Document:

exv10w42

 

EXHIBIT 10.42

STOCK AND WARRANT PURCHASE AGREEMENT

BY AND BETWEEN

QUALMARK CORPORATION

AND

INVESTORS

DECEMBER 21, 2007

 

 

STOCK AND WARRANT PURCHASE AGREEMENT

This Stock and Warrant Purchase Agreement (this “Agreement”) is made as of the 21th day of
December 2007 by and among QualMark Corporation, a Colorado corporation (the “Company”), and those
investors listed on Exhibit A (each a “Purchaser” and, collectively, the “Purchasers”).

          WHEREAS, the Company has authorized the sale and issuance of (i) 781,250 shares of its Common
Stock (the “Stock”), and (ii) warrants to purchase up to 781,250 shares of its Common Stock in the
form attached hereto as Exhibit B to purchase shares of its Common Stock (the “Warrants”);

          Whereas, Purchasers desire to purchase the Stock and Warrants on the terms and
conditions set forth herein; and

          Whereas, the Company desires to issue and sell the Stock and Warrants to Purchasers
on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises,
representations, warranties, and covenants hereinafter set forth and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

1. Purchase and Sale of Stock and Warrants.

1.1 Sale and Issuance of Stock and Warrants.

(a) The Company has authorized (a) the sale and issuance to the Purchasers of (i)
781,250 shares of its Common Stock, no par value (the “Stock”), and (ii) warrants to purchase up
to 781,250 shares of its Common Stock in the form attached hereto as Exhibit B (the “Warrants”);
and (b) the issue of Common Stock to be issued upon exercise of the Warrants (the “Warrant
Shares”). Each Warrant shall entitle the holder to purchase one share of the Company’s Common
Stock. The Warrants shall have the rights set forth in the form of Warrant attached hereto as
Exhibit B. 

(b) Subject to the terms and conditions of this Agreement, Purchasers agree to
purchase at the Closing, and the Company agrees to sell and issue to Purchasers at the Closing,
that number of shares of Stock and Warrants set forth opposite each Purchaser’s name on Exhibit
A, at a purchase price of $0.7680 per share. The total aggregate number of shares to be
purchased by Purchasers is 781,250 shares, for an aggregate purchase price of $600,000. 

1.2 Closing. The purchase and sale of Stock and Warrants (the “Closing”) shall take place at the
offices of the Company on December 20, 2007 (the “Closing Date”), or at such other time and place
as the Company and the Purchasers agree upon, orally or in writing.

1.3 Deliveries. Subject to the terms of this Agreement, at the Closing, the Company will deliver
to each Purchaser (i) a certificate representing the Stock to be purchased by such Purchaser at the
Closing and (ii) a Warrant to purchase shares of Common Stock, against payment of the purchase
price therefor by check payable to the Company, by wire transfer to a bank account designated by
the Company, cancellation or conversion of indebtedness, or any combination of the foregoing. In
the event that payment by any Purchaser is made, in whole or in part, by cancellation or conversion
of indebtedness, then such Purchaser shall surrender to the Company for cancellation or conversion
at the Closing any evidence of such indebtedness.

2. Representations and Warranties of the Company. The Company hereby represents and warrants to
Purchasers that, except as set forth on a Schedule of Exceptions attached hereto as Exhibit C,
which exceptions shall be deemed to be representations and warranties as if made hereunder:

2.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Colorado and has all requisite
corporate power and authority to own and operate its property and assets and to carry on its
business as now conducted, and as presently proposed to be conducted, to execute, deliver and
perform its obligations under this Agreement and the other documents to be executed and delivered
in connection with the transactions contemplated hereby and to sell and issue the shares of Common
Stock to be sold hereunder, the Warrants and the Warrant Shares. The Company is duly qualified and
is authorized to transact business and is in good standing in the State of Colorado and each other
jurisdiction in which the failure so to qualify would have a material adverse effect on the assets,
operating results, financial condition, business or properties of the Company (a “Material Adverse
Effect”).

2.2 Capitalization. The authorized capital of the Company consists, or will consist, immediately
prior to the Initial Closing, of:

(a) 15,000,000 shares of Common Stock, 8,841,894 shares of which are issued and
outstanding 

 

 

immediately prior to the Closing and 2,000,000 shares of Preferred Stock, no shares of which
are issued and outstanding. All of the outstanding shares of Common Stock and Preferred Stock
have been duly authorized, fully paid and are nonassessable and issued in compliance with all
applicable federal and state securities laws. Schedule 2.2 of the Schedule of Exceptions sets
forth the Company’s capitalization on a post-Closing and on as-converted to Common Stock basis.

(b) As of the Closing, the Company has reserved 472,610 shares of Common Stock for
issuance to officers, directors, employees and consultants of the Company pursuant to its 1996
Stock Option Plan, duly adopted by the Board of Directors and approved by the Company
stockholders 300,000 shares of Common Stock for issuance to officers, directors, employees and
consultants of the Company pursuant to its 2005 Stock Option Plan, duly adopted by the Board of
Directors and approved by the Company stockholders and 650,000 shares of its Common Stock
pursuant to its 2007 Stock Option Plan, duly adopted by the Board of Directors conditioned upon
the approval of the Company’s stockholders at the next scheduled annual meeting (the “Stock
Plans”). Of such reserved shares of Common Stock and as of the Closing, options to purchase
771,750 shares have been granted and are currently outstanding, 201,000 shares have been granted
pending shareholder approval and are currently outstanding, 860 shares of Common Stock remain
available for grants to officers, directors, employees and consultants pursuant to the 2005
Stock Plan and 449,000 shares of Common Stock remain available for grants to officers,
directors, employees and consultants pursuant to the 2007 Stock Plan, pending shareholder
approval. 

(c) As of the Closing, the Company has reserved 646,988 shares of Common Stock for
issuance upon conversion of currently outstanding convertible debt. The convertible debt is
convertible at the option of the holder of the debt.

(d) Except for outstanding options issued pursuant to the Stock Plan and the
convertible debt described above, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal or similar rights) or agreements,
orally or in writing, for the purchase or acquisition from the Company of any shares of its
capital stock.

(e) No stock plan, stock purchase, stock option or other agreement or understanding
between the Company and any holder of any securities or rights exercisable or convertible for
securities provides for acceleration or other changes in the vesting provisions or other terms
of such agreement or understanding as the result of the occurrence of any event.

2.3 Subsidiaries. The Company does not currently own or control, directly or indirectly, any
interest in any other corporation, association, partnership, limited liability company or other
business entity.

2.4 Authorization. All corporate action on the part of the Company, its officers, directors and
stockholders necessary for the authorization, execution and delivery of this Agreement, the
performance of all obligations of the Company hereunder and thereunder and the authorization,
issuance and delivery of the Stock and the Warrants pursuant hereto (together, the “Securities”)
has been taken or will be taken prior to the Closing, and the Agreement, when executed and
delivered by the Company, shall constitute a valid and legally binding obligation of the Company,
enforceable against the Company in accordance with their terms except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors’ rights generally.

