QUANTUM EPITAXIAL DESIGNS, INC.
NOTE AND WARRANT PURCHASE AGREEMENT
THIS AGREEMENT is made this 30th day of August, 1989 between QUANTUM
EPITAXIAL DESIGNS, INC., a Pennsylvania corporation located at 000 Xxxxxxxx
Xxxxx, Xxxxxxxxx, Xxxxxxxxxxxx 00000 ("Corporation"); NEPA VENTURE FUND, L.P.,
a Pennsylvania limited partnership located at 000 Xxxxxxx Xxxxx, Xxxxxxxxx, XX
00000 ("NEPA"); XXXXX X. X. XXXXX ("Xxxxx"), an individual residing at 0 Xxxxx
Xxxxx, Xxxxxxxxx Xxxxxxxx, Xxx Xxxxxx 00000; and XXXXXX X. XXXXX ("Xxxxx"), an
individual residing at 00 Xxxxxxxx Xxxx, Xxxxxxxxxx, Xxx Xxxxxx 00000. NEPA
and Hwang are sometimes hereinafter referred to collectively as the "Lenders"
or individually as a "Lender." Xxxxx is sometimes hereinafter referred to as
the "Founder".
In consideration of the mutual agreements and undertakings set forth
in this Agreement, the parties, intending to be legally bound hereby, agree as
follows:
SECTION 1. Amendment to Articles. Prior to or contemporaneous with
Closing (as defined in Section 4(a)) the Corporation will file with the
Secretary of State of the Commonwealth of Pennsylvania an amendment to its
Articles of Incorporation (the "Amendment"), setting forth the designations,
powers, preferences and rights and the qualifications, limitations and
restrictions of the Corporation's Class A Preferred Stock, $.0l par value (the
"Preferred Stock"). A copy of the Amendment is attached hereto as Exhibit A.
SECTION 2. Issuance of Securities. Subject to the terms and
conditions of this Agreement, the Corporation has authorized the issuance and
sale to (a) NEPA of (i) a $81,820 convertible subordinated note in the form
attached hereto as Exhibit B (the "Convertible Note"), (ii) a $143,180
non-convertible subordinated note in the form attached hereto as Exhibit C
(the "Non-Convertible Note"), and (iii) warrants to purchase up to 13,571
shares of the Corporation's Common Stock in the form attached hereto as
Exhibit D (the "Warrant"); and (b) to Hwang of (i) a $18,180 Convertible Note,
(ii) a $31,820 of Non-Convertible Note, and (iii) Warrants to purchase up to
3,018 shares of the Corporation's Common Stock. The Convertible Notes, the
Non-Convertible Notes and the Warrants are sometimes hereinafter referred to
collectively as the "Securities" or individually as a "Security."
SECTION 3. Agreement to Sell and Purchase the Securities. At the
Closing, the Corporation is selling to the Lenders, and the Lenders are
purchasing from the Corporation, upon the terms and conditions hereinafter set
forth, the Convertible Notes, the Non-Convertible Notes and the Warrants. The
aggregate purchase price for the NEPA Securities is $225,000 and the aggregate
purchase price for the Hwang Securities is $50,000.
SECTION 4. Delivery of Securities.
(a) The Closing (the "Closing") hereunder with respect to
the transactions contemplated hereby is taking place at the offices of NEPA,
simultaneously with the execution and delivery of this Agreement (the "Closing
Date").
(b) At the Closing, the Corporation is delivering to each
Lender one Convertible Note, one Non-Convertible Note and one Warrant, in each
case registered in the name of such Lender. Delivery is being made against
receipt by the Corporation by wire transfer of immediately available funds to
the account of the Corporation in the full amount of the aggregate purchase
price of the Securities.
