqualified from relying on Rule 506 of
Regulation D under the Securities Act (“Rule 506”) for any of the reasons stated
in Rule 506(d) in connection with the issuance and sale of the Securities to the
Initial Purchasers pursuant to this Agreement. The Company has exercised
reasonable care, including without limitation, conducting a factual inquiry that
is appropriate in light of the circumstances, into whether any such
disqualification under Rule 506(d) exists. Any outstanding securities of the
Company (of any kind or nature) that were issued in reliance on Rule 506 at any
time on or after September 23, 2013 have been issued in compliance with Rule
506(d) and (e). Assuming the accuracy of the representations and warranties of
the Initial Purchasers contained in Section 2(b) and their compliance with their
agreements set forth therein, it is not necessary, in connection with the
issuance and sale of the Securities to the Initial Purchasers and the offer,
resale and delivery of the Securities by the Initial Purchasers in the manner
contemplated by this Agreement, the Time of Sale Information and the Offering
Memorandum, to register the Securities under the Securities Act or to qualify
the Indenture under the Trust Indenture Act of 1939, as amended.

 

(pp)       No Stabilization. The Company has not taken, directly or indirectly,
any action designed to or that could reasonably be expected to cause or result
in any stabilization or manipulation of the price of the Securities or the
Underlying Securities.

 

(qq)        Margin Rules. Neither the issuance, sale and delivery of the
Securities nor the application of the proceeds thereof by the Company as
described in the Time of Sale Information and the Offering Memorandum will
violate Regulation T, U or X of the Board of Governors of the Federal Reserve
System or any other regulation of such Board of Governors.

 

(rr)          Forward-Looking Statements. No forward-looking statement (within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act) contained in the Time of Sale Information or the Offering Memorandum has
been made or reaffirmed without a reasonable basis or has been disclosed other
than in good faith.

 

(ss)        Statistical and Market Data. The statistical and market related data
included or incorporated by reference in the Time of Sale Information or the
Offering Memorandum are based on or derived from sources that the Company
believes to be reliable and accurate in all material respects.

 

(tt)         Sarbanes-Oxley Act. The Company is in compliance in all material
respects with all applicable provisions of the Sarbanes-Oxley Act of 2002, as
amended (the “Sarbanes-Oxley Act”), any related rules and regulations
promulgated by the Commission and corporate governance requirements under
applicable NASDAQ Stock Market LLC (“NASDAQ”) regulations. There is and has been
no failure on the part of the Company or any of its directors or officers, in
their capacities as such, to comply in all material respects with any provision
of the Sarbanes-Oxley Act, including, without limitation, Section 402 related to
loans and Sections 302 and 906 related to certifications.

 

(uu)       Off Balance Sheet Arrangements. Except as described in the Time of
Sale Information and the Offering Memorandum, there are no material off-balance
sheet arrangements (as defined in Item 303 of Regulation S-K) that have or are
reasonably likely to have a material current or future effect on the Company’s
financial condition, revenues or expenses, changes in financial condition,
results of operations, liquidity, capital expenditures or capital resources.

 

12

 

 

(vv)       No Registration Rights; Lock-Ups. No person or entity has any right
to require, or cause the Company or the Guarantors to effect, registration of
shares of Common Stock or other securities of the Company or any Guarantor
because of the consummation of the transactions contemplated by the Transaction
Documents, except for persons and entities who have expressly waived such right
in writing or who have been given timely and proper written notice and have
failed to exercise such right within the time or times required under the terms
and conditions of such right. Each director and executive officer of the Company
listed on Schedule 2 hereto has delivered to the Representative an enforceable
written lock-up agreement in the form attached to this Agreement as Exhibit A
hereto (“Lock-Up Agreement”).

 

(ww)       NASDAQ. The Company has taken no action designed to, or likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act or the listing of the Common Stock on the NASDAQ Capital Market,
nor has the Company received any notification that the Commission or the NASDAQ
Capital Market is contemplating terminating such registration or listing.

 

(xx)        Audit Committee. The Company’s board of directors has validly
appointed an audit committee whose composition satisfies the requirements of the
NASDAQ and the board of directors and/or the audit committee has adopted a
charter that satisfies the requirements of the NASDAQ.

 

(yy)        No Prohibited Activities. Except as described in the Time of Sale
Information and the Offering Memorandum and as preapproved in accordance with
the requirements set forth in Section 10A of the Exchange Act, Marcum has not
been engaged by the Company to perform any “prohibited activities” (as defined
in Section 10A of the Exchange Act).

 

(zz)         Approvals. Each approval, consent, order, authorization,
designation, declaration or filing of, by or with any regulatory, administrative
or other governmental body necessary in connection with the execution and
delivery by the Company and the Guarantors of the Transaction Documents and the
consummation of the transactions therein contemplated required to be obtained or
performed by the Company (except such additional steps as may be required by the
Financial Industry Regulatory Authority (“FINRA”) or NASDAQ or as may be
necessary to qualify the Securities for public offering by the Initial
Purchasers under the state securities or Blue Sky laws) has been obtained or
made and is in full force and effect.

 

(aaa)       Collateral Documents. Each of the Collateral Documents, once
executed and delivered, will be effective to create in favor of the Collateral
Agent for the benefit of the secured parties named therein, legal, valid and
enforceable liens on, and security interests in, all property pledged or granted
as Collateral pursuant to the Collateral Documents. When (i) the Mortgages are
recorded in the official real property records of the County and State where the
real property which comprises a part of the Collateral (the “Mortgage
Collateral”) is located, and all filing fees and mortgage recording taxes
payable with respect thereto have been paid in full, (ii) financing statements
and other filings in appropriate form are filed in the offices specified in
Section 2 to the Perfection Certificate, and (iii) the Collateral Agent has
taken possession or control of any Collateral (which possession or control shall
be given to the Collateral Agent to the extent possession or control by the
Collateral Agent is required by the applicable Collateral Document), the liens
created by the Collateral Documents shall constitute fully perfected, and as the
Mortgage Collateral first priority, liens on, and security interests in, all
right, title and interest of the Grantors in the Collateral, to the extent that
under applicable law such security interest in the Collateral (other than
Mortgage Collateral) can be perfected by such filings or such possession or
control and to the extent that under applicable law such security interest in
the Mortgage Collateral can be perfected by such recording, in each case subject
to no Liens other than Permitted Liens (as to all Collateral other than the
Mortgage Collateral) or Permitted Encumbrances (as to the Mortgage Collateral).

 

(bbb)      Solvency. All indebtedness represented by the Securities is being
incurred for proper purposes and in good faith. On the Closing Date, after
giving pro forma effect to this offering and the use of proceeds therefrom as
indicated in the “Use of Proceeds” section of the Time of Sale Information and
the Offering Memorandum, the Company and each Guarantor (i) will be solvent,
(ii) will have sufficient capital for carrying on its business and (iii) will be
able to pay its debts as they mature. As used in this paragraph, the term
“Solvent” means, with respect to a particular date, that on such date (i) the
present fair market value (or present fair saleable value) of the assets of the
Company and each Guarantor is not less than the total amount required to pay the
liabilities of the Company and each Guarantor on its total existing debts and
liabilities (including contingent liabilities) as they become absolute and
matured; (ii) the Company and each Guarantor is able to pay its debts and other
liabilities, contingent obligations and commitments as they mature and become
due in the normal course of business; (iii) assuming consummation of the
issuance of the Securities, neither the Company nor any Guarantor is incurring
debts or liabilities beyond its ability to pay as such debts and liabilities
mature; (iv) neither the Company nor any Guarantor is engaged in any business or
transaction, and does not propose to engage in any business or transaction, for
which its property would constitute unreasonably small capital after giving due
consideration to the prevailing practice in the industry in which the Company or
any Guarantor is engaged; and (v) neither the Company nor any Guarantor is
otherwise insolvent under the standards set forth in applicable laws.

 

13

 

 

(ccc)      Certificates. Each certificate signed by any officer of the Company,
or any subsidiary thereof, delivered to the Initial Purchasers shall be deemed a
representation and warranty by the Company or any such subsidiary thereof (and
not individually by such officer) to the Initial Purchasers with respect to the
matters covered thereby. All information certified by an officer of the Company
in the Perfection Certificate, dated as of the Closing Date, and delivered by
such officer on behalf of the Company, is and will be true and correct as of any
Closing Date.

 

4.            Further Agreements of the Company and the Guarantors. The Company
and the Guarantors jointly and severally covenant and agree with each Initial
Purchaser that:

 

(a)          Delivery of Copies. The Company will deliver to the Initial
Purchasers and counsel for the Initial Purchasers as many copies of the
Preliminary Offering Memorandum, any other Time of Sale Information, any Issuer
Written Communication and the Offering Memorandum (including all amendments and
supplements thereto) as the Representative may reasonably request.