2.5 Valid Issuance of Securities. The Stock that is being issued to the Purchasers hereunder, when
issued, sold and delivered in accordance with the terms hereof for the consideration expressed
herein, will be duly and validly issued, fully paid and nonassessable and free of restrictions on
transfer other than restrictions on transfer under this Agreement, the investor rights agreement
signed by the Company and the Purchasers on the date hereof (the “Investor Rights Agreement”) and
applicable state and federal securities laws. Based in part upon the representations of the
Purchasers in this Agreement and subject to the provisions of Section 2.6 below, the Stock will be
issued in compliance with all applicable federal and state securities laws. The Warrant Shares
have been duly and validly reserved for issuance, and upon issuance in accordance with the terms of
the Warrants, shall be duly and validly issued, fully paid and nonassessable and free of
restrictions on transfer other than restrictions on transfer under this Agreement, the Investor
Rights Agreement and applicable federal and state securities laws and will be issued in compliance
with all applicable federal and state securities laws. All preemptive rights or rights of first
refusal relating to the issuance and sale of the Stock and the Warrants, if any, have been duly
waived or satisfied.

2.6 Governmental Consents. No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state or local governmental
authority on the part of the Company is required in connection with the consummation of the
transactions contemplated by

 

 

this Agreement, except for filings pursuant to applicable state securities laws and Regulation D of
the Securities Act of 1933, as amended (the “Securities Act”).

2.7 Litigation. There is no action, suit, proceeding or investigation pending or, to the actual
knowledge of any executive officer of the Company (hereafter referred to as the “Company’s
Knowledge”), currently threatened against the Company or any of its subsidiaries that questions the
validity of the Agreements or the right of the Company to enter into them, or to consummate the
transactions contemplated hereby or thereby, or that might result, either individually or in the
aggregate, in any Material Adverse Effect, or any change in the current equity ownership of the
Company, nor is the Company aware that there is any basis for the foregoing. Neither the Company
nor any of its subsidiaries is a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its subsidiaries currently pending or which
the Company or any of its subsidiaries intends to initiate.

2.8 Intellectual Property. The Company owns or possesses sufficient legal rights to all patents,
trademarks, service marks, tradenames, copyrights, trade secrets, licenses, technology, information
and proprietary rights and processes necessary for its business as now conducted and, as presently
proposed to be conducted, without any conflict with, or known infringement of, the rights of
others. The Schedule of Exceptions contains a complete list of patents and pending patent
applications of the Company as well as trademarks, registered copyrights, and domain names owned by
the Company. The Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the patents, trademarks,
service marks, tradenames, copyrights, trade secrets or other proprietary rights or processes of
any other person or entity. The Company is not aware that any of its employees is obligated under
any contract (including licenses, covenants or commitments of any nature) or other agreement, or
subject to any judgment, decree or order of any court or administrative agency, that would
interfere with the use of such employee’s best efforts to promote the interests of the Company or
that would conflict with the Company’s business as presently conducted or proposed to be conducted.
Neither the execution or delivery of this Agreement, nor the carrying on of the Company’s business
by the employees of the Company, nor the conduct of the Company’s business as proposed, will, to
the best of the Company’s Knowledge, conflict with or result in a breach of the terms, conditions,
or provisions of, or constitute a default under, any contract, covenant or instrument under which
any such employee is now obligated. The Company does not believe it is or will be necessary to use
any inventions of any of its employees (or persons it currently intends to hire) made prior to
their employment by the Company.

2.9 Proprietary Information of Third Parties. No third party has claimed by written notice to the
Company or, to the Company’s Knowledge, has reason to claim that any person employed by, consulting
for or affiliated with the Company has (a) violated or may be violating, in connection with such
person’s employment or affiliation with the Company, any of the terms or conditions of his or her
employment, noncompetition or nondisclosure agreement with such third party, (b) disclosed or may
be disclosing or utilized or may be utilizing, in connection with such person’s employment or
affiliation with the Company, any trade secret or proprietary information or documentation of such
third party or (c) interfered or may be interfering, in connection with such person’s employment or
affiliation with the Company, in the employment relationship between such third party and any of
its present or former employees. No third party has requested by written notice information from
the Company which suggests that such a claim might be contemplated. To the Company’s Knowledge, no
person employed by, consulting for or affiliated with the Company has employed or proposes to
employ any trade secret or any information or documentation proprietary to any former employer, and
no person employed by, consulting for or affiliated with the Company has, to the Company’s
Knowledge, violated any confidential relationship which such person may have had with any third
party, in connection with the development, manufacture or sale of any product or proposed product
of the Company or the development or sale of any service or proposed service of the Company, and
the Company has no reason to believe there will be any such employment or violation. To the
Company’s Knowledge (without inquiry outside the ordinary course of business), neither the
execution or delivery of this Agreement nor the carrying on of the business of the Company by any
officer, director or key employee of the Company will conflict with or result in a breach of the
terms, conditions or provisions of or constitute a default under any contract, covenant or
instrument under which any such person is obligated.

2.10 Leasehold Interests. Each agreement to which the Company is a party under which it is a
lessee of any property, real or personal, is a valid and subsisting agreement, duly authorized and
entered into, without any default of the Company thereunder and, to the Company’s Knowledge,
without any default thereunder

 

 

of any other party thereto, other than defaults that are not reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect. No event has occurred and is
continuing which, with due notice or lapse of time or both, would constitute a default or event of
default by the Company or, to the Company’s Knowledge, by any other party thereto under any such
lease or agreement, other than defaults that are not reasonably expected to have, individually or
in the aggregate, a Material Adverse Effect.

2.11 Compliance with Other Instruments.

(a) The Company is not in violation or default of any provisions of its Articles or
Bylaws or of any note, indenture, mortgage, lease (including equipment leases), agreement,
contract, purchase order or other instrument, document or agreement to which it is a party or by
which it is bound or, with respect to any injunction or decree of any court or any federal,
state, municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, that specifically names the Company. To the best of the
Company’s Knowledge, there exists no condition, event or act which after notice, lapse of time,
or both, would constitute a default by the Company under any of the foregoing. The execution,
delivery and performance of this Agreement and the consummation of the transactions contemplated
hereby do not and will not result in any such violation or be in conflict with or constitute,
with or without the passage of time or the giving of notice or both, either a default under, or
result in the creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company under its Articles or Bylaws or under any note, indenture,
mortgage, lease (including equipment leases), agreement, contract, purchase order or other
instrument, document or agreement to which the Company is a party.

(b) The Company has avoided every condition, and has not performed any act, the
occurrence of which would result in the Company’s loss of any right granted under any license,
distribution agreement or other agreement.

2.12 Agreements; Action.

(a) There are no agreements, understandings or proposed transactions between the
Company and any of its officers, directors, affiliates, holders of any outstanding shares of any
class of the Company’s capital stock, or any affiliate thereof other than those provided to
Purchaser.

(b) Except for agreements explicitly contemplated by this Agreement, there are no
agreements, understandings, instruments, contracts or proposed transactions to which the Company
or any of its subsidiaries is a party or by which it is bound that involve (i) obligations
(contingent or otherwise) of, or payments to, the Company or any of its subsidiaries in excess
of, $25,000, (ii) the license of any patent, copyright, trade secret or other proprietary right
to or from the Company or any of its subsidiaries, (iii) the grant of rights to manufacture,
produce, assemble, license, market, or sell its products to any other person or affect the
Company’s exclusive right to develop, manufacture, assemble, distribute, market or sell its
products, (iv) the pledging or placing of a lien or security interest on any asset of the
Company, (v) an obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any share of its capital stock or any of its other equity securities, or (vi) an
agreement under which the Company has limited or restricted its right to compete with any person
in any respect. The Company, and to the Company’s Knowledge, each other party thereto has in
all material respects performed their respective obligations, and the Company has received no
notice of default by it and is not in default (with due notice or lapse of time or both) in any
material respect under any agreement, instrument, commitment, plan or arrangement to which the
Company is a party or by which it or its property may be bound, other than such nonperformance
or default that is not reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. The Company has no present expectation or intention of not fully performing all
the Company’s obligations under each such agreement, instrument, commitment, plan or
arrangement, and to the Company’s Knowledge there is no anticipated breach by any other party
thereto, other than such nonperformance or breach that is not reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect.

