Exhibit 10.1

 

COMMON STOCK PURCHASE AGREEMENT

 

COMMON STOCK PURCHASE AGREEMENT (the “Agreement”), dated as of October 24, 2011,
by and between Kips Bay Medical, Inc., a Delaware corporation (the “Company”),
and ASPIRE CAPITAL FUND, LLC, an Illinois limited liability company (the
“Buyer”).  Capitalized terms used herein and not otherwise defined herein are
defined in Section 10 hereof.

 

WHEREAS:

 

Subject to the terms and conditions set forth in this Agreement, the Company
wishes to sell to the Buyer, and the Buyer wishes to buy from the Company, up to
Twenty Million Dollars ($20,000,000) of the Company’s common stock, par value
$0.01 per share (the “Common Stock”).  The shares of Common Stock to be
purchased hereunder are referred to herein as the “Purchase Shares.”

 

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

 

1.                                      PURCHASE OF COMMON STOCK.

 

Subject to the terms and conditions set forth in this Agreement, the Company has
the right to sell to the Buyer, and the Buyer has the obligation to purchase
from the Company, Purchase Shares as follows:

 

(a)                                  Commencement of Purchases of Common Stock. 
After the Commencement Date (as defined below), the purchase and sale of
Purchase Shares hereunder shall occur from time to time upon written notices by
the Company to the Buyer on the terms and conditions as set forth herein
following the satisfaction of the conditions (the “Commencement”) as set forth
in Sections 6 and 7 below (the date of satisfaction of such conditions, the
“Commencement Date”).

 

(b)                                 The Company’s Right to Require Regular
Purchases.  Subject to the terms and conditions of this Agreement, on any given
Business Day after the Commencement Date, the Company shall have the right but
not the obligation to direct the Buyer by its delivery to the Buyer of a
Purchase Notice from time to time, and the Buyer thereupon shall have the
obligation, to buy the number of Purchase Shares specified in such notice, up to
a maximum of 100,000 Purchase Shares, on such Business Day (as long as such
notice is delivered on or before 5:00 p.m. eastern time on such Business Day)
(each such purchase, a “Regular Purchase”) at the Purchase Price on the Purchase
Date; however, in no event shall the Purchase Amount of a Regular Purchase
exceed five hundred thousand dollars ($500,000) per Business Day.  The Company
may deliver additional Purchase Notices to the Buyer from time to time so long
as the most recent purchase has been completed.  The share amounts in the first
sentence of this Section 1(b) shall be appropriately adjusted for any
reorganization, recapitalization, non-cash dividend, stock split, reverse stock
split, or other similar transaction.

 

(c)                                  VWAP Purchases.  Subject to the terms and
conditions of this Agreement, in addition to purchases of Purchase Shares as
described in Section 1(b) above, with one Business Day’s prior written notice,
the Company shall also have the right but not the obligation to direct the Buyer
by the Company’s delivery to the Buyer of a VWAP Purchase Notice from time to
time, and the Buyer thereupon shall have the obligation, to buy the VWAP
Purchase Share Percentage of the trading volume

 

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of the Common Stock on the VWAP Purchase Date up to the VWAP Purchase Share
Volume Maximum on the VWAP Purchase Date (as long as such notice is delivered on
or before 5:00 p.m. eastern time on the Business Day immediately preceding the
VWAP Purchase Date) (each such purchase, a “VWAP Purchase”) at the VWAP Purchase
Price.  The Company may deliver a VWAP Purchase Notice to the Buyer only on a
date on which the Company also submitted a Purchase Notice for a Regular
Purchase in an amount equal to the lesser of (i) 100,000 Purchase Shares or
(ii) a number of Purchase Shares with an aggregate Purchase Amount equal to five
hundred thousand dollars ($500,000) to the Buyer.  A VWAP Purchase shall
automatically be deemed completed at such time on the VWAP Purchase Date that
the Sale Price falls below the VWAP Minimum Price Threshold; in such
circumstance, the VWAP Purchase Amount shall be calculated using: (i) the VWAP
Purchase Share Percentage of the aggregate shares traded on the Principal Market
for such portion of the VWAP Purchase Date prior to the time that the Sale Price
fell below the VWAP Minimum Price Threshold and (ii) a VWAP Purchase Price
calculated using the volume weighted average price of Common Stock sold during
such portion of the VWAP Purchase Date prior to the time that the Sale Price
fell below the VWAP Minimum Price Threshold.  Each VWAP Purchase Notice must be
accompanied by instructions to the Company’s Transfer Agent to immediately issue
to the Buyer an amount of Common Stock equal to the VWAP Purchase Share
Estimate, a good faith estimate by the Company of the number of Purchase Shares
that the Buyer shall have the obligation to buy pursuant to the VWAP Purchase
Notice.  In no event shall the Buyer, pursuant to any VWAP Purchase, purchase a
number of Purchase Shares that exceeds the VWAP Purchase Share Estimate issued
on the VWAP Purchase Date in connection with such VWAP Purchase Notice; however,
the Buyer will immediately return to the Company any amount of Common Stock
issued pursuant to the VWAP Purchase Share Estimate that exceeds the number of
Purchase Shares the Buyer actually purchases in connection with such VWAP
Purchase.  Upon completion of each VWAP Purchase Date, the Buyer shall submit to
the Company a confirmation of the VWAP Purchase in form and substance reasonably
acceptable to the Company.  The Company may deliver additional VWAP Purchase
Notices to the Buyer from time to time so long as the most recent purchase has
been completed.  The Company may, by written notice to the Buyer, in its sole
discretion at any time after the date of this Agreement, irrevocably terminate
this Section 1(c) and its right to direct the Buyer to make VWAP Purchases.

 

(d)                                 Payment for Purchase Shares.  For each
Regular Purchase, the Buyer shall pay to the Company an amount equal to the
Purchase Amount as full payment for such Purchase Shares via wire transfer of
immediately available funds on the same Business Day that the Buyer receives
such Purchase Shares.  For each VWAP Purchase, the Buyer shall pay to the
Company an amount equal to the VWAP Purchase Amount as full payment for such
Purchase Shares via wire transfer of immediately available funds on the third
Business Day following the VWAP Purchase Date.  All payments made under this
Agreement shall be made in lawful money of the United States of America via wire
transfer of immediately available funds to such account as the Company may from
time to time designate by written notice in accordance with the provisions of
this Agreement.  Whenever any amount expressed to be due by the terms of this
Agreement is due on any day that is not a Business Day, the same shall instead
be due on the next succeeding day that is a Business Day.

 

(e)                                  Purchase Price Floor.  The Company and the
Buyer shall not effect any sales under this Agreement on any Purchase Date or
VWAP Purchase Date where the Closing Sale Price is less than the Floor Price. 
“Floor Price” means $1.00 per share of Common Stock, which shall be
appropriately adjusted for any reorganization, recapitalization, non-cash
dividend, stock split, reverse stock split or other similar transaction.

 

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(f)                                    Records of Purchases.  The Buyer and the
Company shall each maintain records showing the remaining Available Amount at
any given time and the dates and purchase amounts for each purchase, or shall
use such other method reasonably satisfactory to the Buyer and the Company to
reconcile the remaining Available Amount.

 

(g)                                 Taxes.  The Company shall pay any and all
transfer, stamp or similar taxes that may be payable with respect to the
issuance and delivery of any shares of Common Stock to the Buyer made under this
Agreement.

 

(h)                                 Compliance with Principal Market Rules. 
Notwithstanding anything in this Agreement to the contrary, and in addition to
the limitations set forth in Section 1(e), the number of shares of Common Stock
which may be issued under this Agreement, including the Commitment Shares (as
defined in Section 4(e) hereof), shall be limited to 3,164,357 shares of Common
Stock, which equals 19.9% of the Company’s outstanding shares of Common Stock as
of the date of this Agreement (the “Exchange Cap”), unless shareholder approval
is obtained to issue more than such 19.9%, in which case there is no Exchange
Cap.  The Company shall not be required or permitted to issue, and the Buyer
shall not be required to purchase, any shares of Common Stock under this
Agreement if such issuance would breach the Company’s obligations under the
rules or regulations of the Principal Market.

 

2.                                      BUYER’S REPRESENTATIONS AND WARRANTIES.

 

The Buyer represents and warrants to the Company that as of the date hereof and
as of the Commencement Date:

 

(a)                                  Investment Purpose.  The Buyer is entering
into this Agreement and acquiring the Commitment Shares and the Purchase Shares
(the Purchase Shares and the Commitment Shares are collectively referred to
herein as the “Securities”), for its own account for investment only and not
with a view towards, or for resale in connection with, the public sale or
distribution thereof; provided however, by making the representations herein,
the Buyer does not agree to hold any of the Securities for any minimum or other
specific term.

 

(b)                                 Accredited Investor Status.  The Buyer is an
“accredited investor” as that term is defined in Rule 501(a)(3) of Regulation D
under the 1933 Act.

 

(c)                                  Reliance on Exemptions.  The Buyer
understands that the Securities are being offered and sold to it in reliance on
specific exemptions from the registration requirements of United States federal
and state securities laws and that the Company is relying in part upon the truth
and accuracy of, and the Buyer’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Buyer set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Buyer to acquire the Securities.

 

(d)                                 Information.  The Buyer has been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities that have
been reasonably requested by the Buyer, including, without limitation, the SEC
Documents (as defined in Section 3(f) hereof).  The Buyer understands that its
investment in the Securities involves a high degree of risk.  The Buyer (i) is
able to bear the economic risk of an investment in the Securities including a
total loss, (ii) has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the proposed
investment in the Securities and (iii) has had

 

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an opportunity to ask questions of and receive answers from the officers of the
Company concerning the financial condition and business of the Company and
others matters related to an investment in the Securities.  Neither such
inquiries nor any other due diligence investigations conducted by the Buyer or
its representatives shall modify, amend or affect the Buyer’s right to rely on
the Company’s representations and warranties contained in Section 3 below.  The
Buyer has sought such accounting, legal and tax advice as it has considered
necessary to make an informed investment decision with respect to its
acquisition of the Securities.

