Document:

EXHIBIT 4.1

 

CERTIFICATE OF DESIGNATIONS

 

OF

 

SERIES A PREFERRED STOCK

 

(Par
Value $1.00 Per Share)

 

OF

 

SMTEK
INTERNATIONAL, INC.

 

 

Pursuant
to Section 151 of the 

General Corporation Law of the State of Delaware

 

 

SMTEK International, Inc., a Delaware corporation (the
“Corporation”), certifies that pursuant to the authority conferred upon the
Board of Directors of the Company (the “Board of Directors”) by
Article Four of the Certificate of Incorporation of the Corporation (the
“Certificate of Incorporation”), and in accordance with the provisions of
Section 151 of the General Corporation Law of the State of Delaware, as
amended, the Board of Directors, on September 4, 2003, adopted the
following resolution creating a series of its preferred stock, par value
$1.00 per share (“Preferred Stock”):

 

RESOLVED, that (1) pursuant to the authority
conferred upon the Board of Directors by the Certificate of Incorporation, the
Board of Directors hereby designates 250,000 shares of the Preferred Stock
of the Corporation as “Series A Preferred Stock,” and the voting powers,
designations, preferences, rights of the Series A Preferred Stock and the
qualifications, limitations and restrictions thereof, be, and they hereby are,
as set forth below (the “Certificate of Designations”) and (2) in
connection therewith, the officers of the Corporation be, and each of them
hereby is, authorized and empowered on behalf of the Corporation and in its
name to execute and file the Certificate of Designations with the Delaware Secretary
of State:

 

Section 1.  Designation and Amount.  The shares of such series shall be
designated as “Series A Preferred Stock” and the number of shares
constituting such series so designated shall be 250,000 (the “Series A
Preferred Stock”).  Such number of
shares may be increased or decreased by resolution of the Board of Directors; provided,
however,
that no decrease shall reduce the number of shares of Series A Preferred Stock
to a number less than the number of shares of Series A Preferred Stock then outstanding
plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into Series A
Preferred Stock.  All shares of Series A
Preferred Stock shall in all respects be equal, and shall have the voting
powers, designations, preferences and relative, participating, optional,
redemption, and other special rights, and limitations, restrictions and
qualifications thereof, hereinafter set forth. 
Except as otherwise

 

 

indicated herein,
capitalized terms shall have the meaning set forth in Section 11 hereof.

 

Section 2.  Dividends and Distributions.

 

(a)           Subject to the rights
of the holders of any Senior Preferred Stock, the holders of Series A
Preferred Stock shall be entitled to receive, on January 1 of each year (each,
a “Dividend Payment Date”), out of any assets legally available therefor,
payable when, as and if declared by the Board, prior and in preference to any
declaration or payment of any dividend on Junior Securities, dividends at the
rate of 9% of the Purchase Price plus any accrued and unpaid dividends per
annum (or portion thereof from the issuance date of such Series A
Preferred Stock to the next Dividend Payment Date) on each outstanding share of
Series A Preferred Stock (the “Annual Preference Dividend Amount”).  Such dividends shall accrue annually in
arrears whether or not declared by the Board of Directors and shall be
cumulative.  If dividends declared in respect
of any previous or current annual dividend period shall have not been paid on
all shares of Series A Preferred Stock at the Annual Preference Dividend
Amount, the deficiency shall first be fully paid before any dividend or other
distribution shall be paid on or declared and set apart for any holders of
shares of Junior Securities.

 

(b)           In addition to the
Annual Preference Dividend Amount, if the Corporation declares and pays
dividends or distributions on the Common Stock, then, in that event, the holders
of shares of Series A Preferred Stock shall be entitled to share in such
dividends or distributions on a pro rata basis, as if their shares had been
converted into shares of Common Stock pursuant to Section 6 immediately
prior to the record date for determining the stockholders of the Corporation
eligible to receive such dividends or distributions.

 

Section 3.  Voting Rights.

 

(a)           Except as provided
herein or by law, each share of Series A Preferred Stock shall entitle the
holder thereof on the record date to the number of votes, on all matters
submitted to a vote of the Company’s stockholders, that equals the number of
shares of Common Stock (including fractions of a share) into which such share
of Series A Preferred Stock is convertible immediately prior to the record
date for determining the stockholders of the Corporation eligible to vote on
such matters.

 

(b)           Except as otherwise
provided herein, in the Certificate of Incorporation, in any other certificate
of designations creating a series of Preferred Stock or any similar stock or by
law, the holders of shares of Series A Preferred Stock and the holders of
shares of Common Stock and any other capital stock of the Corporation having
general voting rights shall vote together as one class on all matters submitted
to a vote of the stockholders of the Corporation.

 

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(c)           Except as expressly set
forth herein, or as otherwise provided by law, holders of Series A Preferred
Stock shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.

 

Section 4.  Reacquired Shares.  Any shares of Series A Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof.  All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and may
be reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth herein, in the Certificate of
Incorporation, in any other certificate of designations creating a series of
Preferred Stock or any similar stock or as otherwise required by law.

 

Section 5.  Liquidation, Dissolution or Winding Up.

 

(a)           Subject to the rights
of the holders of any Senior Preferred Stock, upon the occurrence of a
Liquidation, the holders of shares of Series A Preferred Stock shall be
entitled to be paid, pari passu with any payment due to the
holders of Parity Stock, out of, but only to the extent of, the assets of the
Corporation legally available for distribution to its stockholders, an amount
equal to 150% of the Purchase Price (the “Liquidation Preference”) plus all
accrued and unpaid dividends, if any, with respect to each share of
Series A Preferred Stock, before any payment or distribution is made to
any Junior Stock.  If the assets of the
Corporation available for distribution to the holders of Series A
Preferred Stock and any Parity Stock shall be insufficient to permit payment in
full to such holders of the sums which such holders are entitled to receive in
such case, then all of the assets available for distribution to holders of the
Series A Preferred Stock and any Parity Stock shall be distributed among
and paid to such holders ratably in proportion to the amounts that would be
payable to such holders if such assets were sufficient to permit payment in
full.

 

(b)           After the holders of
all shares of Series A Preferred Stock shall have been paid in full the
amounts to which they are entitled in Section 5(a), the shares of
Series A Preferred Stock shall not be entitled to any further
participation in any distribution of assets of the Corporation.

 

Section 6.  Conversion.