(c) Schedule 2.12(c) of the Schedule of Exceptions sets forth any and all material
contracts of the Company. The Company has no present expectation or intention of not fully
performing all the Company’s obligations under each such material contract, and to the Company’s
Knowledge there is no anticipated breach or nonperformance by any other party thereto and the
Company has not received notice from any other party thereto of such party’s intention to
terminate such material contracts.

(d) Neither the Company nor any of its subsidiaries has (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any class or series of
its capital stock, (ii) incurred any indebtedness for money borrowed or incurred any other
liabilities individually in excess of $25,000 or in 

 

 

excess of $100,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of any
of its assets or rights, other than the sale of its inventory in the ordinary course of
business.

(e) The Company has not engaged in the past three (3) months in any discussion (i)
with any representative of any corporation or corporations regarding the merger of the Company
with or into any such corporation or corporations, (ii) with any representative of any
corporation, partnership, association or other business entity or any individual regarding the
sale, conveyance or disposition of all or substantially all of the assets of the Company or a
transaction or series of related transactions in which more than fifty percent (50%) of the
voting power of the Company would be disposed of, or (iii) regarding any other form of
liquidation, dissolution or winding up of the Company.

2.13 Disclosure. The Company has fully provided the Purchasers with all the information that the
Purchasers have requested for deciding whether to acquire the Stock. No representation or warranty
of the Company contained in this Agreement (including the schedule of exceptions) and the exhibits
attached hereto or any certificate furnished or to be furnished to Purchasers at the Closing (when
read together) contains any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not misleading in light of
the circumstances under which they were made; provided that the foregoing does not limit any
knowledge or other qualifiers explicitly stated in such representations or warranties.

2.14 No Conflict of Interest. The Company is not indebted, directly or indirectly, to any of its
stockholders, officers or directors or to their respective spouses or children, in any amount
whatsoever other than in connection with expenses or advances of expenses incurred in the ordinary
course of business or relocation expenses of employees. None of the Company’s stockholders,
officers or directors, or any members of their immediate families, are, directly or indirectly,
indebted to the Company (other than in connection with purchases of the Company’s stock) or, to the
Company’s Knowledge, have any direct or indirect ownership interest in any firm or corporation with
which the Company is affiliated or with which the Company has a business relationship, or any firm
or corporation which competes with the Company except that officers, directors and/or stockholders
of the Company may own stock in (but not exceeding two percent of the outstanding capital stock of)
any publicly traded companies that may compete with the Company. To the Company’s Knowledge, none
of the Company’s officers or directors or any members of their immediate families are, directly or
indirectly, interested in any material contract with the Company. The Company is not a guarantor
or indemnitor of any indebtedness of any other person, firm or corporation.

2.15 Rights of Registration and Voting Rights. Except as contemplated in the
Investor Rights
Agreement, the Company has not granted or agreed to grant any registration rights, including
piggyback rights, to any person or entity. To the Company’s Knowledge, no stockholder of the
Company, other than the Purchasers, has entered into any agreements with respect to the voting of
capital shares of the Company.

2.16 Title to Property and Assets. The Company owns its property and assets free and clear of all
mortgages, pledges, security interests, charges, claims, restrictions, liens, loans and
encumbrances, except such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company’s ownership or use of such property or assets and which do not
materially detract from the value of the property. With respect to the property and assets it
leases, the Company is in compliance with such leases and holds a valid leasehold interest free of
any liens, claims or encumbrances.

2.17 Employee Benefit Plans. The Company has operated all Employee Benefit Plans (as defined in
the Employee Retirement Income Security Act of 1974) in compliance with applicable laws.

2.18 Tax Returns and Payments. The Company has timely filed all tax returns and reports (federal,
state and local) as required by law. These returns and reports are true and correct in all
material respects. The Company has paid all taxes and other assessments due. Neither the Company
nor any of its present or former stockholders has ever filed an election pursuant to Section 1362
of the Internal Revenue Code of 1986, as amended (the “Code”), that the Company be taxed as an S
corporation. The Company has never had any tax deficiency proposed or assessed against it and has
not executed any waiver of any statute of limitations on the assessment or collection of any tax or
governmental charge. None of the Company’s federal income tax returns and none of its state income
or franchise tax or sales or use tax returns has ever been audited by governmental authorities.
The Company has not incurred any taxes, assessments or governmental charges other than in the
ordinary course of business and the Company has made adequate provisions on its books of account
for all taxes, assessments and governmental charges with respect to its business, properties and
operations for such period. The Company has withheld or collected from each

 

 

payment made to each of its employees, the amount of all taxes (including, but not limited to,
federal income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act
taxes) required to be withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositories.

2.19 Labor Agreements and Actions. The Company is not bound by or subject to (and none of its
assets or properties is bound by or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has requested or, to the
Company’s Knowledge, has sought to represent any of the employees, representatives or agents of the
Company. There is no strike or other labor dispute involving the Company pending, or to the
Company’s Knowledge, threatened, which could have a Material Adverse Effect, nor is the Company
aware of any labor organization activity involving its employees. To the Company’s Knowledge, no
officer or key employee of the Company, and no group of key employees of the Company, intends to
terminate their employment with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. The employment of each officer and employee of
the Company is terminable at the will of the Company. The Company has complied in all material
respects with all applicable state and federal equal employment opportunity laws and with other
laws related to employment. The Company is not a party to or bound by any currently effective
employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing
plan, severance agreement, retirement agreement, or other employee compensation agreement, other
than those disclosed on the Schedule of Exceptions.

2.20 Confidential Information and Invention Assignment Agreements. To the best of its knowledge,
the Company believes that each current and former employee, consultant, director and officer of the
Company has executed an agreement with the Company regarding confidentiality and proprietary
information. The Company is not aware that any of its current or former employees or consultants
is in violation thereof, and the Company will use its best efforts to prevent any such violation.

2.21 Compliance with Law; Permits. The Company is not in violation of any applicable statute,
rule, regulation, order or restriction of any domestic or foreign government or any instrumentality
or agency thereof in respect of the conduct of its business or the ownership of its properties
which violation would constitute a Material Adverse Effect. The Company and each of its
subsidiaries has all franchises, permits, licenses and any similar authority necessary for the
conduct of its business, the lack of which could have a Material Adverse Effect. The Company is
not in default in any material respect under any of such franchises, permits, licenses or other
similar authority.

2.22 Corporate Documents. The Articles and Bylaws of the Company are in the form provided to the
Purchasers. The copy of the minute books of the Company made available to Purchasers contain
minutes of all meetings of directors and stockholders and all actions by written consent without a
meeting by the directors and stockholders since the date of incorporation and reflects all actions
by the directors (and any committee of directors) and stockholders with respect to all transactions
referred to in such minutes accurately in all material respects.