 

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

 

(f)                                    Transfer or Sale.  The Buyer understands
that except as provided in the Registration Rights Agreement (as defined in
Section 4(a) hereof): (i) the Securities have not been and are not being
registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder or (B) an exemption exists permitting such Securities to
be sold, assigned or transferred without such registration; (ii) any sale of the
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the 
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register the Securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.

 

(g)                                 Organization.  The Buyer is a limited
liability company duly organized and validly existing in good standing under the
laws of the jurisdiction in which it is organized, and has the requisite
organizational power and authority to own its properties and to carry on its
business as now being conducted.

 

(h)                                 Validity; Enforcement.  This Agreement has
been duly and validly authorized, executed and delivered on behalf of the Buyer
and is a valid and binding agreement of the Buyer enforceable against the Buyer
in accordance with its terms, subject as to enforceability to general principles
of equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.  The execution and
delivery of the Transaction Documents by the Buyer and the consummation by it of
the transactions contemplated hereby and thereby do not conflict with the
Buyer’s certificate of organization or operating agreement or similar documents,
and do not require further consent or authorization by the Buyer, its managers
or its members.

 

(i)                                     Residency.  The Buyer is a resident of
the State of Illinois.

 

(j)                                     No Prior Short Selling.  The Buyer
represents and warrants to the Company that at no time prior to the date of this
Agreement has any of the Buyer, its agents, representatives or affiliates
engaged in or effected, in any manner whatsoever, directly or indirectly, any
(i) “short sale” (as such term is defined in Section 242.200 of Regulation SHO
of the Securities Exchange Act of 1934, as

 

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amended (the “1934 Act”)) of the Common Stock or (ii) hedging transaction, which
establishes a net short position with respect to the Common Stock.

 

3.                                      REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.

 

The Company represents and warrants to the Buyer that as of the date hereof and
as of the Commencement Date:

 

(a)                                  Organization and Qualification.  The
Company and its “Subsidiaries” (which for purposes of this Agreement means any
entity in which the Company, directly or indirectly, owns 50% or more of the
voting stock or capital stock or other similar equity interests) are
corporations or limited liability companies duly organized and validly existing
in good standing under the laws of the jurisdiction in which they are
incorporated or organized, and have the requisite corporate or organizational
power and authority to own their properties and to carry on their business as
now being conducted.  Each of the Company and its Subsidiaries is duly qualified
as a foreign corporation or limited liability company to do business and is in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
could not reasonably be expected to have a Material Adverse Effect.  As used in
this Agreement, “Material Adverse Effect” means any material adverse effect on
any of: (i) the business, properties, assets, operations, results of operations
or financial condition of the Company and its Subsidiaries, if any, taken as a
whole, or (ii) the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined in
Section 3(b) hereof).  The Company has no material Subsidiaries except as set
forth on Schedule 3(a).

 

(b)                                 Authorization; Enforcement; Validity. 
(i) The Company has the requisite corporate power and authority to enter into
and perform its obligations under this Agreement, the Registration Rights
Agreement and each of the other agreements entered into by the parties on the
Commencement Date and attached hereto as exhibits to this Agreement
(collectively, the “Transaction Documents”), and to issue the Securities in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
the Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including without limitation, the
issuance of the Commitment Shares and the reservation for issuance and the
issuance of the Purchase Shares issuable under this Agreement, have been duly
authorized by the Company’s Board of Directors or duly authorized committee
thereof, do not conflict with the Company’s Certificate of Incorporation or
Bylaws, and do not require further consent or authorization by the Company, its
Board of Directors or its shareholders, (iii) this Agreement has been, and each
other Transaction Document shall be on the Commencement Date, duly executed and
delivered by the Company and (iv) this Agreement constitutes, and each other
Transaction Document upon its execution on behalf of the Company, shall
constitute, the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors’ rights and remedies.  The
Board of Directors of the Company or duly authorized committee thereof has
approved the resolutions (the “Signing Resolutions”) substantially in the form
as set forth as Exhibit C-1 attached hereto to authorize this Agreement and the
transactions contemplated hereby.  The Signing Resolutions are valid, in full
force and effect and have not been modified or supplemented in any respect other
than by the resolutions set forth in Exhibit C-2 attached hereto regarding the
registration statement referred to in Section 4 hereof.  The Company has
delivered

 

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to the Buyer a true and correct copy of the Signing Resolutions as adopted by
the Board of Directors of the Company or an appropriate Board Committee.

 

(c)                                  Capitalization.  As of the date hereof, the
authorized capital stock of the Company consists of (i) 40,000,000 shares of
Common Stock, par value $0.01, of which as of the date hereof 15,821,791 shares
are issued and outstanding, zero shares are held as treasury shares, 1,821,500
shares are reserved for future issuance pursuant to the Company’s stock
incentive plan of which only approximately 973,500 shares remain available for
future option grants or stock awards and 103,125 shares are issuable and
reserved for issuance pursuant to securities (other than stock options or equity
based awards issued pursuant to the Company’s stock incentive plans) exercisable
or exchangeable for, or convertible into, shares of Common Stock and
(ii) 10,000,000 shares of undesignated stock, of which as of the date hereof
zero are issued and outstanding.  All of such outstanding shares have been
validly issued and are fully paid and nonassessable.  Except as disclosed in
Schedule 3(c), (i) no shares of the Company’s capital stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company, (ii) there are no outstanding debt
securities of the Company or any of its Subsidiaries, (iii) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, (iv) there
are no material agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under
the 1933 Act (except the Registration Rights Agreement), (v) there are no
outstanding securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries, (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement and (vii) the Company does not
have any stock appreciation rights or “phantom stock” plans or agreements or any
similar plan or agreement.  The Company has furnished or made available to the
Buyer true and correct copies of the Company’s Certificate of Incorporation, as
amended and as in effect on the date hereof (the “Certificate of
Incorporation”), and the Company’s Bylaws, as amended and as in effect on the
date hereof (the “Bylaws”), and summaries of the terms of all securities
convertible into or exercisable for Common Stock, if any, and copies of any
documents containing the material rights of the holders thereof in respect
thereto.  The Buyer acknowledges that the SEC Documents have been made available
to the Buyer.

 

(d)                                 Issuance of Securities.  The Commitment
Shares have been duly authorized and, upon issuance in accordance with the terms
hereof, the Commitment Shares shall be (i) validly issued, fully paid and
non-assessable and (ii) free from all taxes, liens and charges with respect to
the issue thereof.  3,164,357 shares of Common Stock have been duly authorized
and reserved for issuance upon purchase under this Agreement.  Upon issuance and
payment therefore in accordance with the terms and conditions of this Agreement,
the Purchase Shares shall be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of Common Stock.

 

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(e)                                  No Conflicts.  Except as disclosed in
Schedule 3(e), the execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the reservation
for issuance and issuance of the Purchase Shares) will not (i) result in a
violation of the Certificate of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock of the
Company or the Bylaws or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the Principal Market
applicable to the Company or any of its Subsidiaries) or by which any property
or asset of the Company or any of its Subsidiaries is bound or affected, except
in the case of conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations under clause (ii), which could not reasonably be
expected to result in a Material Adverse Effect.  Except as disclosed in
Schedule 3(e), neither the Company nor its Subsidiaries is in violation of any
term of or in default under its Certificate of Incorporation, any Certificate of
Designation, Preferences and Rights of any outstanding series of preferred stock
of the Company or Bylaws or their organizational charter or bylaws,
respectively.  Except as disclosed in Schedule 3(e), neither the Company nor any
of its Subsidiaries is in violation of any term of or is in default under any
material contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its Subsidiaries, except for possible conflicts, defaults,
terminations or amendments which could not reasonably be expected to have a
Material Adverse Effect.  The business of the Company and its Subsidiaries is
not being conducted, and shall not be conducted, in violation of any law,
ordinance, or regulation of any governmental entity, except for possible
violations, the sanctions for which either individually or in the aggregate
could not reasonably be expected to have a Material Adverse Effect.  Except as
specifically contemplated by this Agreement and as required under the 1933 Act
or applicable state securities laws or the filing of a Listing of Additional
Shares Notification Form with the Principal Market, the Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents in accordance
with the terms hereof or thereof.  Except as disclosed in Schedule 3(e), all
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence shall be obtained or
effected on or prior to the Commencement Date.  The Company is not subject to
any notices or actions from or to the Principal Market.  The Principal Market
has not commenced any delisting proceedings against the Company.

 

(f)                                    SEC Documents; Financial Statements.
Except as disclosed in Schedule 3(f), since February 10, 2011, the Company has
filed all reports, schedules, forms, statements and other documents required to
be filed by it with the SEC pursuant to the reporting requirements of the 1934
Act (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the “SEC
Documents”).  As of their respective dates (except as they have been correctly
amended), the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC (except as they may have
been properly amended), contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the

 

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circumstances under which they were made, not misleading.  As of their
respective dates (except as they have been properly amended), the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto.  Such financial
statements have been prepared in accordance with generally accepted accounting
principles promulgated in the U.S., consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto or (ii) in the case of unaudited interim statements, to the
extent they may exclude footnotes) and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results of
its operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments).  Except as
disclosed in Schedule 3(f) or routine correspondence, such as comment letters
and notices of effectiveness in connection with previously filed registration
statements or periodic reports, to the Company’s knowledge, the Company or any
of its subsidiaries are not presently the subject of any inquiry, investigation
or action by the SEC.