 

(a)           Subject to the
provisions of this Section 6, each share of Series A Preferred Stock
shall be convertible, at any time and from time to time after the date of
issuance of such Series A Preferred Stock until one day prior to the Redemption
Date, if any, for such share of Series Preferred Stock, into fully paid and
nonassessable shares of Common Stock (i) at the option of the holder
thereof, or (ii) automatically upon the election of holders of at least a
majority of the then outstanding Series A Preferred Stock to so convert.

 

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(b)           Upon conversion, the
number of shares of Common Stock into which each share of Series A
Preferred Stock shall be convertible equals the (a) Purchase Price plus all
accrued and unpaid dividends, divided by (b) the Conversion Price.  No accrued and unpaid Annual Preference
Dividend Amount will be payable upon shares of Series A Preferred Stock that
are converted.

 

(c)           No fractional shares of
Common Stock shall be issued upon conversion of the Series A Preferred
Stock.  In lieu of any fractional share
to which a holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the Conversion Price.  Before any holder of Series A Preferred
Stock shall be entitled to convert the same into full shares of Common Stock
and to receive certificates therefor, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series A Preferred Stock and
shall give written notice to the Corporation that such holder elects to convert
the same.  The Corporation shall, as
soon as practicable thereafter, issue and deliver to such holder of
Series A Preferred Stock a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled hereunder and a
check payable to the holder in the amount of any cash amounts payable as the
result of a conversion into a fractional share of Common Stock.  Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender
to the Corporation of the shares of Series A Preferred Stock to be
converted, with all required documentation, and the person or persons entitled
to receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.

 

(d)           The Corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series A Preferred Stock, and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Series A Preferred Stock, the Corporation
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purposes.

 

(e)           The Corporation will
pay any and all documentary, stamp or similar issue or transfer taxes payable
in respect of the issue or delivery of shares of Common Stock on the conversion
of shares of Series A Preferred Stock pursuant to this Section 6; provided,
however,
that the Corporation shall not be required to pay any tax that may be payable
in respect of any registration of transfer involved in the issue or delivery of
shares of Common Stock in a name other than that of the registered holder of
Series A Preferred Stock converted or to be converted, and no such issue
or delivery shall be made unless and until the person requesting such

 

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issue has paid to
the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.

 

(f)            If the Corporation at
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and if the Corporation at any time combines
(by reverse stock split or otherwise) one or more classes of its outstanding
shares of Common Stock into a smaller number of shares, the Conversion Price in
effect immediately prior to such subdivision shall be proportionately
increased.

 

(g)           If the Corporation at
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) its outstanding shares of Series A Preferred Stock into a
greater number of shares, the Purchase Price in effect immediately prior to
such subdivision shall be proportionately reduced, and if the Corporation at
any time combines (by reverse stock split or otherwise) one or more classes of
its outstanding shares of Series A Preferred Stock into a smaller number
of shares, the Purchase Price in effect immediately prior to such subdivision
shall be proportionately increased.

 

(i)            (i)            All calculations under this Section 6
shall be made to the nearest cent or to the nearest one hundredth (1/100) of a
share, as the case may be.

 

(ii)           No adjustment in the
Conversion Price or Purchase Price need be made if such adjustment would result
in a change in such Conversion Price or Purchase Price, as applicable, of less
than $0.01.  Any adjustment of less than
$0.01 which is not made shall be carried forward and shall be made at the time
of and together with any subsequent adjustment which, on a cumulative basis,
amounts to an adjustment of $0.01 or more in such Conversion Price or Purchase
Price, as applicable.

 

Section 7.  Reorganization, Reclassification,
Consolidation or Merger.  Any
recapitalization, reorganization, reclassification, consolidation, merger or
other transaction, in each case which, pursuant to state law, approval of the
Board of Directors is required before any such recapitalization,
reorganization, reclassification, consolidation, merger or other transaction
can occur and which is effected in such a manner that the holders of Common
Stock are entitled to receive (either directly or upon subsequent Liquidation)
stock, securities or assets with respect to or in exchange for Common Stock, is
referred to herein as an “Organic Change”. 
Subject to the Corporation’s right of redemption under Section 8, prior
to the consummation of any Organic Change, the Corporation shall make appropriate
provisions to insure that each of the holders of Series A Preferred Stock
shall thereafter have the right to acquire and receive, in lieu of or in
addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such holder’s
Series A Preferred Stock, such

 

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shares of stock,
securities or assets as such holder would have received in connection with such
Organic Change if such holder had converted its Series A Preferred Stock,
immediately prior to such Organic Change. 
In each such case, the Corporation shall also make appropriate
provisions to insure that the provisions of Section 6, to the extent
applicable, shall thereafter be applicable to any stock or securities received
by the holders of Series A Preferred Stock in such Organic Change.  The Corporation shall not effect any such
Organic Change, unless prior to the consummation thereof, the successor entity
(if other than the Corporation) whose capital stock or assets the holders of
Common Stock are entitled to receive as a result of such Organic Change, shall
assume by written instrument, the obligation to deliver to each such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.

 

Section 8.  Redemption.

 

(a)           Subject to any legal
restrictions on the Corporation’s redemption of shares, at any time after the
date that is 180 days after the Date of Issuance, the Corporation may from
time to time redeem any or all of the outstanding shares of Series A
Preferred Stock upon 20 days’ prior written notice to the record holders
of the shares of Series A Preferred Stock (each, a Redemption Date”).

 

(b)           The redemption price
for each share of Series A Preferred Stock shall be the Liquidation
Preference, plus all accrued but unpaid dividends thereon to the Redemption
Date.

 

Section 9.  Protective Provisions.  So long as any shares of Series A
Preferred Stock are outstanding, the Corporation will not, without first
obtaining the approval of holders of the shares of Series A Preferred
Stock holding at least 51% of the shares of Series A Preferred Stock then
outstanding, take any action set forth below:

 

(a)           amend, alter or repeal
any provision of the Certificate of Incorporation or bylaws of the Corporation
which would adversely affect any right, preference, privilege or voting power
of the Series A Preferred Stock or the holders thereof; or

 

(b)           authorize, establish, create
or issue any series of Senior Preferred Stock.

 

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Section 10.  Notices.  Notice to a holder of shares of Series A Preferred Stock is
duly given if in writing and delivered in person or mailed by first class mail
(registered or certified, return receipt requested), facsimile or overnight air
courier guaranteeing next day delivery, to the address of such holder as shown
on the books of the Corporation.

 

Section 11.  Definitions.

 

(a)           “Common Stock” means
the Corporation’s  common stock, $0.01 par value per share.