SECTION 5. Representations and Warranties of the Corporation and
Founder. The Corporation and Founder hereby represent and warrant to the
Lenders that, as of the date hereof, and except as set forth and identified on
the Schedule of Exceptions to Representations and Warranties attached hereto:
5.1. Corporate Records. The Corporation has previously made
available to the Lenders the Corporation's complete corporate minute and stock
books, including all formal corporate actions of the Corporation's Board of
Directors and shareholders, whether by meeting or written consents in lieu of
a meeting. Such records are true and correct, and remain in full force and
effect except as expressly provided therein to the contrary.
5.2. Organization. The Corporation is a corporation duly
organized, in good standing and validly subsisting under the laws of the
Commonwealth of Pennsylvania and has all requisite corporate power and
authority to own, lease and operate its properties, to carry on its business
as presently conducted and as proposed to be conducted and to carry out the
transactions contemplated hereby. The Corporation is qualified as a foreign
corporation and is in good standing in all such other jurisdictions, if any,
in which the conduct of its business or its ownership, leasing or operation of
property requires such qualification. The Corporation has provided the Lenders
with true, correct and complete copies of its Articles of Incorporation
(certified by the Secretary of State of the Commonwealth of Pennsylvania) and
its By-laws (certified by its Secretary), in each case as amended to and as in
effect on the date hereof (the "Articles of Incorporation" and the "By-laws",
respectively).
5.3. Capitalization. The authorized capital stock of the
Corporation immediately upon the consummation of the Closing of the
transactions contemplated hereby shall consist of 1,000,000 shares of Common
Stock, $.0l par value, of which 155,350 shares are validly issued and
outstanding, fully paid and nonassessable, and 150,000 shares of Class A
Preferred Stock, $.0l par value, of which no shares have been issued or be
outstanding.
Exhibit E attached hereto contains a list immediately prior to Closing of (i)
all record holders of capital stock of the Corporation, including the number
of shares of capital stock of the Corporation held by each such holder, and
(ii) all outstanding warrants, options, agreements,
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convertible securities or other commitments pursuant to which the Corporation
is or may become obligated to issue any shares of its capital stock or other
securities of the Corporation, which names all persons entitled to receive
such shares or other securities and the shares of capital stock or other
securities required to be issued hereunder. The number of shares of capital
stock (if any) reserved for issuance in connection with clause (ii) of the
immediately preceding sentence is not subject to adjustment by reason of the
issuance of the Securities. Except as set forth in Exhibit E attached hereto,
there are, and immediately upon consummation at the Closing of the
transactions contemplated hereby there will be, no preemptive or similar
rights to purchase or otherwise acquire shares of capital stock of the
Corporation pursuant to applicable laws, the Articles of Incorporation or
By-laws or any agreement to which the Corporation is a party, or otherwise,
except as contemplated by this Agreement; and there is no agreement,
restriction or encumbrance (such as a right of first refusal, right of first
offer, proxy, voting agreement, etc.) with respect to the sale or voting of
any shares of capital stock of the Corporation (whether outstanding or
issuable upon conversion or exercise of outstanding securities) except as
contemplated by this Agreement and by a Stock Restriction Agreement among the
Corporation, the Founder and Hwang dated the date of this Agreement (the
"Stock Restriction Agreement"). All shares of Common Stock and other
securities issued by the Corporation prior to the Closing have been issued in
transactions exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"), and all applicable state securities or "blue
sky" laws. The Corporation has not violated the Securities Act or any
applicable state securities or "blue sky" laws in connection with the issuance
of any shares of capital stock or other securities of the Corporation prior to
the Closing.
5.4. Commencement of Business, Etc. The Corporation was
incorporated under the laws of the Commonwealth of Pennsylvania on December
23, 1988. The Corporation has never had, nor does it presently have, any
subsidiaries, nor has it owned, nor does it presently own, any capital stock
or other proprietary interest, directly or indirectly, in any corporation,
association, trust, partnership, joint venture or other entity.