 

(g)                                 Absence of Certain Changes.  Except as
disclosed in Schedule 3(g), since June 30, 2011, there has been no material
adverse change in the business, properties, operations, financial condition or
results of operations of the Company or its Subsidiaries.  For purposes of this
Agreement, neither a decrease in cash or cash equivalents nor losses incurred in
the ordinary course of the Company’s business shall be deemed or considered a
material adverse change.  The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any
Bankruptcy Law nor does the Company or any of its Subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy or insolvency proceedings.  The Company is financially solvent and is
generally able to pay its debts as they become due.

 

(h)                                 Absence of Litigation. There is no action,
suit, proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of the Company’s Subsidiaries or any of the
Company’s or the Company’s Subsidiaries’ officers or directors in their
capacities as such, which could reasonably be expected to have a Material
Adverse Effect.  A description of each action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body which, as of the date of this Agreement, is
pending or threatened in writing against or affecting the Company, the Common
Stock or any of the Company’s Subsidiaries or any of the Company’s or the
Company’s Subsidiaries’ officers or directors in their capacities as such, is
set forth in Schedule 3(h).

 

(i)                                     Acknowledgment Regarding Buyer’s
Status.  The Company acknowledges and agrees that the Buyer is acting solely in
the capacity of arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated hereby and thereby.  The Company further
acknowledges that the Buyer is not acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby and any advice
given by the Buyer or any of its representatives or agents in connection with
the Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to the Buyer’s purchase of the Securities.  The Company
further represents to the Buyer that the Company’s decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives and advisors.

 

(j)                                     Intellectual Property Rights.  To the
Company’s knowledge, the Company and its Subsidiaries own or possess adequate
rights or licenses to use all material trademarks, trade names,

 

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service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights
(collectively, “Intellectual Property”) necessary to conduct their respective
businesses as now conducted, except as set forth in Schedule 3(j) or to the
extent that the failure to own, possess, license or otherwise hold adequate
rights to use Intellectual Property would not, individually or in the aggregate,
have a Material Adverse Effect.  Except as disclosed in Schedule 3(j), none of
the Company’s material trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets or other
intellectual property rights necessary to conduct the Company’s business as now
conducted have expired or terminated, or, by the terms and conditions thereof,
could expire or terminate within two years from the date of this Agreement.  The
Company and its Subsidiaries do not have any knowledge of any infringement by
the Company or its Subsidiaries of any material trademarks, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
marks, service mark registrations, trade secret or other similar rights of
others, or of any such development of similar or identical trade secrets or
technical information by others with respect to the Company’s or its
Subsidiaries’ trademarks, trade name rights, patents, patent rights, copyrights,
inventions, licenses, service names, service marks, service mark registrations,
trade secret or other similar rights and, except, as set forth on Schedule 3(j),
there is no claim, action or proceeding being made or brought against, or to the
Company’s knowledge, being threatened against, the Company or its Subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service mark registrations, trade secrets
or other intellectual property rights, which could reasonably be expected to
have a Material Adverse Effect.

 

(k)                                  Environmental Laws.  The Company and its
Subsidiaries (i) are in compliance with any and all applicable foreign, federal,
state and local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants (“Environmental Laws”), (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or
approval, except where, in each of the three foregoing clauses, the failure to
so comply or receive such approvals could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.

 

(l)                                     Title.  The Company and its Subsidiaries
have good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in Schedule 3(l) or
such as could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.  Any real property and facilities held
under lease by the Company and any of its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its Subsidiaries.

 

(m)                               Insurance.  The Company and each of its
Subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as management of the Company
believes to be reasonable in light of the businesses in which the Company and
its Subsidiaries are engaged.  Neither the Company nor any such Subsidiary has
been refused any insurance coverage sought or applied for and neither the
Company nor any such Subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage

 

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expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not reasonably be expected to have
a Material Adverse Effect.

 

(n)                                 Regulatory Permits.  The Company and its
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses as currently conducted, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such material certificate,
authorization or permit.

 

(o)                                 Tax Status.  The Company and each of its
Subsidiaries has made or filed all federal and state income and all other
material tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company and each of
its Subsidiaries has set aside on its books reserves reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books reserves reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply.  To the Company’s knowledge,
there are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction.

 

(p)                                 Transactions With Affiliates.  Except as set
forth on Schedule 3(p), and other than the grant or exercise of stock options or
any other equity securities offered pursuant to a duly authorized stock or
incentive compensation plan as disclosed on Schedule 3(c), none of the officers,
directors, or employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a material interest or is an
officer, director, trustee or partner.

 

(q)                                 Application of Takeover Protections. 
Assuming the Buyer’s ownership percentage of the outstanding shares of Common
Stock stays below 15%, the Company and its board of directors have taken or will
take prior to the Commencement Date all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the Buyer
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company’s issuance of the Securities and the Buyer’s
ownership of the Securities.

 

4.                                      COVENANTS.

 

(a)                                  Filing of Form 8-K and Registration
Statement.  The Company agrees that it shall, within the time required under the
1934 Act, file a Report on Form 8-K disclosing this Agreement and the
transactions contemplated hereby.  The Company shall also file within twenty
(20) Business Days from the date hereof a new registration statement covering
the sale of the Securities by the Buyer in accordance with the terms of the
Registration Rights Agreement between the Company and the Buyer, dated as of the
date hereof (“Registration Rights Agreement”).

 

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(b)           Blue Sky. The Company shall take such action, if any, as is
reasonably necessary in order to obtain an exemption for or to qualify (i) the
initial sale of the Securities to the Buyer under this Agreement and (ii) any
subsequent sale of the Securities by the Buyer, in each case, under applicable
securities or “Blue Sky” laws of the states of the United States in such states
as is reasonably requested by the Buyer from time to time, and shall provide
evidence of any such action so taken to the Buyer.

 

(c)           Listing.  The Company shall promptly secure the listing of all of
the Securities upon each national securities exchange and automated quotation
system that requires Company application for listing, if any, upon which shares
of Common Stock are then listed (subject to official notice of issuance) and
shall maintain such listing, so long as any other shares of Common Stock shall
be so listed.  The Company shall maintain the Common Stock’s listing on the
Principal Market in accordance with the requirements of the Registration Rights
Agreement.  Neither the Company nor any of its Subsidiaries shall take any
action that would be reasonably expected to result in the delisting or
suspension of the Common Stock on the Principal Market (except for any temporary
intra-day suspension in trading resulting from a news release or other
disclosure by the Company), unless the Common Stock is immediately thereafter
traded on the New York Stock Exchange, the Nasdaq Global Select Market, the
Nasdaq Capital Market, the NYSE Amex Equities, or the OTC Bulletin Board.  The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section.

 

(d)           Limitation on Short Sales and Hedging Transactions.  The Buyer
agrees that beginning on the date of this Agreement and ending on the date of
termination of this Agreement as provided in Section 11(k), the Buyer and its
agents, representatives and affiliates shall not in any manner whatsoever enter
into or effect, directly or indirectly, any (i) “short sale” (as such term is
defined in Section 242.200 of Regulation SHO of the 1934 Act) of the Common
Stock or (ii) hedging transaction, which establishes a net short position with
respect to the Common Stock.

 

(e)           Issuance of Commitment Shares.  Immediately upon the execution of
this Agreement, the Company shall issue to the Buyer, as consideration for the
Buyer entering into this Agreement, 378,788 shares of Common Stock (the
“Commitment Shares”).  The Commitment Shares shall be issued in certificated
form and (subject to Section 5 hereof) shall bear the following restrictive
legend:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, UNLESS SOLD PURSUANT TO: (1) RULE 144 UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR (2) AN OPINION OF HOLDER’S
COUNSEL, IN A CUSTOMARY FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
OR APPLICABLE STATE SECURITIES LAWS.

 

(f)            Due Diligence.  The Buyer shall have the right, from time to time
as the Buyer may reasonably deem appropriate, to perform reasonable due
diligence on the Company during normal business hours.  The Company and its
officers and employees shall provide information and reasonably cooperate with
the Buyer in connection with any reasonable request by the Buyer related to the
Buyer’s due diligence of the Company, including, but not limited to, any such
request made by the Buyer in

 

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connection with (i) the filing of the registration statement described in
Section 4(a) hereof and (ii) the Commencement; provided, however, that at no
time is the Company required or permitted to disclose material nonpublic
information to the Buyer.  Each party hereto agrees not to disclose any
Confidential Information of the other party to any third party and shall not use
the Confidential Information of such other party for any purpose other than in
connection with, or in furtherance of, the transactions contemplated hereby. 
Each party hereto acknowledges that the Confidential Information shall remain
the property of the disclosing party and agrees that it shall take all
reasonable measures to protect the secrecy of any Confidential Information
disclosed by the other party.

 

5.             TRANSFER AGENT INSTRUCTIONS.

 

Immediately upon the execution of this Agreement, the Company shall deliver to
the Transfer Agent a letter in the form as set forth as Exhibit E attached
hereto with respect to the issuance of the Commitment Shares.  On the
Commencement Date, the Company shall cause any restrictive legend on the
Commitment Shares to be removed upon surrender of the originally issued
certificate(s) for such shares. All of the Purchase Shares to be issued under
this Agreement shall be issued without any restrictive legend unless the Buyer
expressly consents otherwise.  The Company shall issue irrevocable instructions
to the Transfer Agent, and any subsequent transfer agent, to issue Purchase
Shares in the name of the Buyer for the Purchase Shares (the “Irrevocable
Transfer Agent Instructions”).  The Company warrants to the Buyer that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, will be given by the Company to the Transfer Agent with
respect to the Purchase Shares and that the Commitment Shares and Purchase
Shares shall otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement and the Registration
Rights Agreement, subject to the provisions of Section 4(e) in the case of the
Commitment Shares.