 

(b)          Offering Memorandum, Amendments or Supplements. Before finalizing
the Offering Memorandum or making or distributing any amendment or supplement to
any of the Time of Sale Information or the Offering Memorandum or filing with
the Commission any document that will be incorporated by reference therein, the
Company will furnish to the Representative and counsel for the Initial
Purchasers a copy of the proposed Offering Memorandum or such amendment or
supplement or document to be incorporated by reference therein for review, and
will not distribute any such proposed Offering Memorandum, amendment or
supplement or file any such document with the Commission to which the
Representative reasonably objects except as required by law.

 

(c)           Additional Written Communications. Before making, preparing,
using, authorizing, approving or referring to any Issuer Written Communication,
the Company will furnish to the Representative and counsel for the Initial
Purchasers a copy of such written communication for review and will not make,
prepare, use, authorize, approve or refer to any such written communication to
which the Representative reasonably objects.

 

(d)           Notice to the Representative. The Company will advise the
Representative promptly, and confirm such advice in writing, in the event that
it becomes aware (i) of the issuance by any governmental or regulatory authority
of any order preventing or suspending the use of any of the Time of Sale
Information, any Issuer Written Communication or the Offering Memorandum or the
Company’s receipt of notification of the initiation or threatening of any
proceeding for that purpose; (ii) of the occurrence or development of any event
at any time prior to the completion of the initial offering of the Securities as
a result of which any of the Time of Sale Information, any Issuer Written
Communication or the Offering Memorandum as then amended or supplemented would
include any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances existing when such Time of Sale Information, Issuer Written
Communication or the Offering Memorandum is delivered to a purchaser, not
misleading; and (iii) of the receipt by the Company of any notice with respect
to any suspension of the qualification of the Securities for offer and sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; and the Company will use its reasonable best efforts to prevent the
issuance of any such order preventing or suspending the use of any of the Time
of Sale Information, any Issuer Written Communication or the Offering Memorandum
or suspending any such qualification of the Securities and, if any such order is
issued, will use its reasonable best efforts to obtain as soon as possible the
withdrawal thereof.

 

14

 

 

(e)          Ongoing Compliance of the Offering Memorandum and Time of Sale
Information. (1) If at any time prior to the earlier of one year from the date
hereof and completion of the initial offering of the Securities (i) any event or
development shall occur or condition shall exist as a result of which the
Offering Memorandum as then amended or supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances existing
when the Offering Memorandum is delivered to a purchaser, not misleading or (ii)
it is necessary to amend or supplement the Offering Memorandum to comply with
law, the Company will promptly notify the Initial Purchasers thereof and
forthwith prepare and, subject to paragraph (b) above, furnish to the Initial
Purchasers such amendments or supplements to the Offering Memorandum (or any
document to be filed with the Commission and incorporated by reference therein)
as may be necessary so that the statements in the Offering Memorandum as so
amended or supplemented (or including such document to be incorporated by
reference therein) will not, in the light of the circumstances existing when the
Offering Memorandum is delivered to a purchaser, be misleading or so that the
Offering Memorandum will comply with law and (2) if at any time prior to the
Closing Date (i) any event or development shall occur or condition shall exist
as a result of which any of the Time of Sale Information as then amended or
supplemented would include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading or
(ii) it is necessary to amend or supplement any of the Time of Sale Information
to comply with law, the Company will promptly notify the Initial Purchasers
thereof and forthwith prepare and, subject to paragraph (b) above, furnish to
the Initial Purchasers such amendments or supplements to any of the Time of Sale
Information (or any document to be filed with the Commission and incorporated by
reference therein) as may be necessary so that the statements in any of the Time
of Sale Information as so amended or supplemented will not, in light of the
circumstances under which they were made, be misleading.

 

(f)           Blue Sky Compliance. The Company shall cooperate with the
Representative and its counsel in endeavoring to qualify the Securities and the
Underlying Securities for offer and sale in connection with the offering under
the laws of such jurisdictions as the Representative may designate and shall
endeavor to maintain such qualifications in effect so long as required for the
distribution of the Securities; provided, however, that the Company shall not be
required in connection therewith, as a condition thereof, to qualify as a
foreign corporation or to execute a general consent to service of process in any
jurisdiction or subject itself to taxation as doing business in any
jurisdiction.

 

(g)           Clear Market. Without the prior written consent of Oppenheimer &
Co. Inc., for a period of 90 days after the date of this Agreement, the Company
and each of its individual directors and executive officers listed on Schedule 2
hereto shall not issue, sell or register with the Commission (other than on Form
S-8 or on any successor form), or otherwise dispose of, directly or indirectly,
any equity securities of the Company (or any securities convertible into,
exercisable for or exchangeable for equity securities of the Company), except
for (A) the Securities to be sold hereunder, the Underlying Securities issuable
upon conversion of the Securities and Additional Shares issuable pursuant to the
terms of the Indenture, (B) the issuance of shares of Common Stock upon the
exercise of warrants and other contractual rights to purchase shares of Common
Stock outstanding on the date of this Agreement, and (C) the issuance of awards
for and shares of Common Stock pursuant to the Company’s existing stock option
plan or bonus plan as described in the Time of Sale Information and Offering
Memorandum.

 

(h)          Use of Proceeds. The Company will apply the net proceeds from the
offering of the Securities in the manner set forth under “Use of Proceeds” in
the Time of Sale Information and the Offering Memorandum.

 

(i)            No Stabilization. Except as disclosed in the Time of Sale
Information and the Offering Memorandum, the Company will not take, directly or
indirectly, any action designed to or that would reasonably be expected to cause
or result in any stabilization or manipulation of the price of the Securities
and will not take any action prohibited by Regulation M under the Exchange Act
in connection with the distribution of the Securities contemplated hereby.

 

15

 

 

(j)           Underlying Securities; Additional Shares. The Company will reserve
and keep available at all times, free from pre-emptive rights, a number of
shares of Common Stock equal to the Maximum Share Reserve (less any number of
shares theretofore issued as Underlying Securities or Additional Shares) for the
purpose of enabling the Company to satisfy all obligations to issue the
Underlying Securities upon conversion of the outstanding Securities and, if the
Company so elects, to issue the Additional Shares. The Company shall use the
Maximum Conversion Share Reserve exclusively for the issuance of the Underlying
Securities (assuming that the maximum increase to the conversion rate upon a
Dilutive Issuance pursuant to Section 9.04(f) of the Indenture applies) and may
use the Maximum Additional Share Reserve for the issuance of Additional Shares.
No Additional Shares shall be issued by the Company to the extent that the
shares of Common Stock remaining in the Maximum Share Reserve would, after
giving effect to such issuance, be less than the remaining Underlying Securities
that could then be issued pursuant to the Notes (calculated as provided in the
prior sentence). For the avoidance of doubt, the Maximum Share Reserve (and, as
a result, the Maximum Additional Share Reserve) may be increased by the Company
to the extent that the Company obtains the requisite Stockholder Approval
pursuant to NASDAQ Marketplace Rule 5635(c) or the listing requirements of any
other Relevant Stock Exchange.

 

(k)          Exchange Listing. The Company will use its best efforts to effect
and maintain the listing of the Underlying Securities and any Additional Shares
issued by the Company on the NASDAQ Market.

 

(l)            Conversion Price. Between the date hereof and the Closing Date,
the Company will not do or authorize any act or thing that would result in an
adjustment of the conversion price.

 

(m)          Supplying Information. While the Securities remain outstanding and
are “restricted securities” within the meaning of Rule 144(a)(3) under the
Securities Act, the Company will, during any period in which the Company is not
subject to and in compliance with Section 13 or 15(d) of the Exchange Act,
furnish to holders of the Securities, prospective purchasers of the Securities
designated by such holders and securities analysts, in each case upon request,
the information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.

 

(n)          DTC. The Company will assist the Initial Purchasers in arranging
for the Securities to be eligible for clearance and settlement through DTC.

 

(o)           No Resales by the Company. During the period from the Closing Date
until one year after the Closing Date, the Company will not, and will not permit
any of its affiliates (as defined in Rule 144 under the Securities Act) to,
resell any of the Securities that have been acquired by any of them, except for
Securities purchased by the Company or any of its affiliates and resold in a
transaction registered under the Securities Act.

 

(p)           No Integration. Neither the Company nor any of its affiliates (as
defined in Rule 501(b) of Regulation D) will, directly or through any agent,
sell, offer for sale, solicit offers to buy or otherwise negotiate in respect
of, any security (as defined in the Securities Act), that is or will be
integrated with the sale of the Securities in a manner that would require
registration of the Securities under the Securities Act.

 

(q)          No General Solicitation or Directed Selling Efforts. None of the
Company or any of its affiliates or any other person acting on its or their
behalf (other than the Initial Purchasers, as to which no covenant is given)
will (i) solicit offers for, or offer or sell, the Securities by means of any
form of general solicitation or general advertising within the meaning of Rule
502(c) of Regulation D or in any manner involving a public offering within the
meaning of Section 4(a)(2) of the Securities Act or (ii) engage in any directed
selling efforts within the meaning of Regulation S, and all such persons will
comply with the offering restrictions requirement of Regulation S.