 

(b)           “Conversion Price”
shall initially be $2.00 per share of Series A Preferred Stock, as
the same may be amended pursuant to the terms hereof.

 

(c)           “Date of Issuance”
means the date on which the Corporation initially issues any share of
Series A Preferred Stock, regardless of the number of times a transfer of
such share is made on the stock records maintained by or for the Corporation
and regardless of the number of certificates which may be issued to evidence
such share.

 

(d)           “Junior Securities”
means, collectively, the Common Stock and any other class or series of capital
stock of the Corporation hereafter created which does not expressly rank pari passu
with or senior to the Series A Preferred Stock.

 

(e)           “Liquidation” means a
voluntary or involuntary liquidation under applicable bankruptcy or
reorganization laws, or the dissolution or winding up of the Corporation.

 

(f)            “Parity Stock” means
any capital stock of the Corporation which expressly ranks pari passu with the
Series A Preferred Stock.

 

(g)           “Purchase Price” means
$2.00 per share of Series A Preferred Stock, as the same may be
amended from time to time pursuant to the terms hereof.

 

(h)           “Senior Preferred
Stock” means any Preferred Stock which would have a preference over the
Series A Preferred Stock with respect to dividends or upon Liquidation.

 

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IN WITNESS WHEREOF, SMTEK
International, Inc. has caused this Certificate of Designations to be duly
executed on September 5, 2003.

 

 

	
   

  	
  SMTEK INTERNATIONAL,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/  Kirk
  A. Waldron

  	
   

  
	
   

  	
  Name:

  	
  Kirk A. Waldron

  
	
   

  	
  Title:

  	
  Senior Vice President
  and Chief

  Financial Officer

  
					

 

8EXHIBIT 10.1

 

SMTEK INTERNATIONAL,
INC.

 

SERIES A PREFERRED
STOCK PURCHASE AGREEMENT

 

THIS SERIES A
PREFERRED STOCK PURCHASE AGREEMENT (this “Agreement”) is made as of September
8, 2003, by and between SMTEK International, Inc., a Delaware corporation (the
“Company”), and The Gene Haas Trust DTD 3-9-99 (“Investor”).

 

In
consideration of the mutual promises herein contained, the parties hereto
hereby agree as follows:

 

1.             Purchase and Sale
of Stock.

 

1.1           Sale
and Issuance of Series A Preferred Stock.

 

(a)           The Company shall adopt
and file with the Secretary of State of the State of Delaware on or before the
Closing (as defined below) the Certificate of Designations in substantially the
form attached hereto as Exhibit A (the “Certificate of Designations”).

 

(b)           Subject to the terms
and conditions of this Agreement, Investor agrees to purchase at the Closing
and the Company agrees to sell and issue to Investor at the Closing 250,000
shares of the Company’s Series A Preferred Stock (as hereinafter defined) at a
price equal to $2.00 per share (the “Shares”) for an aggregate purchase price
of $500,000 (the “Purchase Price”).  On
and as of the date upon which the Certificate of Designations is accepted for
filing by the Secretary of State of the State of Delaware, the Shares shall
have the rights, preferences and privileges as provided in the Certificate of
Designations.

 

1.2           Closing.  The purchase and sale of the Shares shall
take place at the offices of Gibson, Dunn & Crutcher LLP, 4 Park Plaza,
Irvine, California, at 10:00 a.m., on September 8, 2003, or at such other time
and place as the Company and Investor shall mutually agree, either orally or in
writing (the “Closing”).  At the
Closing, the Company shall deliver to Investor a certificate representing the
Shares against delivery of the Purchase Price by bank check or wire transfer of
immediately available funds.

 

2.             Representations
and Warranties of the Company. 
Except as disclosed in (i) the Company SEC Reports (as defined below)
publicly available prior to the date of this Agreement, or (ii) the disclosure
schedule delivered by the Company to Investor with this Agreement (the “Company
Disclosure Schedule”), Company hereby represents and warrants to Investor as
follows:

 

2.1           Capitalization
of Company and its Subsidiaries.

 

(a)           The authorized capital
stock of the Company consists solely of 3,750,000 shares of common stock, $.01
par value per share (the “Common Stock”) and 1,000,000 shares of preferred
stock, par value $1.00 per share (the “Preferred Stock”).

 

 

(i)            At the close of
business on September 5, 2003 (i) 2,284,343 shares of Common Stock were
issued and outstanding, (ii) 890,000 shares of Common Stock were reserved for
issuance, pursuant to Company Plans (as defined below), including 864,592
shares of which were issuable upon or otherwise deliverable in connection with
the exercise of outstanding options issued pursuant to Company Plans and (iii)
no shares of Preferred Stock were outstanding. 
All of the outstanding shares of Common Stock have been validly issued
and are fully paid and nonassessable and were issued free of preemptive rights
or any right of first refusal.

 

(ii)           Except as set forth in
this Section 2.1(a) or in Section 2.1(a) of the Company Disclosure
Schedule or issuances of shares of Common Stock under the Company Plans, since
September 5, 2003, there are outstanding (A) no shares of capital stock or
other voting securities of the Company, (B) no securities of the Company or its
subsidiaries convertible into or exchangeable for shares of capital stock or
voting securities of the Company, (C) no options or other rights to
acquire from the Company and no obligations of the Company to issue any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of the Company, and (D) no equity equivalent
interests in the ownership or earnings of the Company or other similar rights
(collectively, “Company Securities”). 
There are no outstanding obligations of the Company or its subsidiaries
to repurchase, redeem or otherwise acquire any Company Securities.

 

(b)           (i)            All of the outstanding capital stock of the
Company’s subsidiaries (A) is owned by the Company, directly or indirectly,
free and clear of any Lien, and (B) has been validly issued and is fully
paid and nonassessable and was issued free of preemptive rights or any right of
first refusal.

 

(ii)           Except as set forth
above in this Section 2.1(b) or in Section 2.1(b) of the Company Disclosure
Schedule, there are outstanding (A) no shares of capital stock or other voting
securities of any of the subsidiaries of the Company, (B) no securities of the
Company or its subsidiaries convertible into or exchangeable for shares of
capital stock or voting securities of the Company’s subsidiaries, (C) no options
or other rights to acquire from the Company or its subsidiaries, and no
obligations of the Company or its subsidiaries to issue any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of any subsidiary of the Company, and (D) no equity
equivalent interests in the ownership or earnings of any subsidiary of the
Company or other similar rights (collectively, “Subsidiary Securities”).  There are no outstanding obligations of the
Company or its subsidiaries to repurchase, redeem or otherwise acquire any
Subsidiary Securities.