2.23 Offering of the Stock and Warrants. Subject in part to the truth and accuracy of Purchasers’
representations set forth in Section 3 of this Agreement, the offer, sale and issuance of the Stock
and the Warrants as contemplated by this Agreement are, and will be as of the Closing, exempt from
the registration requirements of the Securities Act, and neither the Company nor any authorized
agent acting on its behalf will take any action hereafter that would cause the loss of such
exemption. Neither the Company nor any person authorized or employed by the Company as agent,
broker, dealer or otherwise in connection with the offering or sale of the Stock, the Warrants or
any security of the Company similar to the Stock has: (a) offered the Stock or any such similar
security for sale to, or solicited any offer to buy the Stock or any such similar security from, or
otherwise approached or negotiated with respect thereto with, any person or persons, or (b) has
taken or will take any other action (including, without limitation, any offer, issuance or sale of
any security of the Company under circumstances which might require the integration of such
security with Stock under the Securities Act or the rules and regulations of the Securities and
Exchange Commission thereunder); in either case so as to subject the offering, issuance or sale of
the Stock and the Warrants to the registration provisions of the Securities Act.

2.24 Environmental and Safety Laws.

(a) The Company (i) is not in material violation of any applicable statute, law or
regulation relating to occupational health and safety, (ii) has conducted its business in
material compliance with all applicable Environmental Laws (as hereinafter defined), including,
without limitation, having all permits, licenses and other approvals and authorizations
necessary for the operation of its business as presently 

 

 

conducted, (iii) has not received any notices, demand letters or requests for information
from any federal, state, local or foreign governmental entity or third party indicating that the
Company may be in material violation of, or liable in any material respect under, any
Environmental Law in connection with the ownership or operation of its business, (iv) has no
civil, criminal or administrative actions, suits, demands, claims, hearings, investigations or
proceedings pending or, to Company’s Knowledge, threatened against it relating to any material
violation, or alleged material violation, of any Environmental Law, (iv) has not filed, nor is
required to file, any reports concerning the release in material violation of any applicable
Environmental Law of any Hazardous Substance (as hereinafter defined), or the threatened or
actual material violation of any Environmental Law, (v) has no environmental assessments or
tests in its possession relating to the activities of the Company which have not been delivered
to the Purchasers prior to the date hereof, and (vi) is not subject to any material liabilities
or expenditures relating to any suit, settlement, court order, administrative order, regulatory
requirement, judgment or claim asserted or arising under any Environmental Law.

(b) As used herein, “Environmental Law” means any federal, state, local or foreign
law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction, requirement or agreement with any governmental
entity relating to (i) the protection, preservation or restoration of the environment including,
without limitation, air, surface water, groundwater, surface land, subsurface land, or the
protection of human health from exposure to Hazardous Substances or protection of employees in
the workplace (exclusive of any workman’s compensation laws) or (ii) the exposure to, or the
use, storage, treatment, generation, transportation, processing, handling, release or disposal
of Hazardous Substances, in each case as amended and as in effect on the date hereof.

(c) As used herein, “Hazardous Substance” means any substance presently listed,
deemed, designated or classified as hazardous, toxic, radioactive, caustic or otherwise
hazardous including petroleum, its derivatives, byproducts and other hydrocarbons regulated
under any Environmental Law.

2.25 Insurance. Section 2.25 of the Schedule of Exceptions identifies each insurance policy
maintained by, at the expense of or for the benefit of the Company. The Company maintains in full
force and effect such types and amounts of insurance issued by insurers of recognized
responsibility insuring it with respect to its respective business and properties, in such amounts
and against such losses as is customary for businesses similar to those of the Company. Each of
the insurance policies listed on Section 2.25 of the Schedule of Exceptions is in full force and
effect. The Company has not received any notice of cancellation, termination, or material increase
in premium with respect to any insurance policy listed on Section 2.25 of the Schedule of
Exceptions, and to the Company’s Knowledge it will be able to renew each such policy as and when it
expires or to obtain similar coverage from similar insurers as may be necessary to continue its
business, without a significant increase in cost, except where any inability to so renew a policy
or obtain similar coverage will not have a Material Adverse Effect.

2.26 Financial Statements. The Company has delivered to Purchasers copies of its audited financial
statements (balance sheet and profit and loss statement, statement of stockholders’ equity and
statement of cash flows, including notes thereto) as at and for the year ended December 31, 2006,
its audited financial statements (balance sheet and profit and loss statement, statement of
stockholders’ equity and statement of cash flows including notes thereto) as at and for the year
ended December 31, 2005, and its unaudited financial statements (balance sheet and profit and loss
statement) as at and for the nine months ended September 30, 2007 (the “Financial Statements”).
The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods indicated and with each other, except that unaudited Financial Statements
may not contain all footnotes required by GAAP. The Financial Statements fairly present the
financial condition and operating results of the Company as of the dates, and for the periods,
indicated therein, subject in the case of unaudited Financial Statements to normal year-end audit
adjustments, and the unaudited Financial Statements may not contain all footnotes required under
GAAP. The Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with GAAP.

2.27 Absence of Undisclosed Liabilities. Except as and to the extent reflected or reserved against
in the Financial Statements, and except for liabilities arising in the ordinary course of its
business since September 30, 2007, the Company has not incurred any material accrued or contingent
liability arising out of any transaction or state of facts existing on or prior to the date hereof
that are not included in the Schedule of Exceptions. As of the date hereof, the aggregate
indebtedness of the Company for borrowed money is as set forth in Section 2.27 of the Schedule of
Exceptions.

 

 

2.28 Changes. Since September 30, 2007, except as disclosed in the Schedule of Exceptions, there
has not been:

(a) any change in the assets, liabilities, financial condition or operating results
of the Company from that reflected in the Financial Statements, except changes in the ordinary
course of business that have not been, individually or in the aggregate, materially adverse;

(b) any damage, destruction or loss, whether or not covered by insurance, materially
and adversely affecting the assets, properties, financial condition, operating results,
prospects or business of the Company (as such business is presently conducted and as it is
currently proposed to be conducted);

(c) any waiver by the Company of a valuable right or of a material debt owed to
it;

(d) any satisfaction or discharge of any lien, claim or encumbrance or payment of
any obligation by the Company, except in the ordinary course of business and that is not
material to the assets, properties, financial condition, operating results or business of the
Company (as such business is presently conducted and as it is currently proposed to be
conducted);

(e) the execution by the Company of any material contract or arrangement, or any
material change or amendment to a material contract or arrangement by which the Company or any
of its assets or properties is bound or subject;

(f) any material increase in any compensation arrangement or agreement with any
employee not in the ordinary course of business, consistent with past practice (including,
without limitation, the continued issuance of options to employees);

(g) any sale, assignment or transfer of any patents, trademarks, copyrights, trade
secrets or other intangible assets;

(h) any resignation or termination of employment of any key employee of the Company;
and to the best of the Company’s Knowledge, any impending resignation or termination of
employment of any such employee;

(i) receipt of notice that there has been a loss of, or material order cancellation
by, any major customer of the Company;

(j) any mortgage, pledge, transfer of a security interest in, or lien, created by
the Company, with respect to any of its material properties or assets, except liens for taxes
not yet due or payable;

(k) any loans or guarantees made by the Company to or for the benefit of its
employees, stockholders, officers or directors, or any members of their immediate families,
other than travel advances and other advances made in the ordinary course of its business;

(l) any declaration, setting aside or payment or other distribution in respect of
any of the Company’s capital stock, or any direct or indirect redemption, purchase or other
acquisition of any of such stock by the Company;

(m) any redemption or repurchase of any of the Company’s capital stock other than
redemptions or repurchases of the Company’s capital stock from terminated employees, officers,
directors, consultants or other persons performing services for the Company or any subsidiary
pursuant to agreements under which the Company has the option to repurchase such shares at cost
upon the occurrence of certain events, such as the termination of employment, or through the
exercise of any right of first refusal;

(n) to the best of the Company’s Knowledge, any other event or condition of any
character that might materially and adversely affect the assets, properties, financial
condition, operating results, prospects or business of the Company (as such business is
presently conducted and as it is currently proposed to be conducted); or

(o) any agreement or commitment by the Company to do any of the things described in
this Section 2.28.