 

6.                                      CONDITIONS TO THE COMPANY’S RIGHT TO
COMMENCE SALES OF SHARES OF COMMON STOCK UNDER THIS AGREEMENT.

 

The right of the Company hereunder to commence sales of the Purchase Shares is
subject to the satisfaction of each of the following conditions on or before the
Commencement Date (the date that the Company may begin sales):

 

(a)           The Buyer shall have executed each of the Transaction Documents
and delivered the same to the Company;

 

(b)           The representations and warranties of the Buyer shall be true and
correct and the Buyer shall have performed, satisfied and complied in all
material respects with the covenants and agreements required by the Transaction
Documents to be performed, satisfied or complied with by the Buyer at or prior
to the Commencement Date unless waived by the Company; and

 

(c)           A registration statement covering the sale of the Securities shall
have been declared effective under the 1933 Act by the SEC and no stop order
with respect to the registration statement shall be pending or threatened by the
SEC.

 

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7.                                      CONDITIONS TO THE BUYER’S OBLIGATION TO
MAKE PURCHASES OF SHARES OF COMMON STOCK.

 

The obligation of the Buyer to buy Purchase Shares under this Agreement is
subject to the satisfaction of each of the following conditions on or before the
Commencement Date (the date that the Company may begin sales of Purchase Shares)
and once such conditions have been initially satisfied, there shall not be any
ongoing obligation to satisfy such conditions after the Commencement has
occurred:

 

(a)           The Company shall have executed each of the Transaction Documents
and delivered the same to the Buyer;

 

(b)           The Company shall have issued to the Buyer the Commitment Shares
and, in the event that the Buyer shall have surrendered the originally issued
certificate(s), shall have removed the restrictive transfer legend from the
certificate representing the Commitment Shares;

 

(c)           The Common Stock shall be authorized for listing on the Principal
Market, trading in the Common Stock shall not have been, within the last 365
days, suspended by the SEC or the Principal Market, other than a general halt in
trading in the Common Stock by the Principal Market under halt codes indicating
pending or released material news, and the Securities shall be approved for
listing upon the Principal Market;

 

(d)           The Buyer shall have received the opinion of the Company’s legal
counsel dated as of the Commencement Date in form and substance similar to that
previously submitted to the Buyer by the Company’s legal counsel;

 

(e)           The representations and warranties of the Company shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in
Section 3 above, in which case, such representations and warranties shall be
true and correct without further qualification) as of the date of this Agreement
and as of the Commencement Date as though made at that time (except for
representations and warranties that speak as of a specific date, which shall be
true and correct in all material respects as of such specific date) and the
Company shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Company at or prior
to the Commencement Date.  The Buyer shall have received a certificate, executed
by the CEO, President or CFO of the Company, dated as of the Commencement Date,
to the foregoing effect in the form attached hereto as Exhibit B;

 

(f)            The Board of Directors of the Company or a duly authorized
committee thereof shall have adopted resolutions substantially in the form
attached hereto as Exhibit C, which shall be in full force and effect without
any amendment or supplement thereto as of the Commencement Date;

 

(g)           As of the Commencement Date, the Company shall have reserved out
of its authorized and unissued Common Stock, solely for the purpose of effecting
purchases of Purchase Shares hereunder, 3,164,357 shares of Common Stock;

 

(h)           The Irrevocable Transfer Agent Instructions, in form acceptable to
the Buyer shall have been delivered to and acknowledged in writing by the
Company and the Company’s Transfer Agent;

 

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(i)            The Company shall have delivered to the Buyer a certificate
evidencing the incorporation and good standing of the Company in the State of
Delaware issued by the Secretary of State of the State of Delaware as of a date
within ten (10) Business Days of the Commencement Date;

 

(j)            The Company shall have delivered to the Buyer a certified copy of
the Certificate of Incorporation, as certified by the Secretary of State of the
State of Delaware within ten (10) Business Days of the Commencement Date;

 

(k)           The Company shall have delivered to the Buyer a secretary’s
certificate executed by the Secretary of the Company, dated as of the
Commencement Date, in the form attached hereto as Exhibit D;

 

(l)            A registration statement covering the sale of all of the
Commitment Shares and Purchase Shares shall have been declared effective under
the 1933 Act by the SEC and no stop order with respect to the registration
statement shall be pending or threatened by the SEC.  The Company shall have
prepared and delivered to the Buyer a final and complete form of prospectus,
dated and current as of the Commencement Date, to be used by the Buyer in
connection with any sales of any Securities, and to be filed by the Company one
(1) Business Day after the Commencement Date pursuant to Rule 424(b). The
Company shall have made all filings under all applicable federal and state
securities laws necessary to consummate the issuance of the Commitment Shares
and Purchase Shares pursuant to this Agreement in compliance with such laws;

 

(m)          No Event of Default has occurred and is continuing, or any event
which, after notice and/or lapse of time, would become an Event of Default has
occurred;

 

(n)           On or prior to the Commencement Date, the Company shall take all
necessary action, if any, and such actions as reasonably requested by the Buyer,
in order to render inapplicable any control share acquisition, business
combination, shareholder rights plan or poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the
Certificate of Incorporation or the laws of the state of its incorporation which
is or could become applicable to the Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company’s
issuance of the Securities and the Buyer’s ownership of the Securities; and

 

(o)           The Company shall have provided the Buyer with the information
reasonably requested by the Buyer in connection with its due diligence requests
made prior to, or in connection with, the Commencement, in accordance with the
terms of Section 4(f) hereof.

 

8.             INDEMNIFICATION.

 

In consideration of the Buyer’s execution and delivery of the Transaction
Documents and acquiring the Securities hereunder and in addition to all of the
Company’s other obligations under the Transaction Documents, the Company shall
defend, protect, indemnify and hold harmless the Buyer and all of its
affiliates, shareholders, officers, directors, and employees, and any of the
foregoing person’s agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the “Indemnitees”) from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action

 

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for which indemnification hereunder is sought), and including reasonable
attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any breach
of any representation or warranty made by the Company in the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby, (b) any breach of any covenant, agreement or obligation of the
Company contained in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby, or (c) any cause of
action, suit or claim brought or made against such Indemnitee and arising out of
or resulting from the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, other than with respect to Indemnified
Liabilities which directly and primarily result from (A) a breach of any of the
Buyer’s representations and warranties, covenants or agreements contained in
this Agreement, or (B) the gross negligence or willful misconduct of the
Indemnitee.  To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.

 

9.             EVENTS OF DEFAULT.

 

An “Event of Default” shall be deemed to have occurred at any time as any of the
following events occurs:

 

(a)           during any period in which the effectiveness of any registration
statement is required to be maintained pursuant to the terms of the Registration
Rights Agreement, the effectiveness of such registration statement lapses for
any reason (including, without limitation, the issuance of a stop order) or is
unavailable to the Buyer for the sale of all of the Registrable Securities (as
defined in the Registration Rights Agreement), and such lapse or unavailability
continues for a period of fifteen (15) consecutive Business Days or for more
than an aggregate of thirty (30) Business Days in any 365-day period, which is
not in connection with a post-effective amendment to any such registration
statement; in connection with any post-effective amendment to such registration
statement that is required to be declared effective by the SEC such lapse or
unavailability may continue for a period of no more than thirty (30) consecutive
Business Days;

 

(b)           the suspension from trading or failure of the Common Stock to be
listed on a Principal Market for a period of three (3) consecutive Business
Days;

 

(c)           the delisting of the Common Stock from the Principal Market,
provided, however, that the Common Stock is not immediately thereafter trading
on the New York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq
Capital Market, the NYSE Amex Equities, or the OTC Bulletin Board;

 

(d)           the failure for any reason by the Transfer Agent to issue Purchase
Shares to the Buyer which the Buyer is entitled to receive within five
(5) Business Days after the applicable Purchase Date;

 

(e)           the Company’s breach of any representation, warranty, covenant or
other term or condition under any Transaction Document if such breach could have
a Material Adverse Effect and, except in the case of a breach of a covenant
which is reasonably curable, only if such breach continues for a period of at
least five (5) Business Days;

 

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(f)            if any Person commences a proceeding against the Company pursuant
to or within the meaning of any Bankruptcy Law ;

 

(g)           if the Company pursuant to or within the meaning of any Bankruptcy
Law; (A) commences a voluntary case, (B) consents to the entry of an order for
relief against it in an involuntary case, (C) consents to the appointment of a
Custodian of it or for all or substantially all of its property, (D) makes a
general assignment for the benefit of its creditors, (E) becomes insolvent, or
(F) is generally unable to pay its debts as the same become due; or

 

(h)           a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that (A) is for relief against the Company in an involuntary
case, (B) appoints a Custodian of the Company or for all or substantially all of
its property, or (C) orders the liquidation of the Company or any Subsidiary.

 

In addition to any other rights and remedies under applicable law and this
Agreement, including the Buyer termination rights under Section 11(k) hereof, so
long as an Event of Default has occurred and is continuing, or if any event
which, after notice and/or lapse of time, would become an Event of Default, has
occurred and is continuing, or so long as the Closing Sale Price is below the
Floor Price, the Company may not require and the Buyer shall not be obligated or
permitted to purchase any shares of Common Stock under this Agreement.  If
pursuant to or within the meaning of any Bankruptcy Law, the Company commences a
voluntary case or any Person commences a proceeding against the Company, a
Custodian is appointed for the Company or for all or substantially all of its
property, or the Company makes a general assignment for the benefit of its
creditors, (any of which would be an Event of Default as described in Sections
9(f), 9(g) and 9(h) hereof) this Agreement shall automatically terminate without
any liability or payment to the Company without further action or notice by any
Person.  No such termination of this Agreement under Section 11(k)(i) shall
affect the Company’s or the Buyer’s obligations under this Agreement with
respect to pending purchases and the Company and the Buyer shall complete their
respective obligations with respect to any pending purchases under this
Agreement.