 

(c)           (i)            “Company Plans” mean collectively the
Company’s 1993 Stock Incentive Plan, as amended, the Amended and Restated 1996
Stock Incentive Plan and the Amended and Restated 1998 Non-Employee Directors
Stock Plan.

 

(ii)           “Lien”
means, with respect to any asset, any mortgage, lien, pledge, charge, security
interest, conditional sale agreement, title retention agreement, claim,
easement, license, right-of-way, or encumbrance of any kind or nature in
respect of such asset, except for restrictions on transfer resulting from
federal or state securities laws.

 

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2.2           Registration
Rights.  Except as provided in the
Registration Rights Agreement in substantially the form attached hereto as Exhibit
B (the “Registration Rights Agreement” and, together with this Agreement,
the “Transaction Agreements”), the Company is not obligated to register under
the Securities Act of 1933, as amended (the “Securities Act”) any of its
currently outstanding securities or any of its securities that may subsequently
be issued.

 

2.3           Issuance
of Preferred Stock.  The Series A
Preferred Stock, created upon filing of the Certificate of Designations (the
“Series A Preferred Stock”), that is being purchased by Investor hereunder,
when issued, sold and delivered in accordance with the terms of this Agreement
for the consideration expressed herein, will be duly and validly issued, fully
paid and nonassessable and, based in part upon the representations of Investor
in this Agreement, will be issued in compliance with federal and California
securities laws.  The Common Stock
issuable upon conversion of the Shares will be duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the Certificate of
Designations, will be duly and validly issued, fully paid and nonassessable.

 

2.4           Authority
Relative to this Agreement.

 

(a)           The
Company has all necessary corporate power and authority to execute and deliver
this Agreement and the Registration Rights Agreement to consummate the
transactions contemplated hereby and thereby. 
The execution and delivery of this Agreement and the Registration Rights
Agreement and the consummation of the transactions contemplated hereby and
thereby (including the sale and delivery of the Shares and the Common Stock
issuable upon conversion thereof) have been duly and validly authorized by the
Board of Directors of the Company (the “Company Board”) or will be prior to the
Closing, and no other corporate proceedings on the part of the Company or its
stockholders are necessary to authorize this Agreement, the Registration Rights
Agreement or to consummate the transactions contemplated hereby or thereby.

 

(b)           (i)
This Agreement has been duly executed and delivered by the Company and,
assuming that this Agreement constitutes a valid and binding agreement of
Investor, constitutes a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, and (ii) when the
Registration Rights Agreement has been duly executed and delivered by the
Company and, assuming that the Registration Rights Agreement will constitute
upon execution and delivery a valid and binding agreement of Investor, will
constitute a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, in each case subject to the effect of
(A) any bankruptcy, insolvency, reorganization, moratorium, arrangement or
similar laws affecting the rights and remedies of creditors generally,
including the effect of statutory or other laws regarding fraudulent transfers
or preferential transfers and (B) general principles of equity, including
without limitation concepts of materiality , reasonableness, good faith and
fair dealing and the possible unavailability of specific performance,
injunctive relief or other equitable remedies (regardless of whether
enforceability is considered in a proceeding at law or in equity).

 

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2.5           Organization;
Good Standing; Qualification.

 

(a)           The
Company has been duly incorporated and is a validly existing corporation in
good standing under the laws of the State of Delaware, with corporate power and
authority to own its properties and carry on its business as now conducted; and
the Company is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or lease of property
or the conduct of its business requires such qualification, except where the
failure to be so qualified would not reasonably be expected to, individually or
in the aggregate, have a material adverse effect on the financial condition,
business, properties or results of operations of the Company and its
subsidiaries, taken as a whole (a “Material Adverse Effect”).

 

(b)           Each
subsidiary of the Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the jurisdiction of its
organization, with corporate power and authority to own its properties and
carry on its business as now conducted; and each subsidiary of the Company is
duly qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the conduct
of its business requires such qualification.

 

2.6           SEC
Reports; Financial Statements.

 

(a)           Since January 1, 2000,
the Company has filed all required forms, reports and documents (collectively,
the “Company SEC Reports”) with the Securities and Exchange Commission (the
“SEC”).  As of their respective dates,
or if amended prior to the date hereof, as of the date of such amendment, the
Company SEC Reports complied in all material respects with all applicable
requirements of the Securities Act and the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), as the case may be, and the rules and regulations
of the SEC promulgated thereunder applicable to such Company SEC Reports, each
as in effect on the dates such forms, reports and documents were filed.  None of the Company SEC Reports, including,
without limitation, any financial statements or schedules included or
incorporated by reference therein, contained when filed, or if amended prior to
the date hereof, as of the date of such amendment, any untrue statement of a
material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.

 

(b)           The consolidated
financial statements of the Company included in the Company SEC Reports, as
amended, publicly available prior to the date hereof, comply in all material
respects with applicable accounting requirements and published rules and
regulations of the SEC, have been prepared in accordance with generally
accepted accounting principles (except in the case of unaudited quarterly
statements, as permitted by Form 10-Q under the Exchange Act) applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto) and fairly present in all material respects the consolidated
financial position of the Company and its subsidiaries as of the dates thereof
and their consolidated results of operations and statement of cash flows for
the periods indicated (subject, in the case of unaudited quarterly financial
statements, to normal year-end audit adjustments).

 

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(c)           The Company believes
that the unaudited financial statements of the Company as of June 30, 2003, as
such financial statements were provided to Investor (the “June 2003 Financial
Statements”) have been prepared in accordance with generally accepted
accounting principals consistently followed by the Company throughout the
periods indicated, and fairly present the financial position of the
Company.  Notwithstanding the foregoing,
the June 2003 Financial Statements are unaudited as of the date hereof and are
subject to change as may be required by the Company’s independent auditors.

 

2.7           Consents
and Approvals; No Violations.

 

(a)           No filing with or
notice to, and no material permit, authorization, consent or approval of, any
United States or foreign court or tribunal, or administrative, governmental or
regulatory body, agency or authority (each a “Governmental Entity”) is required
to be obtained or made by the Company for the execution and delivery of the
Transaction Agreements by the Company or the consummation of the transactions contemplated
thereby by the Company, except for (i) filings, permits, authorizations,
consents and approvals as may be required under, and other applicable
requirements of, the Securities Act, the Exchange Act and state securities or
blue sky laws, (ii) the filing of the Certificate of Designations as required
by the DGCL, (iii) filings with or notice to the Nasdaq National Market,
and (iv) any other filings, permits, authorizations, consents and approvals,
the failure of which to make or obtain, individually or in the aggregate, would
not be reasonably expected to have a Material Adverse Effect.