2.29 Permits. The Company has all franchises, permits, licenses, and any similar authority
necessary for the conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect the business, properties or financial condition of the Company.
The Company is not in default in any material respect under any of such franchises, permits,
licenses, or other similar authority.

3. Representations and Warranties of the Purchasers. Each Purchaser hereby represents and warrants
to the Company, severally and not jointly, that:

3.1 Authorization. Purchaser has full power and authority to enter into this Agreement. The
Agreement, when executed and delivered by the Purchaser, will constitute valid and legally binding
obligations of the Purchaser, enforceable in accordance with its terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other
laws of general application affecting enforcement of creditors’ rights generally, and as limited by
laws relating to the availability of a specific performance, injunctive relief, or other equitable
remedies, or (b) to the extent the indemnification

 

 

provisions contained in the Investor Rights Agreement may be limited by applicable federal or state
securities laws.

3.2 Purchase Entirely for Own Account. This Agreement is made with the Purchaser in reliance upon
the Purchaser’s representation to the Company, which by the Purchaser’s execution of this
Agreement, the Purchaser hereby confirms, that the Stock and Warrants to be acquired by the
Purchaser will be acquired for investment for the Purchaser’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 the
Purchaser has no present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, the Purchaser further represents that the
Purchaser does not presently have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third person, with
respect to any of the Securities.

3.3 Disclosure of Information. The Purchaser has had an opportunity to discuss the Company’s
business, management, financial affairs and the terms and conditions of the offering of the Stock
with the Company’s management and has had an opportunity to review the Company’s facilities.
Purchaser agrees that the Company has been responsive and has fulfilled all Purchaser requests for
information necessary for Purchaser to make an informed decision regarding the investment. The
foregoing, however, does not limit or modify the representations and warranties of the Company in
Section 2 of this Agreement or the right of the Purchaser to rely thereon.

3.4 Restricted Securities. The Purchaser understands that the Stock and the Warrants have not been
registered under the Securities Act, by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser’s representations as expressed herein. The
Purchaser understands that the Stock and the Warrant Shares are “restricted securities” under
applicable U.S. federal and state securities laws and that, pursuant to these laws, the Purchaser
must hold the Securities indefinitely unless they are registered with the Securities and Exchange
Commission and qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the Company has no
obligation to register or qualify the Securities for resale except as set forth in the Investor
Rights Agreement. The Purchaser further acknowledges that if an exemption from registration or
qualification is available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Securities, and on requirements
relating to the Company which are outside of the Purchaser’s control, and which the Company is
under no obligation and may not be able to satisfy.

3.5 Legends. The Purchaser understands that the Stock and the Warrant Shares may bear one or all
of the following legends:

(a) “THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO,
OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN
A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES
ACT OF 1933 AS AMENDED.”

(b) Any legend required by the Blue Sky laws of any state to the extent such laws
are applicable to the shares represented by the certificate so legended.

3.6 Accredited Investor; Residence. The Purchaser is an “accredited investor” as defined in Rule
501(a) of Regulation D promulgated under the Securities Act. If Purchaser is an individual, then
Purchaser resides in the state or province identified in the address of Purchaser set forth in
Exhibit A; if Purchaser is a partnership, corporation, limited liability company or other entity,
then the office or offices of Purchaser in which its investment decision was made is located at the
address or addresses of Purchaser set forth in Exhibit A.

3.7 Anti-Money Laundering Compliance. To its knowledge, the Purchaser is in compliance with all
applicable anti-money laundering and anti-terrorist laws, regulations, rules, executive orders and
government guidance, including, if applicable, the reporting, record keeping and compliance
requirements of the Bank Secrecy Act, as amended by The International Money Laundering Abatement
and Financial Anti-Terrorism Act of 2001, Title III of the USA PATRIOT Act, and other authorizing
statutes, executive orders and regulations administered by the United States Office of Foreign
Asset Control or other agency rules and regulations, and, if applicable, has policies, procedures,
internal controls and systems that are reasonably

 

 

designed to ensure such compliance.

3.8 Compliance with Securities Act and Exchange Act Requirements. The Purchaser agrees to comply
with all applicable provisions of the Securities Act of 1933 (“Securities Act”) and the Securities
Exchange Act of 1934 (“Exchange Act”), including, but not limited to, compliance with the
provisions of Sections 13(d) and (g) and Section 16 of the Exchange Act.

4. Conditions of the Purchasers’ Obligations at the Closing. The obligations of the Purchasers to
the Company under this Agreement are subject to the fulfillment, on or before the applicable
Closing, of each of the following conditions, unless otherwise waived:

4.1 Representations and Warranties. The representations and warranties of the Company contained in
this Agreement that are qualified by materiality shall be true and correct as of the Closing Date
as though made on and as of the Closing Date, and the representations and warranties of the Company
contained in this Agreement that are not so qualified shall be true and correct in all material
respects as of the Closing Date as though made on and as of the Closing Date.

4.2 Performance. The Company shall have performed and complied with all covenants, 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 Consents and Waivers. The Company shall have obtained any and all consents, approvals, permits
and waivers necessary or appropriate for consummation of the transactions contemplated by this
Agreement, including, but not limited to, consents, approvals, permits and waivers from
governmental authorities, holders of the Company’s capital stock and indebtedness and any other
third persons and all such consents, approvals, permits and waivers shall remain in effect as of
the Closing.

4.4 Investor Rights Agreement. Purchasers shall have executed and delivered the Investor Rights
Agreement in substantially the form as attached hereto as Exhibit D.

4.5 Board and Stockholder Approvals. All approvals of the Company’s Board of Directors and
stockholders necessary for performance of the transactions contemplated by the Agreements shall
have been obtained.

4.6 Compliance Certificate. The Chief Executive Officer (effective through December 10, 2007) and
the Chief Financial Officer of the Company shall deliver to the Purchasers at the Closing a
certificate certifying that the conditions specified in Sections 4.1 and 4.2 have been fulfilled
and stating that there shall have been no adverse change in the business, affairs, prospects,
operations, properties, assets or condition of the Company since the date of the Financial
Statements.

4.7 Secretary’s Certificate. At the Closing, the Secretary of the Company shall deliver to the
Purchasers a certificate (the “Secretary’s Certificate”), dated as of the Closing, certifying that
(i) attached thereto is a true and complete copy of the By-Laws of the Company as in effect on the
date of such certification; (ii) that attached thereto is a true and complete copy of all
resolutions adopted by the Board of Directors and the stockholders of the Company authorizing the
execution, delivery and performance of each of the Agreements, the issuance, sale and delivery of
the Stock and that all such resolutions are in full force and effect and are all the resolutions
adopted in connection with the transactions contemplated by the Agreement; and (iii) that attached
thereto is a true and complete copy of the Articles as in effect on the date of such certification.