 

(r)           No Public Announcements. Prior to the Closing Date, the Company
will issue no press release or other communications directly or indirectly and
hold no press conference with respect to the Company, the condition, financial
or otherwise, or the earnings, business affairs or business prospects of any of
them, or the offering of the Securities, without the prior written consent of
the Representative, which shall not be unreasonably delayed or withheld, unless
in the judgment of the Company and its counsel, and after notification to the
Representative, such press release or communication is required by law.

 

(s)           Performance of Transaction Documents. The Company and the
Guarantors shall do and perform all things required to be done and performed
under the Transaction Documents prior to and after the Closing Date.

 

5.            Certain Agreements of the Initial Purchasers. Each Initial
Purchaser hereby represents and agrees that it has not and will not use,
authorize use of, refer to, or participate in the planning for use of, any
written communication that constitutes an offer to sell or the solicitation of
an offer to buy the Securities other than (i) the Preliminary Offering
Memorandum and the Offering Memorandum, (ii) a written communication that
contains no “issuer information” (as defined in Rule 433(h)(2) under the
Securities Act) that was not included (including through incorporation by
reference) in the Preliminary Offering Memorandum or the Offering Memorandum,
(iii) the term sheet attached hereto as Annex A or any written communication
prepared pursuant to Section 4(c) above (including any electronic road show),
(iv) any written communication prepared by such Initial Purchaser and approved
by the Company in advance in writing or (v) any written communication relating
to or that contains the terms of the Securities and/or other information that
was included (including through incorporation by reference) in the Preliminary
Offering Memorandum or the Offering Memorandum. No Initial Purchaser nor any of
its affiliates or any other person acting on its or their behalf will solicit
offers for, or offer or sell, the Securities by means of any form of general
solicitation or general advertising within the meaning of Rule 502(c) of
Regulation D or in any manner involving a public offering within the meaning of
Section 4(a)(2) of the Securities Act.

 

16

 

 

6.            Conditions of Initial Purchasers’ Obligations. The obligation of
each Initial Purchaser to purchase the Securities on the Closing Date, as
provided herein is subject to the performance by the Company and the Guarantors
of their covenants and other obligations hereunder and to the following
additional conditions:

 

(a)          Representations and Warranties. The representations and warranties
of the Company and the Guarantors contained in this Agreement, in each of the
other Transaction Documents, in the Perfection Certificate and in the
certificates delivered pursuant to Section 6(c) shall be true and correct when
made and on and as of the Closing Date, as if made on such date, except for
representations and warranties that speak solely as of an earlier date, which
shall be true and correct as of such earlier date. The Company and the
Guarantors and each other party to the Transaction Documents (other than the
Initial Purchasers) shall have performed all covenants and agreements and
satisfied all the conditions on their respective parts required to be performed
or satisfied at or before such Closing Date.

 

(b)          No Material Adverse Change. The Representative shall be reasonably
satisfied that since the respective dates as of which information is given in
the Time of Sale Information and the Offering Memorandum, (i) there shall not
have been any material change in the capital stock of the Company or any
material change in the indebtedness (other than in the ordinary course of
business) of the Company, (ii) except as set forth in or contemplated by the
Time of Sale Information or the Offering Memorandum, no material oral or written
agreement or other transaction shall have been entered into by the Company that
is not in the ordinary course of business or that could reasonably be expected
to result in a material reduction in the future earnings of the Company, (iii)
no loss or damage (whether or not insured) to the property of the Company shall
have been sustained that had or could reasonably be expected to have a Material
Adverse Effect, (iv) no legal or governmental action, suit or proceeding
affecting the Company or any of its properties that is material to the Company
or that affects or would reasonably be expected to affect the transactions
contemplated by the Transaction Documents shall have been instituted or
threatened and (v) there shall not have been any material change in the assets,
properties, condition (financial or otherwise), or in the results of operations,
business affairs or business prospects of the Company or its subsidiaries
considered as a whole that makes it impractical or inadvisable in the
Representative’s reasonable judgment to proceed with the purchase or offering of
the Securities as contemplated hereby.

 

(c)           Officer’s Certificate. The Representative shall have received on
and as of the Closing Date, a certificate, on behalf of the Company and the
Guarantors, of the chief executive officer and the chief financial officer and
chief accounting officer of the Company and the Guarantors: (i) confirming that
such officers has carefully reviewed the Time of Sale Information and the
Offering Memorandum and, to the knowledge of such officer, the representations
set forth in Sections 3(b) and 3(d) hereof are true and correct, (ii) confirming
that the other representations and warranties of the Company and the Guarantors
in the Transaction Documents are true and correct and that the Company and the
Guarantors have complied in all material respects with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder at
or prior to the Closing Date, and (iii) to the effect set forth in paragraphs
(a) and (b) above.

 

(d)          Comfort Letters. On the date of this Agreement and on the Closing
Date, Marcum LLP shall have furnished to the Representative, at the request of
the Company, letters, dated the respective dates of delivery thereof and
addressed to the Initial Purchasers, in form and substance reasonably
satisfactory to the Representative, containing statements and information of the
type customarily included in accountants’ “comfort letters” to the Initial
Purchasers with respect to the financial statements and certain financial
information contained or incorporated by reference in the Time of Sale
Information and the Offering Memorandum; provided, that the letter delivered on
the Closing Date, shall use a “cut-off” date no more than three business days
prior to such Closing Date.

  

17

 

 

(e)          Opinion and 10b-5 Statement of Counsel for the Company and the
Guarantors. K&L Gates LLP, counsel for the Company and the Guarantors, shall
have furnished to the Representative, at the request of the Company, its written
opinion and 10b-5 statement, dated the Closing Date, and addressed to the
Initial Purchasers, in form and substance reasonably satisfactory to the
Representative.

 

(f)            Opinion and 10b-5 Statement of Intellectual Property Counsel for
the Company and the Guarantors. OGAWA Professional Corporation, intellectual
property counsel for the Company and the Guarantors, shall have furnished to the
Representative, a written opinion and 10b-5 statement, dated the Closing Date,
and addressed to the Initial Purchasers, in form and substance reasonably
satisfactory to the Representative.

 

(g)           10b-5 Statement of Counsel for the Initial Purchasers. The
Representative shall have received on and as of the Closing Date, a 10b-5
statement of Lowenstein Sandler LLP, counsel for the Initial Purchasers, with
respect to such matters as the Representative may reasonably request, and such
counsel shall have received such documents and information as it may reasonably
request to enable it to pass upon such matters.

 

(h)            No Legal Impediment to Issuance. No action shall have been taken
and no statute, rule, regulation or order shall have been enacted, adopted or
issued by any federal, state or foreign governmental or regulatory authority
that would, as of the Closing Date, prevent the issuance or sale of the
Securities or the performance of the other transactions contemplated by the
Transaction Documents; and no injunction or order of any federal, state or
foreign court shall have been issued that would, as of the Closing Date, prevent
the issuance or sale of the Securities or the performance of the other
transactions contemplated by the Transaction Documents.

 

(i)            Good Standing. The Representative shall have received on and as
of the Closing Date, satisfactory evidence of the good standing of the Company
and the Guarantors in their respective jurisdictions of organization and their
good standing as a foreign entity in such other jurisdictions as the
Representative may reasonably request, in each case in writing or any standard
form of telecommunication from the appropriate governmental authorities of such
jurisdictions.

 

(j)            DTC. The Securities shall have been designated TRACE securities
in accordance with the rules and regulations adopted by FINRA relating to
trading in the TRACE Market and all agreements set forth in the representation
letter of the Company and the Guarantors to DTC relating to the approval of the
Securities by DTC for “book-entry” transfer shall have been complied with.

 

(k)           Exchange Listing. An application for the listing of a number of
shares of Common Stock equal to the Maximum Share Reserve shall have been
approved for listing on the NASDAQ Market, subject to official notice of
issuance.

 

(l)            Lock-up Agreements. The “lock-up” agreements, each substantially
in the form of Exhibit A hereto, between the Representative and the executive
officers and directors of the Company relating to sales and certain other
dispositions of shares of Common Stock or certain other securities, delivered to
the Representative on or before the date hereof, shall be in full force and
effect on the Closing Date.

 

(m)          Registration Rights Agreement. On or prior to the Closing Date, the
Company and the Guarantors shall have executed and delivered to the Initial
Purchasers the Registration Rights Agreement.

 

(n)            Insurance Policies. The Company shall have delivered evidence
satisfactory to the Initial Purchasers and the Collateral Agent that the
insurance policies required by the Indenture and any Collateral Document are in
full force and effect together with, in respect of those insurance policies
maintained with respect to the properties of the Guarantors, certificates naming
the Collateral Agent, on behalf of the secured parties, as an additional insured
and/or loss payee and stating that cancellation, material addition in amount or
material change in coverage shall not be effective until 30 days after written
notice to the Collateral Agent.

  

18

 

 

(o)         Payment of Collateral Fees. The Company shall have delivered
evidence acceptable to the Initial Purchasers of payment or arrangements for
payment by the Company or the Guarantors of all applicable recording taxes,
fees, charges, costs and expenses required for the recording of the Collateral
Documents.