 

(b)           Except as set forth in
Section 2.7 of the Company Disclosure Schedule, neither the execution, delivery
and performance of the Transaction Agreements by the Company, nor the
consummation by the Company of the transactions contemplated hereby, will:

 

(i)            conflict with or
result in any breach of any provision of the respective charter or bylaws of
the Company or any of its subsidiaries;

 

(ii)           result in a violation or
breach of or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration), or impair the rights of the Company or its subsidiaries under
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or
obligation (each, a “Contract”) to which the Company or any of its subsidiaries
is a party or by which they are bound that is material to the Company and its
subsidiaries, taken as a whole (each a “Material Agreement”); or

 

(iii)          violate any order, writ,
injunction, decree, judgment, directive, award or settlement, whether civil,
criminal or administrative (each, a “Judgment”), or any law, statute, rule or
regulation applicable to the Company or any of its subsidiaries or any of their
respective properties or assets which violation, in each case, would reasonably
be expected to have a Material Adverse Effect.

 

2.8           No
Default.  None of the Company or any
of its subsidiaries is in breach, default or violation (and no event has
occurred that, with notice or the lapse of time or both, would constitute a
breach, default or violation) of any term, condition or provision of (a) its

 

5

 

charter or bylaws, (b) any Contract to which the Company or any of its
subsidiaries is now a party or by which any of them or any of their respective
properties or assets is bound, or (c) any Judgment or any law, statute, rule or
regulation applicable to the Company or any of its subsidiaries or any of their
respective properties or assets except, in the case of (b) or (c), for
violations, breaches or defaults that would not reasonably be expected to have
a Material Adverse Effect.

 

2.9           No
Undisclosed Liabilities; Absence of Changes.

 

(a)           Except as reflected in
the June 2003 Financial Statements, none of the Company or its subsidiaries has
any liabilities or obligations of any nature, whether or not accrued, contingent
or otherwise, that would be required by generally accepted accounting
principles to be reflected on a consolidated balance sheet of the Company
(including the notes thereto), other than those incurred in the ordinary course
of business consistent with past practice since June 30, 2003.  Notwithstanding the foregoing, Investor
acknowledges that the June 2003 Financial Statements are unaudited as of the
date hereof and are subject to change as may be required by the Company’s
independent auditors.

 

(b)           Without limiting the
generality of the foregoing, except as set forth in the Company SEC Reports
publicly available prior to the date hereof or in Section 2.9 of the Company
Disclosure Schedule, since June 30, 2003, the Company and its subsidiaries have
conducted their respective businesses and operations in, and have not engaged
in any transaction other than according to, the ordinary and usual course of
business consistent with past practice, and there has not occurred any:

 

(i)            event, change,
condition or occurrence which, individually or in the aggregate, has had or
would be reasonably expected to have a Material Adverse Effect; or

 

(ii)           change by the Company
or any of its subsidiaries in its accounting principles, practices or methods,
except as required by generally accepted accounting principles.

 

2.10         Litigation.

 

(a)           (i) There are no
investigations, reviews, audits, hearings, claims, actions, suits, litigation
or proceedings (at law or in equity), whether civil, criminal or administrative
and whether formal or informal (each, a “Claim”) pending or, to the knowledge
of the Company, threatened against the Company or any of its subsidiaries or
any of their respective properties or assets before any Governmental Entity or
arbitrator, and (ii) none of the Company or its subsidiaries is subject to any
outstanding Judgment, that, in each case, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.

 

(b)           As used in this
Agreement, “knowledge” with respect to the Company means the actual knowledge
of the officers of the Company after reasonable inquiry.

 

6

 

2.11         Compliance
with Applicable Law.

 

(a)           The Company and its
subsidiaries are in compliance with all laws, ordinances or regulations of
Governmental Entities applicable to the Company or its subsidiaries, except for
violations of any laws, ordinances or regulations that do not and would not
reasonably be expected to have a Material Adverse Effect.  No investigation or review by any
Governmental Entity with respect to the Company or its subsidiaries is pending
or, to the knowledge of the Company, threatened, nor, to the knowledge of the
Company, has any Governmental Entity indicated an intention to conduct the
same.

 

(b)           The Company and its
subsidiaries hold all material permits, licenses, variances, exemptions, orders
and approvals of all Governmental Entities (“Permits”) necessary for the lawful
conduct of their respective businesses. 
The Company and its subsidiaries are in compliance with the terms of all
such Permits, except for violations that do not and would not reasonably be
expected to have a Material Adverse Effect.

 

2.12         Intellectual
Property.

 

(a)           For purposes of this
Agreement, the terms below shall have the following meanings:

 

(i)            “Intellectual
Property” means all intellectual property rights of any nature or forms of
protection of a similar nature or having equivalent or similar effect,
including (A) all inventions, discoveries, processes, designs, techniques, developments,
technology, and related improvements, whether or not patentable, (B) all
patents, patent applications, divisionals, continuations, reissues, renewals,
registrations, confirmations, re-examinations, certificates of inventorship,
extensions, and the like, and any provisional applications of any such patents
or patent applications, and any foreign or international equivalent of any of
the foregoing, (C) any proprietary word, name, symbol, color, designation or
device or any combination thereof, including any trademark, trade dress,
service mark, service name, trade name, brand name, logo, Internet domain name
or business symbol and any foreign or international equivalent of any of the
foregoing and all goodwill associated therewith, and (D) technical,
scientific, and other know-how and information, trade secrets, knowledge,
technology, means, methods, processes, practices, formulas, instructions,
skills, techniques, procedures, experiences, ideas, technical assistance,
designs, drawings, assembly procedures, computer programs, apparatuses.

 

(ii)           “infringe” means to
infringe, dilute, impair, misuse, misappropriate or otherwise violate the
rights of any other person in Intellectual Property.

 

(b)           The Company has valid
ownership rights in, or holds a valid license or similar legal right with
respect to, all Intellectual Property necessary to conduct its business as now
conducted without any conflict with, or infringement of, the rights of others.

 

(c)           No Claim is pending or,
to the knowledge of the Company, threatened before any Governmental Entity or
arbitrator alleging that Company’s or its subsidiaries’ ownership or use of any
Intellectual Property material to the operations of the Company and its
subsidiaries, taken as a whole (collectively, the “Material Intellectual

 

7

 

Property”) infringes the rights of others.  None of Company or its subsidiaries is subject to any outstanding
Judgment involving any Material Intellectual Property owned or used by any person.