4.8 Board of Directors. As of the Closing, the authorized size of the Board of Directors shall be
five member, and such board shall include the Chief Executive Officer (“CEO”) of the Company; two
members selected by the Purchasers (which shall be Christopher Roser and James Roser); and two
members selected by the CEO and the Purchaser’s selected Board members (one of whom shall be Gerald
Laber), and the Board shall elect Christopher Roser as the Chairman of the Board. Such Board
members shall serve until the next annual meeting of the stockholders of the Company.

4.9 Warrants. The Warrants shall terminate five (5) years from the date of their issuance.

4.10 Silicon Valley Bank. As of the Closing, the Company will have completed negotiations with
Silicon Valley Bank to obtain a credit line of $2.5 million, with at least a one-year term.

4.11 CEO. Andrew Drenick shall be serving as CEO of the Company under the offer letter attached as
Exhibit F hereto. The former CEO, Charles Johnston, will have voluntarily resigned. Mr. Johnston
shall remain as an advisor to the CEO through the remainder of 2007 and shall be paid full
compensation and benefits for that period. The Company shall be obligated to fund a deferred
compensation and benefits package for a total of $300,000, of which the Company has funded $62,500,
with the remaining $237,500 payable over a period of two (2) years commencing January 1, 2008 in
quarterly amounts of $29,687 per quarter for each quarter in which the Company has sufficient cash
flow as determined by the Board of Directors. The Chairman of the Audit Committee must vote in
favor of the deferment of a payment in order for a payment to be deferred. If a payment is not
made in a given

 

 

quarter, that amount shall be deferred until a later quarter until the full amount of $237,500 has
been paid to Mr. Johnston. In consideration for this deferred compensation arrangement, Mr.
Johnston shall provide reasonable continued consulting to the Company, or other duties as mutually
agreed upon. Mr. Johnston will have agreed to return, on a pro-rata basis, the initial 100,000
options originally issued to him on July 27, 2000.

4.12 Future Investments. The Company will have agreed that the Roser Partnership III, SBIC, LP is
permitted to make investments in companies in which it and its affiliates have existing holdings.
Additionally, the Company will provide Purchasers and their affiliates with certain information to
help Purchasers and its affiliates comply with requirements of the Small Business Administration.

5. Conditions of the Company’s Obligations at Closing. The obligations of the Company to
Purchasers under this Agreement are subject to the fulfillment, on or before the applicable
Closing, of each of the following conditions, unless otherwise waived:

5.1 Representations and Warranties. The representations and warranties of Purchasers contained in
Section 3 shall be true and correct in all material respects 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. All covenants, agreements and conditions contained in this Agreement to be
performed by the Purchasers on or prior to the Closing shall have been performed or complied with
in all material respects.

5.3 Qualifications. All authorizations, approvals or permits, if any, of any governmental
authority or regulatory body of the United States or of any state that are required in connection
with the lawful issuance and sale of the Stock pursuant to this Agreement shall be obtained and
effective as of the Closing.

6. Other Obligations

6.1 Negotiations with PFG. The Company agrees to allow Christopher Roser to participate in
negotiations regarding the sub-debt owed to PFG. Christopher Roser’s approval must be obtained
prior to the Company agreeing to any resolution with PFG.

6.2 Proxy. Purchasers agree to enter into an irrevocable proxy with an independent third party to
provide for such proxy to vote such number of shares, as of the record date of any shareholder
vote, calculated as follows: the number of shares of Stock purchased by Purchasers at the Closing
plus other shares of the Company owned by Purchasers as of the Closing Date, that exceed 49.9% of
the issued and outstanding shares of the Company. Such proxy shall remain irrevocable and in
effect until the first to occur of (i) such number is reduced to zero(0), or (ii) the                     
anniversary of the Closing Date.

 

 

7. Miscellaneous.

7.1 Survival. Unless otherwise set forth in this Agreement, the warranties, representations and
covenants of the Company and the Purchaser contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement.

7.2 Transfer; Successors and Assigns. 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. Nothing
in this Agreement, express or implied, is intended to confer upon any party 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.

7.3 Indemnification. The Company shall indemnify and hold harmless the Purchasers and each
officer, director, employee, agent and affiliate of Purchasers, against all losses, liabilities,
claims, damages or expenses relating to such Purchasers’ purchase of or proposed purchase of the
Stock, the related documentation and transactions and the Company’s use of the proceeds, including
without limitation, attorney’s fees and settlement costs.

7.4 Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and
obligations of the parties hereto shall be governed, construed and interpreted in accordance with
the laws of the State of Colorado, without giving effect to principles of conflicts of law.

7.5 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.

7.6 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.

7.7 Notices. Any notice required or permitted by this Agreement shall be in writing and shall be
deemed sufficient upon delivery, when delivered personally or by overnight courier, or telegram, or
fax or e-mail with confirmation of receipt, or forty-eight (48) hours after being deposited in the
U.S. mail as certified or registered mail with postage prepaid, addressed to the party to be
notified at such party’s address as set forth below:

          If to the Company: QualMark Corporation

Attn: Chief Executive Officer

4580 Florence Street

Denver, CO 80238

          If to Purchasers:    Christopher Roser and The Roser Partnership III, SBIC, LP

1105 Spruce Street

Boulder, CO 80302

with a copy to:

Faegre & Benson LLP

Attn: Christopher Hazlitt

1900 Fifteenth Street

Boulder, CO 80302

 

 

7.8 Finder’s Fee. Except as set forth in the Schedule of Exceptions, each party represents that it
neither is nor will be obligated for any finder’s fee or commission in connection with this
transaction. The Purchasers agree to indemnify and to hold harmless the Company from any liability
for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of
defending against such liability or asserted liability) for which such Purchasers or any of their
officers, employees, or representatives is responsible. The Company agrees to indemnify and hold
harmless each Purchaser from any liability for any commission or compensation in the nature of a
finder’s fee (and the costs and expenses of defending against such liability or asserted liability)
for which the Company or any of its officers, employees or representatives is responsible.

7.9 Fees and Expenses. Upon Closing, the Company shall reimburse Purchasers’ out-of-pocket
expenses incurred in connection with the transactions contemplated hereby. These expenses include,
but are not limited to, the costs of document preparation.

7.10 Attorney’s Fees. If any action at law or in equity (including arbitration) is necessary to
enforce or interpret the terms of any of the Agreements, the prevailing party shall be entitled to
reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief to
which such party may be entitled.

7.11 Amendments. This Agreement may be amended or modified, and the obligations of the Company and
the rights of the Purchasers under the Agreement may be waived, only upon the written consent of
the Company and all of the Purchasers.

7.12 Severability. If one or more provisions of this Agreement are held to be unenforceable under
applicable law, the parties agree to renegotiate such provision in good faith. In the event that
the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then
(a) such provision shall be excluded from this Agreement, (b) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (c) the balance of the Agreement shall be
enforceable in accordance with its terms.

7.13 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to
any party under this Agreement, upon any breach or default of any other party under this Agreement,
shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor
shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or
of or in any similar breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part of any party of any
provisions or conditions of this Agreement, must be in writing and shall be effective only to the
extent specifically set forth in such writing. All remedies, either under this Agreement or by law
or in equity or otherwise afforded to any party, shall be cumulative and not alternative.