 

(p)         Delivery of Pledged Shares. The Company shall have delivered all
certificates, agreements or instruments representing or evidencing capital stock
pledged to the Collateral Agent (the “Pledged Shares”) accompanied by
instruments of transfer and stock powers undated and endorsed in blank.

 

(q)         Collateral Agent Deliveries. The Collateral Agent shall have
received (with a copy for each of the Initial Purchasers) on the Closing Date:

 

(i)        appropriately completed copies of Uniform Commercial Code financing
statements naming the Company and each Guarantor as a debtor and the Collateral
Agent as the secured party, or other similar instruments or documents to be
filed under the UCC of all jurisdictions as may be necessary to perfect the
security interests of the Collateral Agent pursuant to the Collateral
Agreements;

 

(ii)       appropriately completed copies of Uniform Commercial Code Form UCC-3
termination statements, if any, necessary to release all Liens (other than
Permitted Liens or Permitted Encumbrances, as applicable) of any Person in any
collateral described in any security agreement previously granted by any Person;

 

(iii)      certified copies of Uniform Commercial Code Requests for Information
or Copies (Form UCC-11), or a similar search report certified by a party
acceptable to the Initial Purchasers, dated a date reasonably near to the
Closing Date, listing all effective financing statements which name the Company
or any Guarantor (under its present name and any previous names) as the debtor,
together with copies of such financing statements (none of which shall cover any
collateral described in any Collateral Document, other than such financing
statements that evidence Permitted Liens or permitted Encumbrances, as
applicable); and

 

(iv)      such other approvals, opinions, or documents as the Collateral Agent
may reasonably request in form and substance reasonably satisfactory to the
Collateral Agent.

 

(r)          Liens. The Initial Purchasers and its counsel shall be reasonably
satisfied that (i) the Liens granted to the Collateral Agent, for the benefit of
the secured parties in the Collateral is of the priority described in the Time
of Sale Information and the Offering Memorandum; and (ii) no Lien exists on any
of the Collateral other than the Liens created in favor of the Collateral Agent,
for the benefit of the secured parties, pursuant to the Collateral Documents, in
each case subject only to Permitted Liens or Permitted Encumbrances, as
applicable.

 

(s)         Transaction Documents. Each of the Transaction Documents shall have
been executed and delivered by all parties thereto (other than the Initial
Purchasers), and the Initial Purchasers shall have received a fully executed
original of each Transaction Document. The terms of each Transaction Document
shall conform in all material respects to the description thereof in the Time of
Sale Information and the Offering Memorandum.

 

(t)          Additional Documents. On or prior to the Closing Date, the Company
and the Guarantors shall have furnished to the Representative such further
certificates and documents as the Representative may reasonably request.

 

All opinions, letters, certificates and evidence mentioned above or elsewhere in
this Agreement shall be deemed to be in compliance with the provisions hereof
only if they are in form and substance reasonably satisfactory to counsel for
the Initial Purchasers.

 

7.             Indemnification and Contribution.

 

(a)           Indemnification of the Initial Purchasers. The Company and the
Guarantors jointly and severally agree to indemnify and hold harmless each
Initial Purchaser, its officers and employees and each person, if any, who
controls any Initial Purchaser within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act against any and all losses,
claims, damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Preliminary Offering Memorandum, any of the
other Time of Sale Information, any Issuer Written Communication any road show
as defined in Rule 433(h) under the Securities Act (a “road show”) or the
Offering Memorandum (or any amendment or supplement thereto), any amendment
thereof or supplement thereto, or in any Blue Sky application or other
information or other documents executed by the Company filed in any state or
other jurisdiction to qualify any or all of the Securities under the securities
laws thereof (any such application, document or information being hereinafter
referred to as a “Blue Sky Application”) or arise out of or are based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that such indemnity shall not inure to the benefit of any
Initial Purchaser (or any person controlling such Initial Purchaser) on account
of any losses, claims, damages or liabilities arising from the sale of the
Securities to any person by such Initial Purchaser if such untrue statement or
omission or alleged untrue statement or omission was made in such Preliminary
Offering Memorandum, any of the other Time of Sale Information, any Issuer
Written Communication, any road show or the Offering Memorandum or such
amendment or supplement thereto, or in any Blue Sky Application in reliance upon
and in conformity with information furnished by any Initial Purchaser, it being
understood and agreed that the only such information furnished by any Initial
Purchaser consists of the Initial Purchasers’ Information (as hereinafter
defined). This indemnity agreement will be in addition to any liability which
the Company and the Guarantors may otherwise have.

 

19

 

 

(b)           Indemnification of the Company. Each Initial Purchaser, severally
and not jointly, agrees to indemnify and hold harmless the Company, each
Guarantor and each person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act, each
director of the Company or a Guarantor, and each officer of the Company or a
Guarantor, against any losses, claims, damages or liabilities to which such
party may become subject, under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in the Preliminary Offering Memorandum, any of the other
Time of Sale Information (including any of the other Time of Sale Information
that has subsequently been amended), any Issuer Written Communication, any road
show or the Offering Memorandum (or any amendment or supplement thereto), or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Preliminary Offering Memorandum, any of the
other Time of Sale Information (including any of the other Time of Sale
Information that has subsequently been amended), any Issuer Written
Communication, any road show or the Offering Memorandum (or any amendment or
supplement thereto) in reliance upon and in conformity with information
furnished by any Initial Purchaser, it being understood and agreed that the only
such information furnished by any Initial Purchaser consists of the Initial
Purchasers’ Information (as hereinafter defined); provided, however, that the
obligation of each Initial Purchaser to indemnify the Company and the Guarantors
(including any controlling person, director or officer thereof) shall be limited
to the amount of the discount and commissions applicable to the Securities to be
purchased by such Initial Purchaser hereunder. The Parties hereto acknowledge
and agree that, for all purposes of this Agreement, the “Initial Purchasers’
Information” shall consist solely of the following information in the
Preliminary Offering Memorandum and the Offering Memorandum: the statements set
forth in the sixth paragraph, the seventh paragraph, the fourth sentence of the
eighth paragraph and the ninth paragraph under the section entitled “Plan of
Distribution” in the Preliminary Offering Memorandum and the Offering
Memorandum.

 

(c)          Notice and Procedures. Any party that proposes to assert the right
to be indemnified under this Section 7 will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim is to be made against an indemnifying party or parties under this
Section, notify each such indemnifying party of the commencement of such action,
suit or proceeding, enclosing a copy of all papers served. No indemnification
provided for in Section 7(a) or 7(b) shall be available to any party who shall
fail to give notice as provided in this Section 7(c) if the party to whom notice
was not given was unaware of the action, suit or proceeding to which such notice
would have related and was prejudiced by the failure to give such notice but the
omission so to notify such indemnifying party of any such action, suit or
proceeding shall not relieve it from any liability that it may have to any
indemnified party for contribution or otherwise than under this Section. In case
any such action, suit or proceeding shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in, and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and the
approval by the indemnified party of such counsel, the indemnifying party shall
not be liable to such indemnified party for any legal or other expenses, except
as provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the defense
thereof. The indemnified party shall have the right to employ its counsel in any
such action, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the employment of counsel by such
indemnified party has been authorized in writing by the indemnifying parties,
(ii) the indemnified party shall have been advised in writing by counsel that
there may be one or more legal defenses available to it which are different from
or in addition to those available to the indemnifying party (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party) or (iii) the indemnifying parties
shall not have employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof, in each of which cases
the fees and expenses of counsel shall be at the expense of the indemnifying
parties, provided that the indemnifying party shall not be obligated to pay for
the expenses of more than one counsel for all indemnified parties as a group. An
indemnifying party shall not be liable for any settlement of any action, suit,
and proceeding or claim effected without its written consent, which consent
shall not be unreasonably withheld or delayed.

 

20

 

 

(d)           Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 7(a) or 7(b) is due in accordance with its terms but for any reason is
unavailable to or insufficient to hold harmless an indemnified party in respect
to any losses, liabilities, claims, damages or expenses referred to therein,
then each indemnifying party shall contribute to the aggregate losses,
liabilities, claims, damages and expenses (including any investigation, legal
and other expenses reasonably incurred in connection with, and any amount paid
in settlement of, any action, suit or proceeding or any claims asserted, but
after deducting any contribution received by any person entitled hereunder to
contribution from any person who may be liable for contribution) incurred by
such indemnified party, as incurred, in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Guarantors on the
one hand and the Initial Purchasers on the other hand from the offering of the
Securities pursuant to this Agreement or, if such allocation is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to above but also the relative fault of the Company
and the Guarantors on the one hand and the Initial Purchasers on the other hand
in connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations. The Company, the Guarantors and the Initial Purchasers
agree that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation (even if the Initial Purchasers
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission. Notwithstanding the provisions of
this Section 7, no Initial Purchaser (except as may be provided in the Agreement
Among Initial Purchasers) shall be required to contribute any amount in excess
of the underwriting discounts and commissions applicable to the Securities
purchased by such Initial Purchaser. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls an Initial Purchaser within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such Initial Purchaser, and each director of the Company or a
Guarantor, each officer of the Company or a Guarantor, and each person, if any,
who controls the Company within the meaning of the Section 15 of the Securities
Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company and the Guarantors. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section 7,
notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties from whom contribution may be sought
shall not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have hereunder or otherwise than under this
Section 7. No party shall be liable for contribution with respect to any action,
suit, proceeding or claim settled without its written consent. The Initial
Purchasers’ obligations to contribute pursuant to this Section 7 are several in
proportion to their respective underwriting commitments and not joint.