 

(d)           None of the Company or
its subsidiaries has threatened or initiated any Claim against any person
before any Governmental Entity or arbitrator alleging that the actions of such
person infringes the Company’s or such subsidiary’s rights with respect to any
Material Intellectual Property.

 

2.13         Assets.  The assets and properties of the Company and
its subsidiaries, considered as a whole, constitute all of the assets and
properties that are reasonably required for the business and operations of the
Company and its subsidiaries as currently conducted.  The Company or its subsidiaries have good and marketable title to
or a valid leasehold estate in all personal properties and assets reflected on
the Company’s balance sheet at June 30, 2003, except (i) for properties or
assets subsequently sold in the ordinary course of business consistent with
past practice and (ii) as would not reasonably be expected to have a Material
Adverse Effect, in each case, free and clear of all Liens, other than the Liens
set forth in Section 2.13 of the Company Disclosure Schedule or as would not
reasonably be expected to have a Material Adverse Effect.

 

2.14         Employees;
Employee Compensation.  There is no
strike or labor dispute or union organization activities pending, threatened,
or, to the Company’s knowledge, contemplated between the Company and its
employees.  None of the Company’s
employees belongs to any union or collective bargaining unit.  The Company has complied in all material
respects with all applicable state and federal equal opportunity and other laws
related to employment.

 

2.15         Brokers.  No broker, finder or investment banker, is
entitled to any brokerage, finder’s or other fee or commission in connection
with the transactions contemplated by this Agreement, based upon arrangements
made by or on behalf of Company.

 

2.16         Use
of Proceeds.  The Company will use
the net proceeds from the sale of the Shares for working capital and debt
extinguishment.

 

3.             Representations,
Warranties and Covenants of Investor. 
Investor hereby represents, warrants and covenants to the Company as
follows:

 

3.1           Authority
Relative to this Agreement.

 

(a)           Investor
has all necessary power and authority to execute and deliver this Agreement and
the Registration Rights Agreement to consummate the transactions contemplated
hereby and thereby.  The execution and
delivery of this Agreement and the Registration Rights Agreement and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary action of Investor.

 

(b)           (i)
This Agreement has been duly executed and delivered by Investor and, assuming
that this Agreement constitutes a valid and binding agreement of the Company,
constitutes a valid and binding agreement of Investor, enforceable against
Investor in accordance with its terms, and (ii) when the Registration
Rights Agreement has been duly

 

8

 

executed and delivered by Investor and, assuming that the Registration
Rights Agreement will constitute upon execution and delivery a valid and
binding agreement of the Company, will constitute a valid and binding agreement
of Investor, enforceable against Investor in accordance with its terms, in each
case subject to the effect of (A) any bankruptcy, insolvency,
reorganization, moratorium, arrangement or similar laws affecting the rights
and remedies of creditors generally, including the effect of statutory or other
laws regarding fraudulent transfers or preferential transfers and (B) general
principles of equity, including without limitation concepts of materiality ,
reasonableness, good faith and fair dealing and the possible unavailability of
specific performance, injunctive relief or other equitable remedies (regardless
of whether enforceability is considered in a proceeding at law or in equity).

 

3.2           Consents
and Approvals; No Violations.

 

(a)           No filing with or
notice to, and no material permit, authorization, consent or approval of, any
Governmental Entity is required to be obtained or made by Investor for the
execution and delivery of the Transaction Agreements by Investor or the
consummation of the transactions contemplated thereby by Investor.

 

(b)           Neither the execution,
delivery and performance of the Transaction Agreements by Investor, nor the
consummation by Investor of the transactions contemplated hereby, will:

 

(i)            conflict with or
result in any breach of any provision of the respective trust instrument of
Investor;

 

(ii)           result in a violation
or breach of or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration), or impair the rights of Investor under any of
the terms, conditions or provisions of any Contract to which Investor is a
party or by which it is bound that is material to Investor, taken as a whole;
or

 

(iii)          violate any Judgment, or
any law, statute, rule or regulation applicable to Investor or any of its
respective properties or assets.

 

3.3           Investment
Representations.

 

(a)           The
Shares and the Common Stock issuable upon conversion thereof (collectively, the
“Securities”), will be acquired for investment for Investor’s own account, not
as a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that Investor has no present intention of selling, granting
any participation in, or otherwise distributing the same.  Investor does not have any Contract with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Securities. 
As of the date hereof, Investor does not beneficially own any equity
securities of the Company.

 

(b)           Investor
understands that the Shares have not, and any Common Stock acquired on
conversion thereof at the time of issuance may not be, registered under the
Securities Act on the grounds that the sale provided for in this Agreement and
the issuance of

 

9

 

securities hereunder is exempt from registration under the Securities
Act pursuant to section 4(2) and Regulation D thereof, and that the Company’s
reliance on such exemptions is based on Investor’s representations set forth
herein.  Investor realizes that the
basis for the exemption may not be present if, notwithstanding such
representations, Investor has in mind merely acquiring the Securities for a
fixed or determinable period in the future, or for a market rise, or for sale
if the market does not rise.  Investor
has no such intention.

 

(c)           Investor
acknowledges that an investment in the Company involves an extremely high
degree of risk, and that Investor may lose Investor’s entire investment in the
Securities.  Without limiting the
foregoing, Investor has read the information contained in the Company SEC
Reports, including the information under the heading “Risk Factors.”

 

(d)           Investor
has received all information it considers necessary or appropriate for deciding
whether to purchase the Securities. Investor has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the offering of the Securities and the business, properties,
prospects and financial condition of the Company and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to it or to which it had access.

 

(e)           Investor
is experienced in evaluating and investing in securities of companies
comparable to the Company and acknowledges that Investor is able to fend for
itself, can bear the economic risk of its investment, and Investor and the
trustee of Investor have such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
investment in the Shares.  Investor has
not been organized for the purpose of acquiring the Securities.

 

(f)            Investor
is an accredited investor as defined in Rule 501(a)(7) of Regulation D
promulgated under the Securities Act. 
As such, Investor has total assets in excess of $5,000,000 and the
purchase of the Securities is being directed by a “sophisticated person” as
described in Rule 506(b)(2)(ii) of the Securities Act.

 

(g)           The
principal office of Investor is located in the State of California.