 

10.          CERTAIN DEFINED TERMS.

 

For purposes of this Agreement, the following terms shall have the following
meanings:

 

(a)           “1933 Act” means the Securities Act of 1933, as amended.

 

(b)           “Available Amount” means initially Twenty Million Dollars
($20,000,000) in the aggregate which amount shall be reduced by the Purchase
Amount each time the Buyer purchases shares of Common Stock pursuant to
Section 1 hereof.

 

(c)           “Bankruptcy Law” means Title 11, U.S. Code, or any similar federal
or state law for the relief of debtors.

 

(d)           “Business Day” means 9:30 a.m. to 4:00 p.m. Eastern Time on any
day on which the Principal Market is open for trading or such lesser period of
time on any day on which the Principal Market is open for trading for a period
of time less than the customary time.

 

(e)           “Closing Sale Price” means the last closing trade price for the
Common Stock on the Principal Market during normal trading hours, as reported by
the Principal Market.

 

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(f)            “Confidential Information” means any information disclosed by
either party to the other party, either directly or indirectly, in writing,
orally or by inspection of tangible objects (including, without limitation,
documents, prototypes, samples, plant and equipment), which is designated as
“Confidential,” “Proprietary” or some similar designation. Information
communicated orally shall be considered Confidential Information if such
information is expressly identified as being Confidential Information at the
time of the initial disclosure.  Confidential Information shall not, however,
include any information which (i) was publicly known and made generally
available in the public domain prior to the time of disclosure by the disclosing
party; (ii) becomes publicly known and made generally available after disclosure
by the disclosing party to the receiving party through no action or inaction of
the receiving party; (iii) is already in the possession of the receiving party
at the time of disclosure by the disclosing party as shown by the receiving
party’s files and records immediately prior to the time of disclosure; (iv) is
obtained by the receiving party from a third party without a breach of such
third party’s obligations of confidentiality; (v) is independently developed by
the receiving party without use of or reference to the disclosing party’s
Confidential Information, as shown by documents and other competent evidence in
the receiving party’s possession; or (vi) is required by law to be disclosed by
the receiving party, provided that the receiving party gives the disclosing
party prompt written notice of such requirement prior to such disclosure and
assistance in obtaining an order protecting the information from public
disclosure.

 

(g)           “Custodian” means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.

 

(h)           “Maturity Date” means the date that is three (3) years from the
Commencement Date.

 

(i)            “Person” means an individual or entity including any limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.

 

(j)            “Principal Market” means the Nasdaq Global Market; provided
however, that in the event the Company’s Common Stock is ever listed or traded
on the Nasdaq Global Select Market, the Nasdaq Capital Market, the New York
Stock Exchange, the NYSE Amex Equities or the OTC Bulletin Board, then the
“Principal Market” shall mean such other market or exchange on which the
Company’s Common Stock is then listed or traded.

 

(k)           “Purchase Amount” means, with respect to any particular purchase
made hereunder, the portion of the Available Amount to be purchased by the Buyer
pursuant to Section 1 hereof as set forth in a valid Purchase Notice or VWAP
Purchase Notice which the Company delivers to the Buyer.

 

(l)            “Purchase Date” means with respect to any Regular Purchase made
hereunder, the Business Day of receipt by the Buyer of a valid Purchase Notice
that the Buyer is to buy Purchase Shares pursuant to Section 1(b) hereof.

 

(m)          “Purchase Notice” shall mean an irrevocable written notice from the
Company to the Buyer directing the Buyer to buy Purchase Shares pursuant to
Section 1(b) hereof as specified by the Company therein at the applicable
Purchase Price on the Purchase Date.

 

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(n)           “Purchase Price” means the lower of (i) the lowest Sale Price of
the Common Stock on the Purchase Date on the Principal Market during normal
trading hours or (ii) the arithmetic average of the three (3) lowest Closing
Sale Prices for the Common Stock on the Principal Market during the twelve (12)
consecutive Business Days ending on the Business Day immediately preceding such
Purchase Date (to be appropriately adjusted for any reorganization,
recapitalization, non-cash dividend, stock split, reverse stock split or other
similar transaction).

 

(o)           “Sale Price” means any trade price for the shares of Common Stock
on the Principal Market during normal trading hours, as reported by the
Principal Market.

 

(p)           “SEC” means the United States Securities and Exchange Commission.

 

(q)           “Transfer Agent” means the transfer agent of the Company as set
forth in Section 11(f) hereof or such other person who is then serving as the
transfer agent for the Company in respect of the Common Stock.

 

(r)            “VWAP Minimum Price Threshold” means, with respect to any
particular VWAP Purchase Notice, the Sale Price on the VWAP Purchase Date equal
to the greater of (i) 90% of the Closing Sale Price on the Common Stock on the
Business Day immediately preceding the VWAP Purchase Date or (ii) such higher
price as set forth by the Company in the VWAP Purchase Notice.

 

(s)           “VWAP Purchase Amount” means, with respect to any particular VWAP
Purchase Notice, the portion of the Available Amount to be purchased by the
Buyer pursuant to Section 1(c) hereof as set forth in a valid VWAP Purchase
Notice which requires the Buyer to buy the VWAP Purchase Share Percentage of the
aggregate shares traded on the Principal Market during normal trading hours on
the VWAP Purchase Date up to the VWAP Purchase Share Volume Maximum, subject to
the VWAP Minimum Price Threshold.

 

(t)            “VWAP Purchase Date” means, with respect to any VWAP Purchase
made hereunder, the Business Day following the receipt by the Buyer of a valid
VWAP Purchase Notice that the Buyer is to buy Purchase Shares pursuant to
Section 1(c) hereof.

 

(u)           “VWAP Purchase Notice” shall mean an irrevocable written notice
from the Company to the Buyer directing the Buyer to buy Purchase Shares on the
VWAP Purchase Date pursuant to Section 1(c) hereof as specified by the Company
therein at the applicable VWAP Purchase Price with the applicable VWAP Purchase
Share Percentage specified therein.

 

(v)           “VWAP Purchase Share Percentage” means, with respect to any
particular VWAP Purchase Notice pursuant to Section 1(c) hereof, the percentage
set forth in the VWAP Purchase Notice which the Buyer will be required to buy as
a specified percentage of the aggregate shares traded on the Principal Market
during normal trading hours up to the VWAP Purchase Share Volume Maximum on the
VWAP Purchase Date subject to Section 1(c) hereof but in no event shall this
percentage exceed a maximum of thirty percent (30%) of such VWAP Purchase Date’s
share trading volume of the Common Stock on the Principal Market during normal
trading hours.

 

(w)          “VWAP Purchase Price” means the lower of (i) the Closing Sale Price
on the VWAP Purchase Date, or (ii) ninety-five percent (95%) of volume weighted
average price for the Common Stock traded on the Principal Market during normal
trading hours on (A) the VWAP Purchase Date if the

 

18

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

 

aggregate shares traded on the Principal Market on the VWAP Purchase Date have
not exceeded the VWAP Purchase Share Volume Maximum, or (B) the portion of the
VWAP Purchase Date until such time as the sooner to occur of (1) the time at
which the aggregate shares traded on the Principal Market has exceeded the VWAP
Purchase Share Volume Maximum, or (2) the time at which the sale price of Common
Stock falls below the VWAP Minimum Price Threshold (to be appropriately adjusted
for any reorganization, recapitalization, non-cash dividend, stock split,
reverse stock split or other similar transaction).

 

(x)            “VWAP Purchase Share Estimate” means the number of shares of
Common Stock that the Company has, in its sole discretion, irrevocably
instructed its Transfer Agent to issue to the Buyer via the Depository Trust
Company (“DTC”) Fast Automated Securities Transfer Program in connection with a
VWAP Purchase Notice pursuant to Section 1(c) hereof and issued to the Buyer’s
or its designee’s balance account with DTC through its Deposit Withdrawal At
Custodian (DWAC) system on the VWAP Purchase Date (to be appropriately adjusted
for any reorganization, recapitalization, non-cash dividend, stock split,
reverse stock split or other similar transaction).

 

(y)           “VWAP Purchase Share Volume Maximum” means a number of shares of
Common Stock traded on the Principal Market during normal trading hours on the
VWAP Purchase Date equal to: (i) the VWAP Purchase Share Estimate, divided by
(ii) the VWAP Purchase Share Percentage (to be appropriately adjusted for any
reorganization, recapitalization, non-cash dividend, stock split, reverse stock
split or other similar transaction).

 

11.          MISCELLANEOUS.

 

(a)           Governing Law; Jurisdiction; Jury Trial.  The corporate laws of
the State of Delaware shall govern all issues concerning the relative rights of
the Company and its shareholders.  All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
other Transaction Documents shall be governed by the internal laws of the State
of Illinois, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Illinois.  Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of Chicago, for
the adjudication of any dispute hereunder or under the other Transaction
Documents or in connection herewith or therewith, or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper.  Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof. 
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.  EACH PARTY HEREBY IRREVOCABLY WAIVES
ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(b)           Counterparts.  This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile

 

19

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

 

or pdf (or other electronic reproduction) signature shall be considered due
execution and shall be binding upon the signatory thereto with the same force
and effect as if the signature were an original, not a facsimile or pdf (or
other electronic reproduction) signature.

 

(c)           Headings.  The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

 

(d)           Severability.  If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

 

(e)           Entire Agreement.  This Agreement and the Registration Rights
Agreement supersede all other prior oral or written agreements between the
Buyer, the Company, their affiliates and persons acting on their behalf with
respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor the Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters.  The Company acknowledges and agrees
that is has not relied on, in any manner whatsoever, any representations or
statements, written or oral, other than as expressly set forth in this
Agreement.