 

21

 

 

(e)           Non-Exclusive Remedies. The remedies provided for in this Section
7 are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any Indemnified Person at law or in equity.

 

8.           Effectiveness of Agreement. This Agreement shall become effective
upon the execution and delivery hereof by the parties hereto.

 

9.           Termination. (a) This Agreement may be terminated with respect to
the Securities to be purchased on the Closing Date, by the Representative by
notifying the Company at any time at or before the Closing Date, in the absolute
discretion of the Representative if: (i) in the judgment of the Representative,
there has occurred any material adverse change in the securities markets or any
event, act or occurrence that has materially disrupted, or in the reasonable
opinion of the Representative, will in the future materially disrupt, the
securities markets or there shall be such a material adverse change in general
financial, political or economic conditions or the effect of international
conditions on the financial markets in the United States is such as to make it,
in the judgment of the Representative, inadvisable or impracticable to market
the Securities or enforce contracts for the sale of the Securities; (ii) there
has occurred any outbreak or material escalation of hostilities or acts of
terrorism or other calamity or crisis the effect of which on the financial
markets of the United States is such as to make it, in the judgment of the
Representative, inadvisable or impracticable to market the Securities or enforce
contracts for the sale of the Securities; (iii) trading of any securities issued
or guaranteed by the Company shall have been suspended on the NASDAQ Capital
Market; (iv) trading in the Common Stock or any securities of the Company has
been suspended or materially limited by the Commission or trading generally on
the New York Stock Exchange, Inc. or the NASDAQ Capital Market has been
suspended or materially limited, or minimum or maximum ranges for prices for
securities shall have been fixed, or maximum ranges for prices for securities
have been required, by any of said exchanges or by such system or by order of
the Commission, FINRA, or any other governmental or regulatory authority; (v) a
banking moratorium has been declared by any state or federal authority; or (vi)
in the reasonable judgment of the Representative, there has been, since the time
of execution of this Agreement or since the respective dates as of which
information is given in the Offering Memorandum, any Material Adverse Effect.

 

(b)           If this Agreement is terminated pursuant to any of its provisions,
the Company and the Guarantors shall not be under any liability to any Initial
Purchaser, and no Initial Purchaser shall be under any liability to the Company
or any Guarantor, except that (y) if this Agreement is terminated by the
Representative or the Initial Purchasers because of any failure, refusal or
inability on the part of the Company or any Guarantor to comply with the terms
or to fulfill any of the conditions of this Agreement, the Company will
reimburse the Initial Purchasers for all reasonable out-of-pocket expenses
(including the reasonable fees and disbursements of their counsel) incurred by
them in connection with the proposed purchase and sale of the Securities or in
contemplation of performing their obligations hereunder, subject to the
provisions of Section 11 of this Agreement, and (z) no Initial Purchaser who
shall have failed or refused to purchase the Securities agreed to be purchased
by it under this Agreement, without some reason sufficient hereunder to
reasonably justify cancellation or termination of its obligations under this
Agreement, shall be relieved of liability to the Company or the Guarantors, or
to the other Initial Purchaser for damages occasioned by its failure or refusal.

 

10.           Defaulting Initial Purchaser. If any Initial Purchaser shall
default in its obligation to purchase on the Closing Date, the Securities agreed
to be purchased hereunder on such date, the Representative shall have the right,
within 36 hours thereafter, to make arrangements for one or more of the
non-defaulting Initial Purchasers, or any other initial purchasers, to purchase
such Securities on the terms contained herein. If, however, the Representative
shall not have completed such arrangements within such 36-hour period, then the
Company shall be entitled to a further period of thirty-six hours within which
to procure another party or other parties satisfactory to the Initial Purchasers
to purchase such Securities on such terms. If, after giving effect to any
arrangements for the purchase of the Securities of a defaulting Initial
Purchaser or Initial Purchasers by the Representative and the Company as
provided above, the aggregate number of Securities which remains unpurchased on
the Closing Date, does not exceed 20% of the aggregate number of all the
Securities that all the Initial Purchasers are obligated to purchase on such
date, then the Company shall have the right to require each non-defaulting
Initial Purchaser to purchase the number of Securities which such Initial
Purchaser agreed to purchase hereunder at such date and, in addition, to require
each non-defaulting Initial Purchaser to purchase its pro rata share (based on
the number of Securities which such Initial Purchaser agreed to purchase
hereunder) of the Securities of such defaulting Initial Purchaser or Initial
Purchasers for which such arrangements have not been made; but nothing herein
shall relieve a defaulting Initial Purchaser from liability for its default. In
any such case, either the Representative or the Company shall have the right to
postpone the Closing Date, for a period of not more than seven days in order to
effect any necessary changes and arrangements (including any necessary
amendments or supplements to the Time of Sale Information or the Offering
Memorandum or any other documents), and the Company agrees to promptly amend the
Time of Sale Information or the Offering Memorandum which in the opinion of the
Company and the Initial Purchasers and their counsel may thereby be made
necessary.

 

22

 

 

The provisions of this Section 10 shall not in any way affect the liability of
any defaulting Initial Purchaser to the Company, the Guarantors or the
nondefaulting Initial Purchasers arising out of such default. The term “Initial
Purchaser” as used in this Agreement shall include any person substituted under
this Section 10 with like effect as if such person had originally been a party
to this Agreement with respect to such Securities.

 

11.           Payment of Expenses. Subject to the provisions of Section 9,
whether or not the transactions contemplated by the Transaction Documents are
consummated, the Company and the Guarantors will jointly and severally pay or
cause to be paid all costs and expenses incident to the performance of its
obligations hereunder, including without limitation, (i) the costs incident to
the authorization, issuance, sale, preparation and delivery of the Securities
and any taxes payable in that connection; (ii) the costs incident to the
preparation and printing of the Preliminary Offering Memorandum, any other Time
of Sale Information, any Issuer Written Communication and the Offering
Memorandum, (including all exhibits, amendments and supplements thereto) and the
distribution thereof; (iii) the costs of reproducing and distributing the
Transaction Documents; (iv) the fees and expenses of the Company’s and the
Guarantors’ counsel and independent accountants; (v) the fees and expenses
incurred in connection with the registration or qualification and determination
of eligibility for investment of the Securities under the laws of such
jurisdictions as the Representative may designate and the preparation, printing
and distribution of a Blue Sky Memorandum (including the related fees and
expenses of counsel for the Initial Purchasers (not to exceed $5,000)); (vi) any
fees charged by ratings agencies for rating the Securities; (vii) the fees and
expenses of the Trustee, any collateral agent and any paying agent (including
the related fees and expenses of counsel to such parties); (viii) all costs and
expenses in connection with the creation and perfection of the Collateral
Documents (including without limitation, filing and recording fees, search fees,
taxes and costs of title policies), (ix) all expenses and application fees
incurred in connection with the approval of the Securities for book-entry
transfer by DTC; (x) all expenses incurred by the Company in connection with any
“road show” presentation to potential investors; (xi) all expenses and
application fees related to the listing of the Underlying Securities on NASDAQ
and (xii) all reasonable out of pocket costs and expenses incident to the
offering and the performance of the obligations of the Representative under this
Agreement, including, without limitation, the fees and expenses of one counsel
to the Initial Purchasers; provided, however, that the fees and expenses of
counsel to the Initial Purchasers to be reimbursed by the Company pursuant to
this paragraph shall not exceed $300,000 in the aggregate. Subject to the
provisions of Section 9, the Initial Purchasers agree to pay, whether or not the
transactions contemplated hereby are consummated or this Agreement is
terminated, all costs and expenses incident to the performance of the
obligations of the Initial Purchasers under this Agreement not payable by the
Company and the Guarantors pursuant to the preceding sentence, including,
without limitation, the fees and expenses of counsel for the Initial Purchasers.

 

12.           Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and the officers and directors and any controlling persons
referred to in Section 7 hereof. Nothing in this Agreement is intended or shall
be construed to give any other person any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained herein.
No purchaser of Securities from any Initial Purchaser shall be deemed to be a
successor merely by reason of such purchase.

 

13.          Survival. The respective indemnities, rights of contribution,
representations, warranties and agreements of the Company, the Guarantors and
the Initial Purchasers contained in this Agreement or made by or on behalf of
the Company, the Guarantors or the Initial Purchasers pursuant to this Agreement
or any certificate delivered pursuant hereto shall survive the delivery of and
payment for the Securities and shall remain in full force and effect, regardless
of any termination of this Agreement or any investigation made by or on behalf
of the Company or the Guarantors or the Initial Purchasers.