7.14 Entire Agreement. This Agreement, and the documents referred to herein constitute the entire
agreement between the parties hereto pertaining to the subject matter hereof, and any and all other
written or oral agreements relating to the subject matter hereof existing between the parties
hereto are expressly canceled.

[The remainder of this page is intentionally left blank.]

 

 

In Witness Whereof, the parties have executed Stock and Warrant Purchase
Agreement as of the date first written above.

COMPANY:

QualMark Corporation

	 	 	 	 	 
	 	 
	By:  	 	 
	 	Name:  	 	 
	 	Title:  	 	 
	 
	PURCHASERS:

 	 
	By:  	 	 
	 	Name:  	Christopher Roser 	 
	 	 	 
	 
	The Roser Partnership III, SBIC, LP

 	 
	By:  	 	 
	 	Name:  	Christopher Roser 	 
	 	Title:  	Manager of its General Partner 	 
	 

EXHIBIT A

	 	 	 	 	 	 	 	 	 	 	 	 	 
	NAME AND ADDRESS	 	NUMBER OF SHARES	 	 	NUMBER OF WARRANTS	 	 	PURCHASE PRICE	 
	CHRISTOPHER ROSER

1105 SPRUCE STREET

Boulder, CO 80302
	 	 	130,208	 	 	 	130,208	 	 	$	100,000	 
	 
	 	 	 	 	 	 	 	 	 
	THE ROSER 

PARTNERSHIP III, 

SBIC, LP
	 	 	 	 	 	 	 	 	 	 	 	 
	1105 Spruce Street 

Boulder, CO 80302
	 	 	651,042	 	 	 	651,042	 	 	$	500,000	 
	 
	 	 	 	 	 	 	 	 	 
	TOTAL
	 	 	781,250	 	 	 	781,250	 	 	$	600,000exv10w55

 

Exhibit 10.55

UICI RESTATED AND AMENDED 1987

STOCK OPTION PLAN (NON-QUALIFIED)

[As amended and restated effective March 16, 2005]

Purpose

     The UICI 1987 Restated and Amended 1987 Stock Option Plan (the “Plan”) was originally
established December 3, 1987. Its purpose is (a) to aid UICI (the “Company”) in securing and
retaining individuals of outstanding ability, including key personnel who are or may be employed by
the Company or its subsidiaries, non-employee Directors of the Company or its subsidiaries, and
non-employee individuals who contribute to the success and growth of the Company by the performance
of past, present or future services to the Company and/or its subsidiaries; and (b) to provide
additional motivation to such persons to exert their best efforts on behalf of the Company.

Stock Subject to the Plan

     The number of shares of Common Stock of the Company for which options may be granted under the
Plan was initially set at 4,000,000 shares, of which, as of March 16, 2005, 2,450,000 shares remain
available to be subject to options that may be granted under the Plan. Shares issuable upon
exercise of options granted hereunder may consist, in whole or in part, of unissued shares or
treasury shares. Any option granted pursuant to the Plan shall be forfeited to the extent that it
fails by its terms to become exercisable or is not otherwise exercised before its expiration. If a
participant forfeits options under the term of the Plan, then the shares reserved for such
forfeited options revert to the Plan and are available to be issued again.

Administration

     The Plan is administered by the Executive Compensation Committee (the “Committee”) of the
Board of Directors of the Company. Each member of the Committee shall constitute a “non-employee
director” of the Company (as such term is defined in Rule 16b-3 under the Securities Exchange Act
of 1934, as amended). The Committee shall have the sole authority to name new optionees and to
grant shares to any optionees, including increasing the number of shares available to any existing
optionee, as the Committee in its sole discretion deems appropriate.

Eligibility

     Each option is granted in consideration of each optionee’s:

     (i) being or agreeing to become an employee, officer or director of the Company and/or its
subsidiaries; or

 

 

     (ii) being or agreeing to become a non-employee director of the Company and/or its
subsidiaries; or

     (iii) performing or agreeing to perform services, on a non-employee or independent contract
basis, for an on behalf of the Company and/or its subsidiaries.

Terms and Conditions of Stock Options

(a) Maximum Shares Per Optionee. The maximum number of options that may be granted to any
one eligible optionee is limited to 750,000. The maximum number includes all options previously
issued, outstanding, cancelled and reissued, exercised or expired.

(b) Option Price. The option price shall be not less than the closing price at which the
Common Stock of the Company traded on the date the option was granted. If the stock was not traded
on the date the option was granted, then the option price is determined by using the closing price
for the stock on the last trading date preceding the date the option was granted.

(c) Duration and Expiration of Options.  The Committee shall fix the term or duration of
options, provided that such term shall not exceed five (5) years from the date the option is
granted, and provided, further, that such term shall be subject to earlier termination pursuant to
the provisions of subparagraph (h)(5) of the Plan. No option shall be exercisable after the
Expiration Date, except as otherwise provided in paragraph (h) below. The “Expiration Date” shall
be the ninetieth (90th) day following the last day of the term of an option.

(d) Exercise of Options. The Committee shall determine the time or times at which
options may be exercised; provided that such time or times shall not occur before the latest of (i)
the first anniversary of the date on which the option was initially granted and (ii) the
effectiveness of any registration statement required to be filed under the Securities Act of 1933
for the registration of the Common Stock to be issued upon exercise of the option.

(e) How Options are Exercised. Each option shall be exercised by giving written notice to
the Company specifying the number of shares to be purchased and accompanied by payment as described
in (f) below. No optionee shall have any rights to dividends or other rights of a stockholder with
respect to shares subject to the option until written notice of exercise of the option has been
given to the Company, and payment in full for such shares has been made.

(f) Payment Upon Exercise of Options. Upon exercise of an option, the option price for the
shares to be purchased shall be paid for, at the election of the optionee:

     (1) In cash;

 

 

     (2) By tendering shares of previously-owned Common Stock that have been held by the optionee
for at least six months with a fair market value (calculated at the closing price at which the
Common Stock traded on the day of tender) equal to the total exercise price;

     (3) By a recourse loan from the Company to the optionee for the amount of the total exercise
price. The terms of the note or loan agreement shall be determined by the Committee, interest
shall not exceed prime plus 1% at the time of the loan, and the principal and interest shall not be
due thereunder until at least the end of the twelfth (12th) month after the date of the
loan or one (1) month after termination of employment, whichever is earlier; or

     (4) By any combination of the above.

(g) Withholding Taxes. Exercise of an option under the Plan is contingent on the
optionee’s satisfaction of all applicable withholding taxes with respect to such exercise. Such
taxes shall be paid (i) in cash, (ii) by having the Company withhold a number of the optioned
shares sufficient to satisfy the Company’s minimum statutory federal, state, local and employment
tax withholding obligations with respect to the option exercise, (iii) by the optionee’s tender of
previously-owned shares of Common Stock (valued at the closing price of the Common Stock on the
tender date); provided, however, tender of previously-owned shares to pay withholding taxes in
excess of the Company’s minimum statutory withholding obligation shall be permitted only if the
optionee has owned such shares at least six months, or (iv) in any combination of the foregoing,
provided that the Committee determines such payment will not result in a charge to earnings for
financial accounting purposes.

(h) Accelerated Exercisability Upon Certain Events.

	 	(1)	 	Permanent Disability. If prior to the Expiration Date an optionee
becomes permanently disabled, the options, to the extent not previously exercised,
shall immediately become 100% exercisable. Such options may thereafter be exercised
in full at any time within three hundred sixty-five (365) days after the date of such
date of permanent disability.
	 