5.5. Agreements. Except as listed on Exhibit F and the Stock
Restriction Agreement, the Corporation is not a party to any written or oral
material (a) collective bargaining agreement with any labor union; (b)
contract for the future purchase of fixed assets or for the future purchase of
materials, supplies or equipment; (c) contract for the employment of any
officer, individual employee or other person on a full-time basis or any
material contract with any person on a consulting basis; (d) bonus, pension,
profit-sharing, retirement, stock purchase, stock option plans, in effect with
respect to employees or any of them or the employees of others; (e) agreement
or indenture relating to the borrowing of money or to the mortgaging, pledging
or otherwise placing of a lien on any assets of the Corporation; (f) guaranty
of any obligation for borrowed money or otherwise; (g) lease or agreement
under which the Corporation is lessee of or holds or operates any property,
real or personal, owned by any other party; (h) lease or agreement under which
the Corporation is lessor of or permits any third party to hold or operate any
property, real or personal, owned or controlled by the Corporation; (i)
agreement or other commitment for capital expenditures; j) contract, agreement
or commitment under which the Corporation is obligated to pay any broker's
fees, finder's fees or any such similar fees, to any
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third party; (k) contract, agreement or commitment under which the Corporation
has issued, or may become obligated to issue, any shares of capital stock of
the Corporation, or any warrants, options, convertible securities or other
commitments pursuant to which the Corporation is or may become obligated to
issue any shares of its capital stock, other than as contemplated by this
Agreement; or (1) any other contract, agreement, arrangement or understanding
which is material to the business of the Corporation. The Corporation has
furnished to the Lenders true and correct copies of all such written
agreements and other documents as have been requested by the Lenders. For
purposes of this Section 5.5, "material" shall mean those agreements involving
payments in excess of $25,000 per year and those agreements which if
terminated or breached may have a material adverse effect on the Corporation.
5.6. Intellectual Property Rights and Governmental Approval.
Except as set forth in Exhibit G attached hereto:
(a) the Corporation owns or has the right to use, and where
necessary, has made or is making proper application for, all Intellectual
Property Rights material and necessary for the conduct of its business as
presently conducted or as specifically proposed to be conducted in the
Business Plan (as defined in Section 5.1 1), which Intellectual Property
Rights are identified in Exhibit G (collectively, the "Requisite Rights"). The
Corporation has in a timely and proper manner included appropriate proprietary
rights notices on all of its products. The Corporation has not lost or
diminished substantive legal protection available for its Intellectual
Property Rights or products by any failure or delay to file patent or
copyright registrations.
(b) the Corporation has all governmental approvals,
authorizations, consents, licenses and permits material and necessary to
conduct its business as presently conducted or as proposed to be conducted in
the Business Plan, all of the foregoing being listed in Exhibit G.
(c) no royalties, honorariums or fees are payable by the
Corporation to other persons by reason of the ownership or use of the
Requisite Rights.
(d) no product or service manufactured, marketed or sold, or
proposed to be manufactured, marketed or sold as set forth in the Business
Plan, by the Corporation violates or will violate any license or infringes or
will infringe any Intellectual Property Rights.
(e) the Corporation is not a party to any distribution,
development, marketing arrangement, agreement or cooperative venture affecting
its Intellectual Property Rights or products.
(f) there is no pending or threatened claim or litigation
against the Corporation (nor does there exist any basis therefor known to the
Corporation or the Founder) contesting the validity of or right to use the
Requisite Rights, nor has the Corporation received any notice that any of the
Requisite Rights or the operation or proposed operation of the Corporation's
business conflicts, or will conflict, with the asserted rights of others, nor
does there exist any basis known to the Corporation or the Founder for any
such conflict.
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As used herein, the term "Intellectual Property Rights" means all industrial
and intellectual property rights, including, without limitation, Proprietary
Technology (as hereinafter defined), patents, patent applications, patent
rights, trademarks, trademark applications, trade names, service marks,
service xxxx applications, copyrights, know-how, certificates of public
convenience and necessity, franchises, licenses, trade secrets, proprietary
processes and formulae. As used herein, "Proprietary Technology" means all
source and object code, algorithms, architecture, structure, display screens,
layouts, processes, inventions, trade secrets, know-how, development tools and
other proprietary rights owned by the Corporation pertaining to any product or
service manufactured, marketed or sold, or proposed to be manufactured,
marketed or sold (as the case may be), by the Corporation or used, employed or
exploited in the development, license, sale, marketing, distribution or
maintenance thereof, and all documentation and media constituting, describing
or relating to the above, including, without limitation, manuals, memoranda,
know-how, notebooks, patents and patent applications, trademarks and trademark
applications, copyrights and copyright applications, records and disclosures.