 

23

 

 

14.          Certain Defined Terms. For purposes of this Agreement, (a) except
where otherwise expressly provided, the term “affiliate” has the meaning set
forth in Rule 405 under the Securities Act; (b) the term “business day” means
any day other than a day on which banks are permitted or required to be closed
in New York City; and (c) the term “subsidiary” has the meaning set forth in
Rule 405 under the Securities Act.

 

15.          Miscellaneous.

 

(a) Notices. Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (i) the date of transmission, if such
notice or communication is delivered via email at the email address specified in
this Section prior to 5:00 p.m. (Eastern time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via email at the email address specified in this Agreement later than
5:00 p.m. ( Eastern time) on any date and earlier than 11:59 p.m. (Eastern time)
on such date, (iii) the business day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. Notices to the Initial
Purchasers shall be given to each of the Representative as follows: c/o
Oppenheimer & Co. Inc., 85 Broad Street, New York, New York 10004 Attention:
Equity Capital Markets, email address: ecmexecution@opco.com, with a copy to
Oppenheimer & Co. Inc., 85 Broad Street, New York, New York 10004, Attention:
General Counsel, email address: peter.vogelsang@opco.com, with a copy (which
shall not constitute notice hereunder) to Lowenstein Sandler LLP, 1251 Avenue of
the Americas, New York, New York 10020, Attention: John D. Hogoboom, email
address: jhogoboom@lowenstein.com. Notices to the Company and the Guarantors
shall be given to them c/o Akoustis Technologies, Inc., 9805 Northcross Center
Court, Suite A Huntersville, NC 28078, Attention: Chief Executive Officer, email
address: jshealy@akoustis.com, with a copy to c/o Akoustis Technologies, Inc.,
9805 Northcross Center Court, Suite A Huntersville, NC 28078, Attention: General
Counsel, email address: dwright@akoustis.com, with a copy (which shall not
constitute notice hereunder) to K&L Gates LLP, 214 North Tryon Street, 47th
Floor, Charlotte, NC 28202, Attention: Sean M. Jones, email address:
sean.jones@klgates.com.

 

(b)          Governing Law. This Agreement and any claim, controversy or dispute
arising under or related to this Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed in such state.

 

(c)           Patriot Act. In accordance with the requirements of the USA
Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)),
the Initial Purchasers are required to obtain, verify and record information
that identifies their respective clients, including the Company and the
Guarantors, which information may include the name and address of their
respective clients, as well as other information that will allow the Initial
Purchasers to properly identify their respective clients.

 

(d)          Counterparts. This Agreement may be signed in counterparts (which
may include counterparts delivered by any standard form of telecommunication),
each of which shall be an original and all of which together shall constitute
one and the same instrument.

 

(e)           Amendments or Waivers. No amendment or waiver of any provision of
this Agreement, nor any consent or approval to any departure therefrom, shall in
any event be effective unless the same shall be in writing and signed by the
parties hereto.

 

(f)           Headings. The headings herein are included for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.

 

(g)          Xtract Research LLC. The Company hereby agrees that the Initial
Purchasers may provide copies of the Preliminary Offering Memorandum and the
Final Offering Memorandum relating to the offering of the Securities and any
other agreements or documents relating thereto, including, without limitation,
trust indentures, to Xtract Research LLC (“Xtract”) following the completion of
the offering for inclusion in an online research service sponsored by Xtract,
access to which is restricted to “qualified institutional buyers” as defined in
Rule 144A under the Securities Act.

 

[signature pages follows]

 

24

 

 

If the foregoing is in accordance with your understanding, please indicate your
acceptance of this Agreement by signing in the space provided below.

 

 

Very truly yours, 

      AKOUSTIS TECHNOLOGIES, INC.         By: /s/ John T. Kurtzweil     Name:
John T. Kurtzweil     Title: Chief Financial Officer

 

  AKOUSTIS, INC.         By: /s/ John T. Kurtzweil     Name: John T. Kurtzweil  
  Title: Chief Financial Officer

 

Accepted: As of the date first written above

 

OPPENHEIMER & CO. INC.

 

For itself and on behalf of the 

several Initial Purchasers listed 

in Schedule 1 hereto.

 

  By: OPPENHEIMER & CO. INC.           By: /s/ Eric Helenek     Name: Eric
Helenek     Title: Managing Director

 

[Signature Page – Purchase Agreement]

 

25

 

Schedule 1

 

Initial Purchaser  Principal Amount of Securities to be Purchased       
Oppenheimer & Co. Inc.  $9,750,000  Drexel Hamilton, LLC   5,250,000  Total 
$15,000,000 

 

26

 

 

Schedule 2

 

Jeffrey B. Shealy 

John T. Kurtzweil 

David M. Aichele 

Steven P. DenBaars 

Arthur E. Geiss 

Jeffrey K. McMahon 

Steven P. Miller 

Jerry D. Neal 

Suzanne B. Rudy

 

27

 

Annex A

 

Time of Sale Information

 

TERM SHEET

 

The information in this pricing term sheet, dated May 10, 2018, supplements the
preliminary offering memorandum, dated May 1, 2018 (the “Preliminary Offering
Memorandum”) related to Company offering of 6.5% Convertible Senior Secured
Notes due 2023 (the “Notes”), and supersedes the information in the Preliminary
Offering Memorandum to the extent inconsistent with the information in the
Preliminary Offering Memorandum. In all other respects, this term sheet is
qualified in its entirety by reference to the Preliminary Offering Memorandum.
Terms used herein but not defined herein shall have the respective meanings as
set forth in the Preliminary Offering Memorandum.

 

Issuer:   Akoustis Technologies, Inc.       Ticker / Exchange for Common Stock:
  AKTS NASDAQ Capital Market (the “NASDAQ”)       Pricing Date:   May 10, 2018  
    Trade Date:   May 10, 2018       Closing Date:   May 14, 2018       Notes:  
6.5% Convertible Senior Secured Notes due 2023       Aggregate Principal Amount
Offered:   $15.0 million       Issue Price:   100%, plus accrued interest, if
any, from the Closing Date       Maturity:   May 31, 2023       Interest Rate;
Payment:   6.5%. At the Company’s option, interest may be paid in cash and/or
freely tradable shares of the Company’s common stock, subject to certain
limitations, valued at 95% of the volume weighted average price of the common
stock for the ten Trading Days ending on and including the Trading Day
immediately preceding the interest payment date. Subject to the limitation
described below under “Share Limitation,” interest payments will be made all in
shares of common stock unless the Company gives written notice to the holders
that it intends to make future interests payments either all or partially in
cash. Such notice will not be effective until the end of the 15th Trading Day
after such notice is given.       Interest Payment Dates:   February 28, May 31,
August 31 and November 30, commencing August 31, 2018       Last Reported Sale:
  $5.93 per share       Conversion Premium:   10.5% above the last reported sale
price of our common stock on May 9, 2018       Conversion Price:   $6.55 per
share

 

28

 

 

Initial Conversion Rate:   152.6718 shares of common stock per $1,000 principal
amount of Notes      

Adjustment to Conversion Rate:  

In the event that the Company issues, or is deemed to issue, shares of common
stock, other than Excluded Securities (as hereinafter defined) for a
consideration per share (the “Trigger Price”) less than the conversion price in
effect immediately prior to the such issuance or deemed issuance (a “Dilutive
Issuance”), then immediately after such Dilutive Issuance, the conversion rate
then in effect shall be adjusted to reduce the conversion price to an amount
equal to the higher of (i) the Trigger Price or (ii) $5.00 (appropriately
adjusted for any stock dividend, stock split, stock combination,
reclassification or other similar transaction occurring after the Closing Date).
As used herein, “Excluded Securities” means (i) capital stock, rights, warrants
or options to subscribe for or purchase common stock or Convertible Securities
(as hereinafter defined) (“Options”) issued to directors, officers, employees or
consultants of the Company or a Guarantor in connection with their service as
directors of the Company or a Guarantor, their employment by the Company or a
Guarantor or their retention as consultants by the Company or a Guarantor
pursuant to an employee benefit plan approved by the Board of Directors of the
Company or the Compensation Committee of the Board of Directors of the Company,
(ii) shares of common stock issued upon the conversion or exercise of Options or
any stock or securities (other than Options) directly or indirectly convertible
into or exercisable or exchangeable for shares of common stock (“Convertible
Securities”) that were issued and outstanding immediately preceding the
execution and delivery of the Purchase Agreement (the “Effective Time”),
provided such securities are not amended after the Effective Time to increase
the number of shares of common stock issuable thereunder, lower the exercise or
conversion price thereof or extend the term thereof, (iii) securities issued
pursuant to the Purchase Agreement and shares of common stock issued in respect
of such securities, (iv) shares of common stock issued or issuable by reason of
a dividend, stock split or other distribution on shares of common stock (but
only to the extent that such a dividend, stock split or distribution results in
an adjustment in the conversion rate pursuant to the other provisions of the
Notes), and (v) capital stock, Options or Convertible Securities issued as
consideration for an acquisition or strategic transaction (including a joint
venture, technology license agreement or other similar strategic arrangement
relating to the Company’s business and operations) approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall
only be a person or entity (or to the equityholders of an entity) which is,
itself or through its subsidiaries, an operating company in a business which the
Board of Directors of the Company in the good faith exercise of its business
judgement believes is synergistic with the business of the Company and shall
provide to the Company additional benefits in addition to the investment of
funds, but shall not, for the purposes of this clause (v), include a transaction
in which the Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities.