 

(f)            Notices.  Any notices, consents or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered: (i) upon receipt when delivered
personally; (ii) upon receipt when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one Business Day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:

 

If to the Company:

Kips Bay Medical, Inc.

3405 Annapolis Lane North, Suite 200

Minneapolis, MN 55447

Telephone:

 

763-235-3540

Facsimile:

 

763-235-3545

Attention:

 

Manny Villafaña

 

 

Chairman and Chief Executive Officer

 

With a required copy to:

Fredrikson & Byron, P.A.

200 South Sixth Street, Suite 4000

Minneapolis, Minnesota 55402

Telephone:

 

612-492-7000

Facsimile:

 

612-492-7077

Attention:

 

Robert K. Ranum, Esq.

 

If to the Buyer:

 

20

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

 

Aspire Capital Fund, LLC

155 North Wacker Drive, Suite 1600

Chicago, IL 60606

Telephone:

 

312-658-0400

Facsimile:

 

312-658-4005

Attention:

 

Steven G. Martin

 

With a required copy to:

O’Melveny & Myers LLP

1625 Eye Street, NW

Washington, DC 20006

Telephone:

 

202-383-5418

Facsimile:

 

202-383-5414

Attention:

 

Martin P. Dunn, Esq.

 

If to the Transfer Agent:

Wells Fargo Shareowner Services

161 North Concord Exchange

South St. Paul, MN 55075

Telephone:

 

651 450-4045

Facsimile:

 

 

Attention:

 

Patti Boyd

 

or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party one (1) Business Day prior to the effectiveness of such
change.  Written confirmation of receipt (A) given by the recipient of such
notice, consent or other communication, (B) mechanically or electronically
generated by the sender’s facsimile machine containing the time, date, and
recipient facsimile number or (C) provided by a nationally recognized overnight
delivery service, shall be rebuttable evidence of receipt in accordance with
clause (i), (ii) or (iii) above, respectively.

 

(g)           Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns.  The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Buyer, including
by merger or consolidation.  The Buyer may not assign its rights or obligations
under this Agreement.

 

(h)           No Third Party Beneficiaries.  This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

 

(i)            Publicity.  The Buyer shall have the right to approve before
issuance any press release, SEC filing or any other public disclosure made by or
on behalf of the Company whatsoever with respect to, in any manner, the Buyer,
its purchases hereunder or any aspect of this Agreement or the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of the Buyer, to make any press release or other
public disclosure (including any filings with the SEC) with respect to such
transactions as is required by applicable law and regulations so long as the
Company and its counsel consult with the Buyer in connection with any such press
release or

 

21

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

 

other public disclosure at least two (2) Business Days prior to its release. 
The Buyer must be provided with a copy thereof at least two (2) Business Days
prior to any release or use by the Company thereof.

 

(j)            Further Assurances.  Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

 

(k)           Termination.  This Agreement may be terminated only as follows:

 

(i)            By the Buyer any time an Event of Default exists without any
liability or payment to the Company.  However, if pursuant to or within the
meaning of any Bankruptcy Law, the Company commences a voluntary case or any
Person commences a proceeding against the Company, a Custodian is appointed for
the Company or for all or substantially all of its property, or the Company
makes a general assignment for the benefit of its creditors, (any of which would
be an Event of Default as described in Sections 9(f), 9(g) and 9(h) hereof) this
Agreement shall automatically terminate without any liability or payment to the
Company without further action or notice by any Person.  No such termination of
this Agreement under this Section 11(k)(i) shall affect the Company’s or the
Buyer’s obligations under this Agreement with respect to pending purchases and
the Company and the Buyer shall complete their respective obligations with
respect to any pending purchases under this Agreement.

 

(ii)           In the event that the Commencement shall not have occurred, the
Company shall have the option to terminate this Agreement for any reason or for
no reason without any liability whatsoever of either party to the other party
under this Agreement except as set forth in Section 11(k)(viii) hereof.

 

(iii)          In the event that the Commencement shall not have occurred on or
before April 1, 2012, due to the failure to satisfy any of the conditions set
forth in Sections 6 and 7 above with respect to the Commencement, either party
shall have the option to terminate this Agreement at the close of business on
such date or thereafter without liability of either party to the other party;
provided, however, that the right to terminate this Agreement under this
Section 11(k)(iii) shall not be available to either party if such failure to
satisfy any of the conditions set forth in Sections 6 and 7 is the result of a
breach of this Agreement by such party or the failure of any representation or
warranty of such party included in this Agreement to be true and correct.

 

(iv)          At any time after the Commencement Date, the Company shall have
the option to terminate this Agreement for any reason or for no reason by
delivering notice (a “Company Termination Notice”) to the Buyer electing to
terminate this Agreement without any liability whatsoever of either party to the
other party under this Agreement except as set forth in
Section 11(k)(viii) hereof.  The Company Termination Notice shall not be
effective until one (1) Business Day after it has been received by the Buyer.

 

(v)           This Agreement shall automatically terminate on the earlier of
(i) the date that the Company sells and the Buyer purchases the full Available
Amount as provided herein and (ii) the date on which the Exchange Cap is reached
if shareholder approval to exceed the Exchange

 

22

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

 

Cap has not previously been obtained, in each case without any action or notice
on the part of any party and without any liability whatsoever of any party to
any other party under this Agreement except as set forth in
Section 11(k)(viii) hereof.

 

(vi)          If by the Maturity Date for any reason or for no reason the full
Available Amount under this Agreement has not been purchased as provided for in
Section 1 of this Agreement, this Agreement shall automatically terminate on the
Maturity Date, without any action or notice on the part of any party and without
any liability whatsoever of any party to any other party under this Agreement
except as set forth in Section 11(k)(viii) hereof.

 

(vii)         Except as set forth in Sections 11(k)(i) (in respect of an Event
of Default under Sections 9(f), 9(g) and 9(h)), 11(k)(v) and 11(k)(vi), any
termination of this Agreement pursuant to this Section 11(k) shall be effected
by written notice from the Company to the Buyer, or the Buyer to the Company, as
the case may be, setting forth the basis for the termination hereof.

 

(viii)        The representations and warranties of the Company and the Buyer
contained in Sections 2, 3 and 5 hereof, the indemnification provisions set
forth in Section 8 hereof and the agreements and covenants set forth in Sections
4(e) and 11, shall survive the Commencement and any termination of this
Agreement.  No termination of this Agreement shall affect the Company’s or the
Buyer’s rights or obligations (i) under the Registration Rights Agreement which
shall survive any such termination or (ii) under this Agreement with respect to
pending purchases and the Company and the Buyer shall complete their respective
obligations with respect to any pending purchases under this Agreement.

 

(l)            No Financial Advisor, Placement Agent, Broker or Finder.  Other
than Cohen & Company, the Company represents and warrants to the Buyer that it
has not engaged any financial advisor, placement agent, broker or finder in
connection with the transactions contemplated hereby.  The Buyer represents and
warrants to the Company that it has not engaged any financial advisor, placement
agent, broker or finder in connection with the transactions contemplated
hereby.  Each party shall be responsible for the payment of any fees or
commissions, if any, of any financial advisor, placement agent, broker or finder
engaged by such party relating to or arising out of the transactions
contemplated hereby.  Each party shall pay, and hold the other party harmless
against, any liability, loss or expense (including, without limitation,
attorneys’ fees and out of pocket expenses) arising in connection with any such
claim.

 

(m)          No Strict Construction.  The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

 

(n)           Failure or Indulgence Not Waiver.  No failure or delay in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.

 

*     *     *     *     *

 

23

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

 

IN WITNESS WHEREOF, the Buyer and the Company have caused this Common Stock
Purchase Agreement to be duly executed as of the date first written above.

 

 

 

THE COMPANY:

 

 

 

KIPS BAY MEDICAL, INC.

 

 

 

By:

/s/ Manny Villafaña

 

Name: Manny Villafaña

 

Title: Chairman and Chief Executive Officer

 

 

 

 

 

BUYER:

 

 

 

ASPIRE CAPITAL FUND, LLC

 

BY: ASPIRE CAPITAL PARTNERS, LLC

 

BY: SGM HOLDINGS CORP.

 

 

 

By:

/s/ Steven G. Martin

 

Name: Steven G. Martin

 

Title: President

 

24

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

 

SCHEDULES

 

Schedule 3(a)

 

Subsidiaries

Schedule 3(c)

 

Capitalization

Schedule 3(e)

 

Conflicts

Schedule 3(f)

 

1934 Act Filings

Schedule 3(g)

 

Absence of Certain Changes

Schedule 3(h)

 

Absence of Litigation

Schedule 3(j)

 

Intellectual Property Rights

Schedule 3(l)

 

Title

Schedule 3(p)

 

Transactions with Affiliates

 

EXHIBITS

 

Exhibit A

 

[Intentionally omitted.]

Exhibit B

 

Form of Officer’s Certificate

Exhibit C

 

Form of Resolutions of Board of Directors of the Company

Exhibit D

 

Form of Secretary’s Certificate

Exhibit E

 

Form of Letter to Transfer Agent

 

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

 

DISCLOSURE SCHEDULES

 

Schedule 3(a) — Subsidiaries

 

None

 

Schedule 3(c) - Capitalization

 

Kips Bay Medical, Inc.