5.7. Litigation, Etc. There are no (i) actions, suits,
arbitrations, claims, investigations or legal or administrative proceedings
pending or threatened against the Corporation, whether at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or
(ii) judgments, decrees, injunctions or orders of any court, governmental
department, commission, agency, instrumentality or arbitrator against the
Corporation, nor does there exist any basis known to the Corporation or the
Founder for any of the foregoing.
5.8. No Defaults. The Corporation is not in default (a)
under the Articles of Incorporation or By-laws, or any material indenture,
mortgage, lease, purchase or sales order, or any other material contract,
agreement or instrument to which the Corporation is a party or by which it or
any of its property is bound or affected or (b) with respect to any order,
writ, injunction or decree of any court or any Federal, state, municipal or
other domestic or foreign governmental department, commission, board, bureau,
agency or instrumentality. There exists no condition, event or act which
constitutes, or which after notice, lapse of time or both, would constitute, a
default under any of the foregoing by the Corporation or by any other party
bound by the foregoing.
5.9. Employment of Officers, Employees and Consultants. No
third party may assert any valid claim against the Corporation or the Founder,
any officer, director or key employee (collectively, the "Designated Persons")
with respect to (a) the continued employment by, or association with, the
Corporation, of any of the Designated Persons or (b) the use, in connection
with any business presently conducted or proposed to be conducted in the
Business Plan by the Corporation of any information which the Corporation or
any of the Designated Persons would be prohibited from using under any prior
agreements or arrangements or any legal considerations applicable to unfair
competition, trade secrets or proprietary information, provided the
Corporation and the Founder make no representation or warranty concerning the
subject matter of this Section 5.9 with respect to Hwang.
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5.10. Tax Matters. All Federal, state and local tax returns
and tax reports required to be filed by the Corporation have been filed with
the appropriate governmental agencies in all jurisdictions in which such
returns and reports are required to be filed and all of the foregoing are
true, correct and complete. All Federal, state, local and foreign income,
profits, franchise, sales, use, occupation, property, excise, payroll,
withholding and other taxes (including interest and penalties) required to
have been paid or accrued by the Corporation have been fully paid or are
adequately provided for on the Interim Balance Sheet (as defined in Section
5.23), except for tax liabilities arising in the ordinary course of business
since the date of the Interim Balance Sheet and liabilities being challenged
in good faith by the Corporation as set forth on the Schedule of Exceptions.
No issues have been raised (and are currently pending) by the Internal Revenue
Service or any other taxing authority in connection with any of the returns
and reports referred to above, and no waivers of statutes of limitations have
been given or requested with respect to the Corporation. All deficiencies
asserted or assessments (including interest and penalties) made as a result of
any examination by the Internal Revenue Service or by appropriate state or
departmental tax authorities of the Federal, state or local income tax, sales
tax or franchise tax returns of or with respect to the Corporation have been
fully paid or are adequately provided for on the Interim Balance Sheet and no
proposed (but unassessed) additional taxes, interest or penalties have been
asserted. The provisions for taxes on the Interim Balance Sheet are sufficient
for the payment of all accrued and unpaid Federal, state or local and foreign
taxes as of such date, except for taxes being challenged in good faith by the
Corporation as set forth on the Schedule of Exceptions. Consents that the
Corporation be taxed as a Subchapter S corporation have been filed with the
Internal Revenue Service and the Pennsylvania Department of Revenue on August
22, 1989, which consents will become effective for the period commencing July
1, 1989.