	 	(2)	 	Death. If prior to the Expiration Date an optionee shall die, the
options, to the extent not previously exercised, shall immediately become 100%
exercisable. Such options may thereafter be exercised in full by the legal
representative of the estate or by the legatee of the optionee under a last will at
any time within three hundred sixty-five (365) days after the date of the optionee’s
death.
	 
	 	(3)	 	Change of Control. In the event of a Change of Control of the
Company, the options, to the extent not previously exercised, shall immediately become
100% exercisable. Such options may thereafter be exercised in
full within ninety (90) days following the Change of Control. For 

 

 

	 	 	 	purposes herein,
a “Change of Control” shall have occurred at any date that any person (or any
person and affiliates of such person), other than Ronald L. Jensen, his spouse, his
adult children, or any trust controlled by such persons, shall have acquired the
beneficial ownership, directly or indirectly, of more than 25% of the Company’s
outstanding voting stock.
	 
	 	(4)	 	Retirement. If an optionee retires as an employee of the Company,
having reached the age of at least sixty-five (65) and having been an employee of the
Company for not less than ten (10) years, then the options, to the extent not
previously exercised, shall immediately become 100% exercisable. Such options may
thereafter be exercised in full within ninety (90) days of the date of the optionee’s
retirement date.
	 
	 	(5)	 	Termination for any Other Reason. If an optionee who is an employee,
officer or director of the Company and/or its subsidiaries terminates employment for
any reason other than death or permanent disability, or if a non-employee director of
the Company and/or its subsidiaries ceases to be a director of such company for any
reason other than death or permanent disability, or other non-employee optionee ceases
to perform services for or on behalf of the Company for any reason other than death or
permanent disability, the unexercised options may thereafter be exercised within the
earlier of (i) ninety (90) days after the date of such termination or cessation or
(ii) the Expiration Date, but only to the extent they were exercisable at the time of
such termination.
	 
	 	 	 	However, in the event of termination of employment or cessation of association for
any reason other than death or permanent disability, the Committee, in its sole and
absolute discretion, may determine that options previously granted shall not expire
and be forfeited for reason of such termination of employment or cessation of
association, but shall continue to be exercisable as set forth in this paragraph 5.
The Committee may take into account, on an individual basis as to each optionee,
the nature of the services rendered by the optionee, the optionee’s past, present
or potential contributions to the Company’s success and such other factors as the
Committee in its discretion shall deem relevant. Nothing in this paragraph shall
be deemed to give any optionee an absolute right hereunder.

(i) Options Not Transferable. The option by its terms shall be personal and shall not be
transferable by the optionee other than by will or by the laws of descent and distribution. During
the lifetime of an optionee, the option shall be exercisable only by the optionee, or by a duly
appointed legal representative.

Stock Restrictions

     The Company agrees that it shall register the shares for which options are granted hereunder
with the Securities and Exchange Commission and shall take all other

 

 

reasonable actions necessary
to allow for the unrestricted transfer by the optionees of shares optioned hereunder, to the extent
permitted under applicable law. Registration shall be within one year after exercise of the
option.

Leave of Absence

     For the purpose of the Plan a leave of absence, duly authorized in writing by the Company and
which leave of absence is recognized in writing by the Committee, shall not be deemed a termination
of relationship with the Company.

Rights of Optionees

	 	(a)	 	No person shall have any rights or claims under the Plan except in accordance
with the provisions of the Plan.
	 
	 	(b)	 	Nothing contained in the Plan shall be deemed to give any optionee the right
to a continuance of any relationship with the Company or its subsidiaries.

Changes in Capital

     If the outstanding Common Stock of the Company subject to the Plan shall at any time be
changed or exchanged by a declaration of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation or other corporate reorganization in which the Company is
the surviving corporation, the number and kind of shares subject to this Plan and the option prices
shall be appropriately and equitably adjusted so as to maintain the option price thereof. In the
event of a dissolution or liquidation of the Company or a merger, consolidation, sale of all or
substantially all of its assets, or any other corporate reorganization in which the Company is not
the surviving corporation, or any merger in which the Company is the surviving corporation but the
holders of its Common Stock receive securities of another corporation, there shall be substituted
for any outstanding options hereunder a new option of the surviving corporation, pursuant to which
optionees shall receive not less than substantially the same economic benefit as they would have
received under the Plan. The existence of the Plan or options hereunder shall not in any way
prevent any transaction described herein, and no holder of an option shall have the right to
prevent any such transaction.

Use of Proceeds

     Proceeds from the sale of shares pursuant to the options granted under this Plan shall
constitute general funds of the Company.

Amendments

     The Board of Directors of the Company, in its sole discretion, may discontinue the Plan at any
time, but may amend or alter the Plan only upon the recommendation of

 

 

and pursuant to the
recommendation of the Committee. No amendment, alteration or discontinuation shall be made which
would impair the rights of any holder of an option theretofore granted, without the optionee’s
consent.

 

 

AMENDMENT NO. 1 TO

HEALTHMARKETS, INC.

RESTATED AND AMENDED

1987 STOCK OPTION PLAN

(NON-QUALIFIED)

[As amended and restated effective March 16, 2005]

[AS ADOPTED BY THE BOARD OF DIRECTORS EFFECTIVE MAY 3, 2007]

     WHEREAS, the Company maintains the 1987 Stock Option Plan (the “1987 Plan”) pursuant to
which options to purchase shares of Class A-1 Common Stock, par value $0.01 per share, have been
granted to certain individuals (the “Options”);

     WHEREAS, the 1987 Plan provides that the Options under the 1987 Plan shall be adjusted to
maintain the Option price in the event of certain corporate transactions, but the payment of an
extraordinary cash dividend is not one of the enumerated corporate transactions;

     WHEREAS, the Board wishes to amend the 1987 Plan to provide that the Options under the
1987 Plan shall be adjusted in an equitable and/or appropriate manner in the event of the payment
of an extraordinary cash dividend;

     NOW, THEREFORE, BE IT RESOLVED, that the following sentence shall be added to the end of
the section of the 1987 Plan entitled “Changes in Capital”:

“In the event of an extraordinary cash dividend, the Company may make such adjustments
to options granted under the Plan as it shall, in its sole discretion, determine are
equitable and/or appropriate.”

so that said section shall read in its entirety as follows:

“Changes in Capital

       “If the outstanding Common Stock of the Company subject to the Plan shall at any
time be changed or exchanged by a declaration of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation or other corporate reorganization in which the
Company is the surviving corporation, the number and kind of shares subject to this Plan and the
option prices shall be appropriately and equitably adjusted so as to maintain the option price
thereof. In the event of a dissolution or liquidation of the Company or a merger, consolidation,
sale of all or substantially all of its assets, or any other corporate reorganization in which the
Company is not the surviving corporation, or any merger in which the Company is the surviving
corporation but the holders of its Common Stock receive securities of another corporation, there
shall be substituted for any outstanding options hereunder a new option of the surviving
corporation, pursuant to which optionees shall receive not less than substantially the same
economic benefit as they would have received under the Plan. The existence of the Plan or options
hereunder shall not in any way prevent any transaction described herein, and no holder of an option
shall have the right to prevent any such transaction. In the event of an extraordinary cash
dividend, the Company may make such adjustments to options granted under the Plan as it shall, in
its sole discretion, determine are equitable and/or appropriate.”

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