Capitalization Table

As of July 2, 2011

 

 

 

Shares

 

Percent

 

Debt

 

—

 

0.00

%

 

 

 

 

 

 

Common Stock

 

 

 

 

 

$0.01 par value Common shares (40M authorized)

 

15,734,291

 

89.18

%

Undesignated shares (10M authorized)

 

—

 

—

%

 

 

 

 

 

 

Option Pool:

 

 

 

 

 

Option Shares Granted & Outstanding

 

971,750

 

5.51

%

Option Shares Available for Future Grants

 

937,250

 

5.31

%

Total Option Pool

 

1,909,000

 

10.82

%

 

 

 

 

 

 

Total Common and Potential Option Shares

 

17,643,291

 

100.00

%

 

Registration Rights

 

The Company has granted registration rights to Kips Bay Investments, LLC
pursuant to Investment Agreement dated July 19, 2007 which is filed as an
exhibit to the Company’s Amendment No. 1 to its Registration Statement on
Form S-1 (Reg. No. 333-165940) filed with the SEC on May 20, 2010.

 

The Company has granted registration rights to Rodman & Renshaw, LLC (“Rodman”)
and its affiliates pursuant to an option agreement for the purchase of common
stock in the form attached as Exhibit A to the Underwriting Agreement between
the Company and Rodman dated February 10, 2011, a form of which was filed as
Exhibit 1.1 to Amendment No. 9 to the Registration Statement on Form S-1 (Reg.
No. 333-165940) filed with the SEC on January 18, 2011.

 

Schedule 3(e) — No Conflicts

 

None

 

Schedule 3(f) - 1934 Act Filings; SEC Actions

 

None

 

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

 

Schedule 3(g) - Absence of Certain Changes

 

On September 20, 2011, the Company issued a press release announcing that the
FDA had advised the Company that, at that date, it did not believe that the
Company had provided sufficient data to support the Company’s request for an
investigational device exemption (“IDE”) for the eSVS MESH.

 

Schedule 3(h) - Absence of Litigation

 

None

 

Schedule 3(j) - Intellectual Property Rights

 

None

 

Schedule 3(l) - Title

 

None

 

Schedule 3(p) - Transactions with Affiliates

 

None

 

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

 

EXHIBIT A

 

[Intentionally omitted.]

 

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

 

EXHIBIT B

 

FORM OF OFFICER’S CERTIFICATE

 

This Officer’s Certificate (“Certificate”) is being delivered pursuant to
Section 7(e) of that certain Common Stock Purchase Agreement dated as of
October 24, 2011 (the “Common Stock Purchase Agreement”), by and between KIPS
BAY MEDICAL, INC., a Delaware corporation (the “Company”), and ASPIRE CAPITAL
FUND, LLC, an Illinois limited liability company (the “Buyer”).  Terms used
herein and not otherwise defined shall have the meanings ascribed to them in the
Common Stock Purchase Agreement.

 

The undersigned,                       ,                              of the
Company, hereby certifies as follows:

 

1.             I am the                            of the Company and make the
statements contained in this Certificate in such capacity and not personally;

 

2.             The representations and warranties of the Company are true and
correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in
Section 3 of the Common Stock Purchase Agreement, in which case, such
representations and warranties are true and correct without further
qualification) as of the date when made and as of the Commencement Date as
though made at that time (except for representations and warranties that speak
as of a specific date);

 

3.             The Company has performed, satisfied and complied in all material
respects with covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Company at or prior
to the Commencement Date.

 

4.             The Company has not taken any steps, and does not currently
expect to take any steps, to seek protection pursuant to any Bankruptcy Law nor
does the Company or any of its Subsidiaries have any knowledge or reason to
believe that its creditors intend to initiate involuntary bankruptcy or
insolvency proceedings. The Company is financially solvent and is generally able
to pay its debts as they become due.

 

IN WITNESS WHEREOF, I have hereunder signed my name on this        day of
                      .

 

 

 

 

Name:

 

Title:

 

The undersigned as Secretary of KIPS BAY MEDICAL, INC., a Delaware corporation,
hereby certifies that                        is the duly elected, appointed,
qualified and acting                  of                    and that the
signature appearing above is his genuine signature.

 

 

 

 

Secretary

 

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

 

EXHIBIT C-1

 

FORM OF COMPANY RESOLUTIONS

FOR SIGNING PURCHASE AGREEMENT

 

WHEREAS, there has been presented to the Board of Directors of the Corporation a
draft of the Common Stock Purchase Agreement (the “Purchase Agreement”) by and
between the Corporation and Aspire Capital Fund, LLC (“Aspire”), providing for
the purchase by Aspire of up to Twenty Million Dollars ($20,000,000) of the
Corporation’s common stock, par value $0.01 (the “Common Stock”); and

 

WHEREAS, after careful consideration of the Purchase Agreement, the documents
incident thereto and other factors deemed relevant by the Board of Directors,
the Board of Directors has determined that it is advisable and in the best
interests of the Corporation to engage in the transactions contemplated by the
Purchase Agreement, including, but not limited to, the issuance of a number of
shares of Common Stock representing a dollar value equal to 3.0% of $20,000,000
to Aspire as a commitment fee (the “Commitment Shares”) and the sale of shares
of Common Stock to Aspire up to the available amount under the Purchase
Agreement (the “Purchase Shares”).

 

Transaction Documents

 

NOW, THEREFORE, BE IT RESOLVED, that the transactions described in the Purchase
Agreement are hereby approved and the Chairman, Chief Executive Officer and
Chief Financial Officer (the “Authorized Officers”) are severally authorized to
execute and deliver the Purchase Agreement, and any other agreements or
documents contemplated thereby including, without limitation, a registration
rights agreement (the “Registration Rights Agreement”) providing for the
registration of the shares of the Company’s Common Stock issuable in respect of
the Purchase Agreement on behalf of the Corporation, with such amendments,
changes, additions and deletions as the Authorized Officers may deem to be
appropriate and approve on behalf of, the Corporation, such approval to be
conclusively evidenced by the signature of an Authorized Officer thereon; and

 

FURTHER RESOLVED, that the terms and provisions of the Registration Rights
Agreement by and among the Corporation and Aspire are hereby approved and the
Authorized Officers are authorized to execute and deliver the Registration
Rights Agreement (pursuant to the terms of the Purchase Agreement), with such
amendments, changes, additions and deletions as the Authorized Officer may deem
appropriate and approve on behalf of, the Corporation, such approval to be
conclusively evidenced by the signature of an Authorized Officer thereon; and

 

FURTHER RESOLVED, that the terms and provisions of the Form of Transfer Agent
Instructions (the “Instructions”) are hereby approved and the Authorized
Officers are authorized to execute and deliver the Instructions (pursuant to the
terms of the Purchase Agreement), with such amendments, changes, additions and
deletions as the Authorized Officers may deem appropriate and approve on behalf
of, the Corporation, such approval to be conclusively evidenced by the signature
of an Authorized Officer thereon; and

 

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

 

Execution of Purchase Agreement

 

FURTHER RESOLVED, that the Corporation be and it hereby is authorized to execute
the Purchase Agreement providing for the purchase of common stock of the
Corporation having an aggregate value of up to $20,000,000; and

 

Issuance of Common Stock

 

FURTHER RESOLVED, that the Corporation is hereby authorized to issue the
Commitment Shares to Aspire Capital Fund, LLC as Commitment Shares and that upon
issuance of the Commitment Shares pursuant to the Purchase Agreement, the
Commitment Shares shall be duly authorized, validly issued, fully paid and
nonassessable with no personal liability attaching to the ownership thereof; and

 

FURTHER RESOLVED, that the Corporation is hereby authorized to issue shares of
Common Stock upon the purchase of Purchase Shares up to the available amount
under the Purchase Agreement in accordance with the terms of the Purchase
Agreement and that, upon issuance of the Purchase Shares pursuant to the
Purchase Agreement, the Purchase Shares will be duly authorized, validly issued,
fully paid and nonassessable with no personal liability attaching to the
ownership thereof; and

 

FURTHER RESOLVED, that the Corporation shall initially reserve 3,164,357 shares
of Common Stock for issuance as Purchase Shares under the Purchase Agreement;
and

 

Listing of Shares on the Nasdaq Global Market

 

FURTHER RESOLVED, that the officers of the Corporation with the assistance of
counsel be, and each of them hereby is, authorized and directed to take all
necessary steps and do all other things necessary and appropriate to effect the
listing of the Commitment Shares and Purchase Shares on the Nasdaq Global
Market; and

 

Approval of Actions

 

FURTHER RESOLVED, that, without limiting the foregoing, the Authorized Officers
are, and each of them hereby is, authorized and directed to proceed on behalf of
the Corporation and to take all such steps as deemed necessary or appropriate,
with the advice and assistance of counsel, to cause the Corporation to
consummate the agreements referred to herein and to perform its obligations
under such agreements; and

 

FURTHER RESOLVED, that the Authorized Officers be, and each of them hereby is,
authorized, empowered and directed on behalf of and in the name of the
Corporation, to take or cause to be taken all such further actions and to
execute and deliver or cause to be executed and delivered all such further
agreements, amendments, documents, certificates, reports, schedules,
applications, notices, letters and undertakings and to incur and pay all such
fees and expenses as in their judgment shall be necessary, proper or desirable
to carry into effect the purpose and intent of any and all of the foregoing
resolutions, and that all actions heretofore taken by any officer or director of
the Corporation in connection with the transactions contemplated by the
agreements described herein are hereby approved, ratified and confirmed in all
respects.