 

(h)           Investor
understands that the Shares (and any Common Stock issued on conversion thereof)
may not be sold, transferred or otherwise disposed of without registration
under the Securities Act or an exemption therefrom, and that in the absence of
an effective registration statement covering the Shares (or the Common Stock
issued on conversion thereof) or an available exemption from registration under
the Securities Act, the Shares (and any Common Stock issued on conversion
thereof) must be held indefinitely.  In
particular, Investor is aware that the Shares (and any Common Stock issued on
conversion thereof) may not be sold pursuant to Rule 144 promulgated under the
Securities Act unless all of the conditions of that Rule are met.

 

(i)            Investor
has not received any general solicitation or general advertising concerning the
Securities, nor is Investor aware of any such solicitation or advertising.

 

10

 

(j)            To
the extent applicable, each certificate or other document evidencing any of the
Shares or any Common Stock issued upon conversion thereof shall be endorsed
with the legend set forth below, and Investor covenants that, except to the
extent such restrictions are waived by the Company, Investor shall not transfer
the shares represented by any such certificate without complying with the
restrictions on transfer described in the legend endorsed on such certificate:

 

“THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY BE OFFERED AND
SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF
FEDERAL AND STATE SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION AND
QUALIFICATION UNDER FEDERAL AND STATE SECURITIES LAWS IS NOT REQUIRED.”

 

3.4           Brokers.
There are no contracts, agreements or understandings between Investor and any
person that would give rise to a valid claim against Investor or the Company
for a brokerage commission, finder’s fee or other like payment in connection
with this Agreement or the issuance and sale of the Securities.

 

4.             Conditions of
Investor’s Obligations to Close. 
The obligations of Investor under Section 1.1(b) hereof are subject
to the fulfillment on or before the Closing of each of the following
conditions, the waiver of which shall not be effective against Investor unless
it consents in writing thereto:

 

4.1           Representations
and Warranties.  The representations
and warranties of the Company contained in Section 2 hereof shall be true on
and as of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.

 

4.2           Performance.  The Company shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.

 

4.3           Board
Approval.  The Company Board has
approved the Transaction Agreements and the transactions contemplated thereby.

 

4.4           Compliance
Certificate.  The chief executive
officer or chief financial officer of the Company shall deliver to Investor at
the Closing a certificate certifying that the conditions specified in Sections
4.1, 4.2, 4.3 and 4.5 hereof have been fulfilled.

 

4.5           Qualifications.  All authorizations, approvals or permits, if
any, of any Governmental Entity or the consents of any other person that are required
to be obtained before Closing in connection with the lawful issuance and sale
of the Series A Preferred Stock pursuant to this Agreement shall be duly
obtained and effective as of the Closing.

 

11

 

4.6           Proceedings
and Documents.  All corporate and
other proceedings in connection with the transactions contemplated at the
Closing and all documents incident thereto shall be reasonably satisfactory in
form and substance to Investor.

 

4.7           Registration
Rights Agreement.  The Company shall
have entered into the Registration Rights Agreement.

 

5.             Conditions of the
Company’s Obligations to Close.  The
obligations of the Company to Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by
Investor:

 

5.1           Representations
and Warranties.  The representations
and warranties of Investor contained in Section 3 hereof shall be true on and
as of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.

 

5.2           Performance.  Investor shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with by it on or before the
Closing.

 

5.3           Board
Approval.  The Company Board has
approved the Transaction Agreements and the transactions contemplated thereby.

 

5.4           Compliance
Certificate.  The Trustee of
Investor shall deliver to the Company at the Closing a certificate certifying
that the conditions specified in Sections 5.1, 5.2, and 5.5 hereof have been
fulfilled.

 

5.5           Qualifications.  All authorizations, approvals or permits, if
any, of any Governmental Entity that are required in connection with the lawful
issuance and sale of the Shares pursuant to this Agreement shall be duly
obtained and effective as of the Closing.

 

5.6           Registration
Rights Agreement.  Investor shall
have entered into the Registration Rights Agreement.

 

5.6           Closing
Date.  The Closing shall have occurred
on or before September 8, 2003.

 

5.7           Stock
Price.  The closing bid price of the
Common Stock on the business day prior to the date of the Closing shall not be
greater than $2.00 per share.

 

6.             Confidentiality.  Investor shall maintain in confidence, and
shall not use or disclose without the prior written consent of the Company, any
confidential information provided by the Company to Investor (including,
without limitation, all information set forth in the June 2003 Financial
Statements and all other financial statements, budget and other information) in
connection with the negotiation and execution of the Transaction Agreements and
the consummation of the transactions contemplated hereby and thereby.  Investor shall return to the Company upon
request all tangible materials that include any such information that was
obtained by Investor in connection herewith. 
Investor shall have no further obligation under this

 

12

 

Section 6 with respect to confidential information which is or
becomes publicly available without breach of this Agreement by Investor or its
representatives.

 

7.             Indemnification.  Each party (including its officers,
directors, employees, affiliates, agents, successors and assigns) (each an “Indemnified
Party”) shall be indemnified and held harmless by the other party hereto (each
an “Indemnifying Party”) for any and all liabilities, losses, damages, claims,
costs and expenses, interest, awards, judgments and penalties (including,
without limitation, reasonable attorneys’ fees and expenses) actually suffered
or incurred by them (collectively, “Losses”), arising out of or resulting from
the breach of any representation or warranty made by an Indemnifying Party
contained in this Agreement. Notwithstanding the foregoing, the aggregate
liability of the Company under this Section 7 shall in no event exceed the
Purchase Price.

 

8.             Miscellaneous.

 

8.1           Entire
Agreement.  The Transaction
Agreements constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
understandings both written and oral and all contemporaneous oral agreements
and understandings between the parties with respect to the subject matter
hereof.  Except for the express
representations, warranties and covenants of the Company and Investor contained
herein, there are no representations, warranties or covenants whatsoever by or
on behalf of the Company to Investor or Investor to the Company.

 

8.2           Survival
of Warranties.  The warranties,
representations and covenants of the Company and Investor contained in or made
pursuant to this Agreement shall survive until the first anniversary of the
Closing.

 

8.3           Successors
and Assigns.  Except as otherwise
provided herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties (including permitted transferees of any Shares sold hereunder or any
Common Stock issued upon conversion thereof). 
Nothing in this Agreement, express or implied, is intended to confer
upon any Person other than the parties hereto or their respective successors
and assigns any rights, remedies, obligations or liabilities under or by reason
of this Agreement, except as expressly provided in this Agreement.