 

 

29

 

 

Make-Whole Provision:  

If a holder elects to convert the Notes at any time on or after the date that is
one year after the last date of original issuance of the notes and prior to May
31, 2021, the holder will also receive a make-whole payment equal to the
remaining scheduled interest payments that would have been made on the Notes
converted had such notes remained outstanding through the put date (as defined
below). Subject to the limitation described below under “Share Limitation,” at
the Company’s option, make-whole payments may be paid in cash and/or freely
tradable shares of the Company’s common stock valued at 95% of the volume
weighted average price of the common stock for the ten Trading Days ending on
and including the Trading Day immediately preceding the conversion date. See
“Description of Notes—Conversion Rights—Interest Make-Whole Payment upon
Conversion” in the Preliminary Offering Memorandum. Subject to the limitation
described below under “Share Limitation,” make-whole payments will be made all
in shares of common stock unless the Company gives written notice to the holders
that it intends to make future make-whole payments either all or partially in
cash. Such notice will not be effective until the end of the 15th Trading Day
after such notice is given.

 

Notwithstanding the forgoing, if in connection with any conversion a holder
received a fundamental change payment (as hereinafter defined), then such holder
will not receive the additional payment with respect to such Note.

 

Record Dates:   February 15, May 15, August 15 and November 15

 

Ranking:  

The Notes will be secured by a perfected first priority lien (subject to
permitted liens) on substantially all of the Company’s and its subsidiaries’
assets, including the Canandaigua, New York manufacturing facility of the
Company’s subsidiary, Akoustis, Inc., the Company’s and its subsidiaries’ U.S.
patents and trademarks, and a pledge of the Company’s equity interest in
Akoustis, Inc. The Notes are senior secured obligations. The notes will be the
Company’s senior secured obligations and will rank senior to all of the
Company’s existing and future unsecured indebtedness to the extent of the value
of the collateral. The Company has the right to incur capital lease obligations
and purchase money indebtedness for the purpose of financing the purchase price
or cost of equipment used in its and its subsidiaries’ production lines and up
to an additional $1 million of such indebtedness for other purposes. The notes
will rank junior to that indebtedness to the extent of the assets acquired with
the proceeds thereof.

 

 Guarantees  

The guarantors and any successor of any guarantor under the indenture, jointly
and severally with any other guarantors, will irrevocably and unconditionally
guaranteed, on a senior basis, the following:

 

●             the due and punctual payment of the principal of, premium, if any,
and interest on the Notes, whether at maturity of the Notes, by acceleration or
otherwise; the due and punctual payment of interest on any overdue principal or
interest, if any, on the Notes, to the extent lawful; and the due and punctual
performance of all other obligations of the guarantors and any successor of the
guarantor to the holders or to the trustee; and

 

●             in case of any extension of time of payment or renewal of any
Notes or any such other obligations, that the obligations will be promptly paid
in full when due or performed in accordance with the terms of the extension or
renewal, whether at maturity of the notes, by acceleration or otherwise.

 

All of the Company’s now owned and hereafter acquired direct and indirect
subsidiaries are and will be guarantors under the indenture.

 

 

30

 

  

Put Right:   The holders of the Notes will have a one-time right, effective on
May 31, 2021 (the “put date”), exercisable prior thereto in the manner described
in the indenture, to require the Company to repurchase for cash all (but not
less than all) of their Notes at a purchase price equal to 100% of the principal
amount of the notes to be repurchased, plus accrued and unpaid interest to, and
including, the put date.       Share Limitation:  

The number of shares the Company may deliver in respect of the Notes, including
those delivered in lieu of cash interest, in connection with an interest
make-whole payment, or in a fundamental change payment (as hereinafter defined)
will not exceed 19.99% of the Company’s common stock outstanding (as adjusted
for stock splits, reverse stock splits, stock combinations, reclassifications
and reorganizations) as of the close of the Trading Day immediately preceding
the date of the indenture that governs the notes without shareholder approval or
as otherwise required pursuant to the listing requirements of the NASDAQ Capital
Market or such other national securities exchange on which the common stock is
then listed. The Company will not be required to make any cash payments in lieu
of any fractional shares.

 

Additional Debt:   The Company and its subsidiaries will be permitted to incur
certain additional indebtedness as described in the Preliminary Offering
Memorandum under “Description of Notes—Limitation on Incurrence of Additional
Indebtedness.”       Use of Proceeds:   The Company estimates that the net
proceeds from this offering will be approximately $13.5 million, after deducting
fees and estimated expenses. The Company intends to use the net proceeds to fund
its operations, including R&D and the commercialization of its technology, as
well as for working capital and other general corporate purposes.      
Registration Rights:  

The Company will enter into a registration rights agreement with the initial
purchasers pursuant to which it will agree to file within 90 days of the closing
date a registration statement covering the resale of the Securities and the
shares of common stock issuable upon the conversion of the Notes. The Company
will also agree to use its best efforts to cause this registration statement to
be declared effective within 180 days of the closing date. If the Company fails
to perform its obligations under the registration rights agreement, the Company
will pay additional interest at a rate per annum of 0.50% for the first 90 day
period following the occurrence of the relevant event and, thereafter, at a rate
per annum of 1.0% until such event is cured. The Company will maintain the
registration of such securities until the earliest of the date that (i) all of
such securities have been sold either pursuant to the registration statement or
Rule 144 or are no longer outstanding, (ii) such securities may be sold without
restriction by each holder pursuant to Rule 144 in a single transaction and
certain other conditions have been satisfied, or (iii) is two years after the
registration statement is declared effective by the SEC.

 

In order to have their securities included in the registration statement,
holders will be required to complete a notice and questionnaire, to provide
additional specified information upon the Company’s request, and to observe
certain other requirements set forth in the registration rights agreement.

 

Initial Purchasers:   Oppenheimer & Co. Inc. and Drexel Hamilton, LLC      
Listing:   None

 

31

 

 

CUSIP Number:   00973N AA0       Payment in Connection With Conversion Upon a
Qualifying Fundamental Change:  

If the “effective date” (as hereinafter defined) of a “qualifying fundamental
change” (as hereinafter defined) occurs prior to the maturity date of the Notes
and a holder elects to convert its Notes in connection with such qualifying
fundamental change, the Company will, under certain circumstances, make a
payment to the holder of the Notes so surrendered for conversion equal to $130
per $1,000 of aggregate principal of Notes surrendered for conversion (a
“fundamental change payment”). A “qualifying fundamental change” means any
transaction or event that constitutes a fundamental change defined below in
clause (1), (2) or (4) of the definition of “fundamental change” under
“Description of Notes—Fundamental Change Permits Holders to Require Us to
Repurchase Notes” in the Preliminary Offering Memorandum, after giving effect to
any exceptions or exclusions from such definition, but without regard to the
proviso in clause (2) of the definition thereof. A conversion of Notes will be
deemed for these purposes to be “in connection with” such qualifying fundamental
change if the relevant conversion date occurs during the period from, and
including, the effective date of the qualifying fundamental change up to, and
including, the business day immediately prior to the related fundamental change
repurchase date (or, in the case of a qualifying fundamental change that would
have been a fundamental change but for the proviso in clause (2) of the
definition thereof, the 35th Trading Day immediately following the effective
date of such qualifying fundamental change) (such period, the “qualifying
fundamental change period”).

 

Upon surrender of Notes for conversion in connection with a qualifying
fundamental change the Company will deliver shares of common stock as described
under “Description of Notes—Conversion Rights—Settlement upon Conversion” in the
Preliminary Offering Memorandum. However, for any conversion of Notes following
the effective date of such qualifying fundamental change, the conversion
obligation will be calculated by the Company based solely on the “stock price”
(as defined below) for the transaction and will be deemed to be an amount of
cash per $1,000 principal amount of converted Notes equal to the conversion
rate, multiplied by such stock price. The Company will notify the trustee, the
conversion agent (if other than the trustee) and holders, in writing, of the
effective date of any qualifying fundamental change no later than five business
days after such effective date. If the holders of common stock receive in
exchange for their common stock only cash in a qualifying fundamental change
described in clause (2) of the definition of fundamental change, the stock price
shall be the cash amount paid per share. Otherwise, the stock price shall be the
average of the closing sale prices of the common stock over the five consecutive
Trading Day period ending on, and including, the Trading Day immediately
preceding the relevant effective date.

 

The Company will have the option to pay any fundamental change payment in cash
and/or freely tradable shares of the Company’s common stock, subject to certain
limitations, valued at 95% of the stock price determined as described above.
Subject to the limitation described below above under “Share Limitation,” any
fundamental change interest payments will be made all in shares of common stock
unless the Company gives written notice to the holders that it intends to make
future fundamental change payments either all or partially in cash. Such notice
will not be effective until the end of the 15th Trading Day after such notice is
given.

 

 

 

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This communication is intended for the sole use of the person to whom it is
provided by the sender.