 

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

 

EXHIBIT C-2

 

FORM OF COMPANY RESOLUTIONS APPROVING REGISTRATION STATEMENT

 

WHEREAS, there has been presented to the Board of Directors of the Corporation a
Common Stock Purchase Agreement (the “Purchase Agreement”) by and among the
Corporation and Aspire Capital Fund, LLC (“Aspire”), providing for the purchase
by Aspire of up to Twenty Million Dollars ($20,000,000) of the Corporation’s
common stock, par value $0.01 (the “Common Stock”); and

 

WHEREAS, after careful consideration of the Purchase Agreement, the documents
incident thereto and other factors deemed relevant by the Board of Directors,
the Board of Directors has approved the Purchase Agreement and the transactions
contemplated thereby and the Company has executed and delivered the Purchase
Agreement to Aspire; and

 

WHEREAS, in connection with the transactions contemplated pursuant to the
Purchase Agreement, the Company has agreed to file a registration statement with
the Securities and Exchange Commission (the “Commission”) registering the
Commitment Shares (as defined in the Purchase Agreement) and the Purchase Shares
(as herein defined in the Purchase Agreement) and to list the Commitment Shares
and Purchase Shares on the Nasdaq Global Market;

 

WHEREAS, the management of the Corporation has prepared an initial draft of a
Registration Statement on Form S-1 (the “Registration Statement”) in order to
register the sale of the Purchase Shares and the Commitment Shares
(collectively, the “Securities”); and

 

WHEREAS, the Board of Directors has determined to approve the Registration
Statement and to authorize the appropriate officers of the Corporation to take
all such actions as they may deem appropriate to effect the offering.

 

NOW, THEREFORE, BE IT RESOLVED, that the officers and directors of the
Corporation be, and each of them hereby is, authorized and directed, with the
assistance of counsel and accountants for the Corporation, to prepare, execute
and file with the Commission the Registration Statement, which Registration
Statement shall be filed substantially in the form presented to the Board of
Directors, with such changes therein as the Chief Executive Officer of the
Corporation or any Vice President of the Corporation shall deem desirable and in
the best interest of the Corporation and its shareholders (such officer’s
execution thereof including such changes shall be deemed to evidence
conclusively such determination); and

 

FURTHER RESOLVED, that the officers of the Corporation be, and each of them
hereby is, authorized and directed, with the assistance of counsel and
accountants for the Corporation, to prepare, execute and file with the
Commission all amendments, including post-effective amendments, and supplements
to the Registration Statement, and all certificates, exhibits, schedules,
documents and other instruments relating to the Registration Statement, as such
officers shall deem necessary or appropriate (such officer’s execution and
filing thereof shall be deemed to evidence conclusively such determination); and

 

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FURTHER RESOLVED, that the execution of the Registration Statement and of any
amendments and supplements thereto by the officers and directors of the
Corporation be, and the same hereby is, specifically authorized either
personally or by the Authorized Officers as such officer’s or director’s true
and lawful attorneys-in-fact and agents; and

 

FURTHER RESOLVED, that the Authorized Officers are hereby designated as “Agent
for Service” of the Corporation in connection with the Registration Statement
and the filing thereof with the Commission, and the Authorized Officers hereby
are authorized to receive communications and notices from the Commission with
respect to the Registration Statement; and

 

FURTHER RESOLVED, that the officers of the Corporation be, and each of them
hereby is, authorized and directed to pay all fees, costs and expenses that may
be incurred by the Corporation in connection with the Registration Statement;
and

 

FURTHER RESOLVED, that it is desirable and in the best interest of the
Corporation that the Securities be qualified or registered for sale in various
states; that the officers of the Corporation be, and each of them hereby is,
authorized to determine the states in which appropriate action shall be taken to
qualify or register for sale all or such part of the Securities as they may deem
advisable; that said officers be, and each of them hereby is, authorized to
perform on behalf of the Corporation any and all such acts as they may deem
necessary or advisable in order to comply with the applicable laws of any such
states, and in connection therewith to execute and file all requisite papers and
documents, including, but not limited to, applications, reports, surety bonds,
irrevocable consents, appointments of attorneys for service of process and
resolutions; and the execution by such officers of any such paper or document or
the doing by them of any act in connection with the foregoing matters shall
conclusively establish their authority therefor from the Corporation and the
approval and ratification by the Corporation of the papers and documents so
executed and the actions so taken; and

 

FURTHER RESOLVED, that if, in any state where the securities to be registered or
qualified for sale to the public, or where the Corporation is to be registered
in connection with the public offering of the Securities, a prescribed form of
resolution or resolutions is required to be adopted by the Board of Directors,
each such resolution shall be deemed to have been and hereby is adopted, and the
Secretary is hereby authorized to certify the adoption of all such resolutions
as though such resolutions were now presented to and adopted by the Board of
Directors; and

 

FURTHER RESOLVED, that the officers of the Corporation with the assistance of
counsel be, and each of them hereby is, authorized and directed to take all
necessary steps and do all other things necessary and appropriate to effect the
listing of the Shares on the Nasdaq Global Market; and

 

Approval of Actions

 

FURTHER RESOLVED, that, without limiting the foregoing, the Authorized Officers
are, and each of them hereby is, authorized and directed to proceed on behalf of
the Corporation and to take all such steps as are deemed necessary or
appropriate, with the advice and assistance of counsel, to cause the Corporation
to take all such action referred to herein and to perform its obligations
incident to the registration, listing and sale of the Shares; and

 

FURTHER RESOLVED, that the Authorized Officers be, and each of them hereby is,
authorized, empowered and directed on behalf of and in the name of the
Corporation, to take or cause to be taken all such further actions and to
execute and deliver or cause to be executed and delivered all such further

 

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agreements, amendments, documents, certificates, reports, schedules,
applications, notices, letters and undertakings and to incur and pay all such
fees and expenses as in their judgment shall be necessary, proper or desirable
to carry into effect the purpose and intent of any and all of the foregoing
resolutions, and that all actions heretofore taken by any officer or director of
the Corporation in connection with the transactions contemplated by the
agreements described herein are hereby approved, ratified and confirmed in all
respects.

 

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EXHIBIT D

 

FORM OF SECRETARY’S CERTIFICATE

 

This Secretary’s Certificate (the “Certificate”) is being delivered pursuant to
Section 7(k) of that certain Common Stock Purchase Agreement dated as of
October 24, 2011 (the “Common Stock Purchase Agreement”), by and between KIPS
BAY MEDICAL, INC., a Delaware corporation (the “Company”) and ASPIRE CAPITAL
FUND, LLC, an Illinois limited liability company (the “Buyer”), pursuant to
which the Company may sell to the Buyer up to Twenty Million Dollars
($20,000,000) of the Company’s Common Stock, par value $0.01 (the “Common
Stock”).  Terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Common Stock Purchase Agreement.

 

The undersigned,                                   , Secretary of the Company,
hereby certifies as follows:

 

1.             I am the Secretary of the Company and make the statements
contained in this Secretary’s Certificate in such capacity and not personally.

 

2.             Attached hereto as Exhibit A and Exhibit B are true, correct and
complete copies of the Company’s bylaws (“Bylaws”) and Certificate of
Incorporation (“Articles”), in each case, as amended through the date hereof,
and no action has been taken by the Company, its directors, officers or
shareholders, in contemplation of the filing of any further amendment relating
to or affecting the Bylaws or Articles.

 

3.             Attached hereto as Exhibit C are true, correct and complete
copies of the resolutions duly adopted by the Board of Directors of the Company
on                            at which a quorum was present and acting
throughout.  Such resolutions have not been amended, modified or rescinded and
remain in full force and effect and such resolutions are the only resolutions
adopted by the Company’s Board of Directors, or any committee thereof, or the
shareholders of the Company relating to or affecting (i) the entering into and
performance of the Common Stock Purchase Agreement, or the issuance, offering
and sale of the Purchase Shares and the Commitment Shares and (ii) and the
performance of the Company of its obligation under the Transaction Documents as
contemplated therein.

 

4.             As of the date hereof, the authorized, issued and reserved
capital stock of the Company is as set forth on Exhibit D hereto.

 

IN WITNESS WHEREOF, I have hereunder signed my name on this        day of
                        .

 

 

 

 

                                          , Secretary

 

 

The undersigned as                        of KIPS BAY MEDICAL, INC., a Delaware
corporation, hereby certifies that                                        is the
duly elected, appointed, qualified and acting Secretary of KIPS BAY
MEDICAL, INC., and that the signature appearing above is his genuine signature.

 

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EXHIBIT E

 

FORM OF LETTER TO THE TRANSFER AGENT FOR THE ISSUANCE OF THE COMMITMENTS SHARES
AT SIGNING OF THE PURCHASE AGREEMENT

 

[COMPANY LETTERHEAD]

 

October 24, 2011

 

Wells Fargo Shareowner Services

161 North Concord Exchange St.

South St. Paul, MN  55075

Attention:  Ms. Patti Boyd

 

Re: Issuance of Common Shares to Aspire Capital Fund, LLC

 

Ladies and Gentlemen:

 

On behalf of KIPS BAY MEDICAL, INC., (the “Company”), you are hereby instructed
to issue as soon as possible378,788 shares of our common stock in the name of
Aspire Capital Fund, LLC.  The share certificate should be dated October 24,
2011.  I have included a true and correct copy of the authorizing resolutions
adopted by the Board of Directors of the Company and certified by the Secretary
of the Company approving the issuance of these shares.  The shares should be
issued subject to the following restrictive legend:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, UNLESS SOLD PURSUANT TO: (1) RULE 144 UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR (2) AN OPINION OF HOLDER’S
COUNSEL, IN A CUSTOMARY FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
OR APPLICABLE STATE SECURITIES LAWS.

 

The share certificate should be sent as soon as possible via overnight mail to
the following address:

 

Aspire Capital Fund, LLC

155 North Wacker Drive, Suite 1600

Chicago, IL 60606

Attention: Steven G. Martin

 

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The Company also hereby instructs you to establish a reserve of 3,164,357 shares
from the Company authorized shares for possible issuance to Aspire pursuant to a
Common Stock Purchase Agreement between the Company and Aspire dated October 24,
2011.  The shares issued pursuant to this letter of instruction should be
counted against such reserve.

 

Thank you very much for your help.  Please call Scott Kellen, at 763 235-3540 if
you have any questions or need anything further.

 

 

KIPS BAY MEDICAL, INC.

 

 

 

BY:

 

 

Scott Kellen

 

Chief Financial Officer

 

 

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