 

8.4           Governing
Law.  This Agreement shall be
governed by and construed under the laws of the State of California as applied
to agreements among California residents entered into and to be performed
entirely within California.

 

8.5           Submission
to Jurisdiction.  Each of the
parties irrevocably agrees that any legal action or proceeding arising out of
or related to this Agreement or for recognition and enforcement of any judgment
in respect hereof brought by any other party hereto or its successors or
assigns may be brought and determined in the federal courts located in the
County of Venture, California or the courts of the State of California located
in the County of Ventura, and each of the parties hereby irrevocably submits to
the exclusive jurisdiction of the aforesaid courts for itself and with respect
to its property, generally and unconditionally, with regard to any such action
or proceeding arising out of or relating to this Agreement and the transactions

 

13

 

contemplated hereby (and agrees not to commence any action, suit or
proceeding relating thereto except in such courts).  Each of the parties agrees further to accept service of process
in any manner permitted by such courts. 
Each of the parties hereby irrevocably and unconditionally waives, and
agrees not to assert, by way of motion or as a defense, counterclaim or
otherwise, in any action or proceeding arising out of or related to this
Agreement or the transactions contemplated hereby, (a) any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason
other than the failure lawfully to serve process, (b) that it or its property
is exempt or immune from jurisdiction of any such court or from any legal
process commenced in such courts (whether through service of notice, attachment
prior to judgment, attachment in aid of execution of judgment, execution of
judgment or otherwise), (c) to the fullest extent permitted by law, that
(i) the suit, action or proceeding in any such court is brought in an
inconvenient forum, (ii) the venue of such suit, action or proceeding is
improper or (iii) this Agreement, or the subject matter hereof, may not be
enforced in or by such courts and (d) any right to a trial by jury.

 

8.6           Waiver
of Jury Trial.  EACH OF THE PARTIES
TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

8.7           Counterparts.  This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.

 

8.8           Notices.  All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed given upon
personal delivery or three business days after being mailed by certified or
registered mail, postage prepaid, return receipt requested, or one business day
after being sent via a nationally recognized overnight courier service if
overnight courier service is requested from such service or upon receipt of
electronic or other confirmation of transmission if sent via facsimile, to the
parties, their successors in interest or their assignees at the following
addresses and telephone numbers, or at such other addresses or telephone
numbers as the parties may designate by written notice in accordance with this
Section 8.8:

 

	
  if to the Company to:

  	
   

  	
  SMTEK International, Inc.

  
	
   

  	
   

  	
  200 Science Drive

  
	
   

  	
   

  	
  Moorpark, CA  93021

  
	
   

  	
   

  	
  Facsimile:  (805) 532-1608

  
	
   

  	
   

  	
  Attention:  Kirk A. Waldron

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Gibson, Dunn & Crutcher LLP

  
	
   

  	
   

  	
  4 Park Plaza

  
	
   

  	
   

  	
  Irvine, CA  92614

  
	
   

  	
   

  	
  Facsimile:  (949) 451-4220

  
	
   

  	
   

  	
  Attention:  Mark W. Shurtleff

  

 

14

 

	
  if to Investor:

  	
   

  	
  The Gene Haas Trust DTD 3-9-99

  
	
   

  	
   

  	
  2800 Sturgis Road

  
	
   

  	
   

  	
  Oxnard, CA 93030

  
	
   

  	
   

  	
  Facsimile:  (805) 278-0506

  
	
   

  	
   

  	
  Attention:  Denis Dupuis

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Case, Knowlson, Jordan & Wright

  
	
   

  	
   

  	
  2049 Century Park East, Ste 3350

  
	
   

  	
   

  	
  Los Angeles, CA 90067

  
	
   

  	
   

  	
  Facsimile:  (310) 552-3229

  
	
   

  	
   

  	
  Attention:  Mark Eastman

  

 

8.9           Expenses.  Each of the parties shall bear all of their
respective costs and expenses incurred in connection with the negotiation,
execution, delivery and performance of the Transaction Agreements, except that
if the Closing is effected, the Company shall reimburse the reasonable fees of
one counsel to Investor incurred in connection with the negotiation and
execution of the Transaction Agreements, not to exceed $15,000.

 

8.10         Attorneys’
Fees.  In the event that any dispute
among the parties to this Agreement should result in litigation, the prevailing
party in such dispute shall be entitled to recover from the losing party all
fees, costs and expenses of enforcing any right of such prevailing party under
or with respect to this Agreement, including without limitation, such
reasonable fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.

 

8.11         Amendments
and Waivers.  Any term of this
Agreement may be amended and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the parties
hereto.

 

8.12         Severability.  If any provision of this Agreement is held
to be illegal, invalid or unenforceable under any present or future law, and if
the rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(iii) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (iv) in lieu of such illegal,
invalid or unenforceable provision, there will be added automatically as a part
of this Agreement a legal, valid and enforceable provision as similar in terms
to such illegal, invalid or unenforceable provision as may be possible.

 

8.13         Interpretation.  When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section,
Exhibit or Schedule of this Agreement unless otherwise indicated.  The headings contained in this Agreement are
for convenience of reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. 
All words used in this Agreement will be construed to be of such gender
or number

 

15

 

as the circumstances require. 
Unless the context clearly requires otherwise “or” is not exclusive, and
“includes” means “includes, but is not limited to.”  The inclusion of any matter in the disclosure schedules in
connection with any representation, warranty, covenant or agreement that is
qualified as to materiality or “Material Adverse Effect” shall not be an
admission by Company that such matter is material or would have a Material
Adverse Effect.

 

8.14         Public
Announcements.  Investor shall not
issue any such press release or make any such public statement relating to the
Transaction Agreements or the transactions contemplated thereby prior to
consultation with the Company, except as may be required by applicable law, by
court process.

 

16

 

IN WITNESS
WHEREOF, the parties have executed this Agreement as of the date first above
written.

 

 

	
   

  	
  SMTEK INTERNATIONAL, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kirk A. Waldron

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
  Kirk A. Waldron

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
  SVP, CFO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TRUSTEE OF THE GENE HAAS TRUST

  DTD 3-9-99

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gene Haas

  	
   

  
	
   

  	
   

  	
  Gene Haas, as Trustee of The Gene Hass 

  Trust DTD 3-9-99

  	
   

  
						

 

17

 

EXHIBIT A

 

FORM OF

 

CERTIFICATE OF
DESIGNATIONS

 

18

 

EXHIBIT B

 

FORM OF

 

REGISTRATION RIGHTS
AGREEMENT

 

19

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