 

Purchasers should rely only on the information contained or incorporated by
reference in the Preliminary Offering Memorandum, as supplemented by this final
pricing term sheet, in making an investment decision with respect to the Notes.
A copy of the Preliminary Offering Memorandum can be obtained by contacting your
Oppenheimer & Co. sales representative.

 

This communication shall not constitute an offer to sell or the solicitation of
an offer to buy securities, nor shall there be any sale of these securities, in
any state in which such solicitation or sale would be unlawful prior to
registration or qualification of these securities under the laws of any such
state.

 

The Securities and the common stock issuable upon conversion of the Notes have
not been registered under the Securities Act of 1933, as amended (the
“Securities Act”), or any other state securities laws. Unless they are
registered, the Securities and any common stock issuable upon conversion of the
Notes may be offered only in transactions exempt from or not subject to
registration under the Securities Act or any other state securities laws.
Accordingly, the Notes are only being offered to “qualified institutional
buyers” (as defined in Rule 144A under the Securities Act). Purchasers will
receive certain registration rights as described above.

 

ANY DISCLAIMERS OR OTHER NOTICES THAT MAY APPEAR BELOW ARE NOT APPLICABLE TO
THIS COMMUNICATION AND SHOULD BE DISREGARDED. SUCH DISCLAIMERS OR OTHER NOTICES
WERE AUTOMATICALLY GENERATED AS A RESULT OF THIS COMMUNICATION BEING SENT VIA
BLOOMBERG OR ANOTHER EMAIL SYSTEM

 

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Exhibit A

 

Form of Lock Up Agreement

 

May 10, 2018

 

Oppenheimer & Co. Inc. 

85 Broad Street 

New York, New York 10004

 

  Re: Akoustis Technologies, Inc.

 

Ladies and Gentlemen:

 

In order to induce Oppenheimer & Co. Inc. (“Oppenheimer”) to enter into a
certain definitive agreement (the “Purchase Agreement”) with Akoustis
Technologies, Inc., a Delaware corporation (the “Company”), providing for the
purchase and resale (the “Placement”) by the several Initial Purchasers named in
the Schedule 1 to the Purchase Agreement (the “Initial Purchasers”), of
Convertible Senior Secured Notes of the Company (the “Securities”). Capitalized
terms used herein and not otherwise defined shall have the meanings set forth in
the Purchase Agreement.

 

In consideration of the Initial Purchasers’ agreement to purchase and make the
Placement of the Securities, and for other good and valuable consideration
receipt of which is hereby acknowledged, the undersigned hereby agrees that,
without the prior written consent of the Representative on behalf of the Initial
Purchasers, the undersigned will not, during the period ending ninety (90) days
after the date of the final offering memorandum (the “Offering Memorandum”)
relating to the Placement (the “Lock-Up Period”), the undersigned will not,
without the prior written consent of Oppenheimer, directly or indirectly, (i)
offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose
of, any of the Company’s shares of Common Stock, par value $0.001 per share
(“Common Stock”), or securities convertible into or exercisable or exchangeable
for any equity securities of the Company (including, without limitation, shares
of Common Stock or any such securities which may be deemed to be beneficially
owned by the undersigned in accordance with the rules and regulations
promulgated under the Securities Act of 1933, as the same may be amended or
supplemented from time to time (the “Securities Act” and such shares or
securities, the “Beneficially Owned Shares”)), (ii) enter into any swap, hedge
or other agreement or arrangement that transfers in whole or in part, the
economic risk of ownership of any Beneficially Owned Shares, Common Stock or
securities convertible into or exercisable or exchangeable for any equity
securities of the Company, or (iii) engage in any short selling of any
Beneficially Owned Shares, Common Stock or securities convertible into or
exercisable or exchangeable for any equity securities of the Company.

 

In addition, the undersigned hereby waives, from the date hereof until the
expiration of the Lock-Up Period, any and all rights, if any, to request or
demand registration pursuant to the Securities Act of any shares of Common Stock
or securities convertible into or exercisable or exchangeable for any equity
securities of the Company that are registered in the name of the undersigned or
that are Beneficially Owned Shares. In order to enable the aforesaid covenants
to be enforced, the undersigned hereby consents to the placing of legends and/or
stop transfer orders with the transfer agent of the Common Stock with respect to
any shares of Common Stock, securities convertible into or exercisable or
exchangeable for any equity securities of the Company or Beneficially Owned
Shares.

 

Notwithstanding the foregoing, and subject to the conditions below, the
undersigned may transfer the Beneficially Owned Shares in the transactions
listed as (i)-(iv) below without the prior written consent of Oppenheimer,
provided that (1) prior to each such transfer, each donee, trustee, distributee
or transferee, as the case may be, shall execute and deliver to Oppenheimer a
lock-up letter substantially in the form hereof, (2) no such transfer shall
involve a disposition for value, (3) each such transfer shall not be required to
be reported in any public report, announcement or filing made or to be made with
the Securities and Exchange Commission or otherwise during the Lock-Up Period
and (4) the undersigned does not otherwise voluntarily effect any public filing,
announcement or report regarding any such transfer during the Lock-Up Period:

 

  (i) as a bona fide gift or gifts;

 

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  (ii) to any trust for the direct or indirect benefit of the undersigned or the
immediate family of the undersigned, or if the undersigned is a trust, to its
grantor or beneficiaries pursuant to its terms;

 

  (iii) to any beneficiary of the undersigned pursuant to a will or other
testamentary document or applicable laws of descent;

 

  (iv) to any corporation, partnership, limited liability company or other
entity that controls, is controlled by or is under common control with the
undersigned; or

 

  (v) as a distribution to limited partners, members or stockholders of the
undersigned.

 

Furthermore, notwithstanding the restrictions imposed herein, the undersigned
may, without the prior written consent of Oppenheimer, (1) exercise an option to
purchase shares of Common Stock granted under any stock incentive plan or stock
purchase plan of the Company; provided that the underlying shares of Common
Stock shall continue to be subject to the restrictions on transfer imposed by
this Letter Agreement, (2) establish a trading plan pursuant to Rule 10b5-1
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) for
the transfer of Common Stock (a “Trading Plan”); provided that (a) the Trading
Plan shall not provide for or permit any transfers, sales or other dispositions
of Common Stock during the Lock-Up Period and (b) no filing or other public
announcement, whether under the Exchange Act or otherwise, shall be required or
shall be made by the undersigned or the Company in connection with the Trading
Plan during the Lock-Up Period and, before the Trading Plan is established, the
Company shall have provided to the Representative written confirmation that no
such filing or public announcement shall be required or shall be made by the
Company in connection with the Trading Plan during the Lock-Up Period, (3)
transfer, sell or dispose of shares of Common Stock upon the vesting of
restricted shares or restricted stock units (including performance share units)
that vest during the Lock-Up Period in order to satisfy tax withholding
obligations incurred in connection therewith (and make any related filings in
connection with such transfer, sale or disposition that are required under the
Exchange Act), and (4) transfer, sell or dispose of shares of Common Stock held
by the undersigned pursuant to a Trading Plan existing on the date of this
Agreement (and make any related filings in connection with such transfer, sale
or disposition that are required under the Exchange Act).

 

This letter agreement shall automatically terminate upon the earlier of (i) May
31, 2018, in the event that the Purchase Agreement is not executed by that date,
(ii) the termination of the Purchase Agreement if such agreement is terminated
prior to the consummation of the Placement in accordance with its terms, or
(iii) either Oppenheimer, on the one hand, or the Company, on the other hand,
advising the other in writing, prior to the execution of the Purchase Agreement,
that it has determined not to proceed with the Placement.

 

(Remainder of page intentionally left blank. Signature page to follow.)

 

35

 

 

This letter agreement has been executed as of the date first written above.

 

  [Signatory]           By:       Name:       Title:  

 

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Schedule I

 

COLLATERAL DOCUMENTS

 

Fee and Leasehold Mortgage, Assignment, Security Agreement and Fixture Filing
given by Akoustis, Inc., a Delaware corporation) (“Akoustis Sub”), and The
Ontario County Industrial Development Agency, a public benefit corporation of
the State of New York, for the benefit of The Bank of New York Mellon Trust
Company, N.A., as collateral agent (in such capacity, the “collateral agent”).

 

Supplemental Fee and Leasehold Mortgage, Assignment, Security Agreement and
Fixture Filing given by Akoustis Sub for the benefit of the collateral agent.

 

Pledge and Security Agreement among Akoustis Technologies, Inc. (the “Company”),
Akoustis Sub and the collateral agent.

 

Collateral Agency Agreement among the Company, Akoustis Sub, the collateral
agent and The Bank of New York Mellon Trust Company, N.A., as indenture trustee.

 

All other security agreements, pledge agreements, collateral assignments and
other security documents or other grants or transfers for security or agreements
related thereto creating or perfecting (or purporting to create or perfect) a
lien in any assets securing the obligations under the notes and the guarantees,
or under which rights or remedies with respect to such liens are governed, as
each may be amended, restated, supplemented or otherwise modified from time to
time.

 

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