5.11. Business Plan. The Corporation has previously
presented and delivered to the Lenders the Corporation's Business Plan dated
October 1988 and the QED Customer Survey dated April 1989 (collectively, the
"Business Plan"), which Business Plan has been material to the Lenders in
their decision to enter into this Agreement and purchase the Securities. The
description of the business, operations (as presently conducted and as
proposed to be conducted), properties and assets of the Corporation contained
in the Business Plan, as well as all other factual statements contained
therein, are true and correct in all material respects as of the respective
dates thereof. The financial projections and other estimates contained in the
Business Plan are derived from reasonable assumptions.
5.12. Compliance. The Corporation (a) has complied with all
federal, state, local and foreign laws, ordinances, regulations and orders
applicable to it, its business or the ownership of its assets, and (b) has all
federal, state, local and foreign governmental licenses and permits material
to and necessary in the conduct of its business as presently being conducted;
such licenses and permits are in full force and effect, and no violations have
been recorded in respect of any such licenses or permits and no proceeding is
pending or threatened to revoke or limit any thereof
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5.13. Insurance. The Corporation has such policies of
liability, theft, life, fire, workmen's compensation, health and other forms
of insurance as are adequate against risks usually insured against by
comparable persons, businesses and properties. Such policies are in full force
and effect and all premiums with respect to such policies are currently paid.
The Corporation has never been denied or had revoked or rescinded any policy
of insurance.
5.14. Authorization of this Agreement, Employment Agreement,
Etc. The execution, delivery and performance by the Corporation of this
Agreement, the Employment Agreement (as defined in Section 7.9) and the
Securities have been duly authorized by all requisite corporate action by the
Corporation, and each constitutes the valid and binding obligation of the
Corporation, enforceable in accordance with its terms, subject as to
enforcement of remedies to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and,
with respect to the remedy of specific performance, equitable doctrines
applicable thereto. The Employment Agreement has been duly executed and
delivered by the signatories thereto, and constitutes the valid and binding
obligation of the signatories thereto, enforceable in accordance with its
terms, subject as to enforcement of remedies to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and, with respect to the remedy of specific
performance, equitable doctrines applicable thereto. The execution, delivery
and performance of this Agreement, the Employment Agreement and the Securities
and consummation of the transactions contemplated hereby and thereby and
Compliance with the provisions hereof and thereof by the Corporation and the
signatories thereto, as the case may be, and the issuance, sale and delivery
of the Securities by the Corporation, will not (a) violate any provision of
law, statute, rule or regulation, or any ruling, writ, injunction, order,
judgment or decree of any court, administrative agency or other governmental
body applicable to the Corporation or any of its properties or assets or (b)
conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute (with due notice or lapse of time, or both) a
default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Corporation
under the Articles of Incorporation or By-laws of the Corporation, or any
note, indenture, mortgage, lease agreement or other contract, agreement or
instrument to which the Corporation is a party or by which it or any of its
property is bound or affected.
5.15. Authorization of Securities. The issuance, sale and
delivery of the Securities have been duly authorized by all requisite
corporate action of the Corporation, and when issued, sold and delivered in
accordance with this Agreement will be validly issued and outstanding, and not
subject to preemptive or any other similar rights of the shareholders of the
Corporation or others.
5.16. Related Transactions. No Corporation director, officer
or "affiliate" (as defined in the rules and regulations promulgated under the
Securities Act) of any such person, is presently, or since the inception of
the Corporation has been, directly or indirectly through his or its
affiliation with any other person or entity, a party to any transaction with
the Corporation providing for the furnishing of services by or to, or rental
or sale of real or personal property
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from or to, or otherwise requiring cash payments to or by any such person
involving amounts in excess of $2,500 per person per year, except for normal
employment arrangements in the ordinary course of the Corporation's business.
For purposes of this Agreement, a transaction of the type described in this
Section 5.16 is sometimes herein referred to as a "Related Transaction".
5.17. Use of Proceeds. The net proceeds received by the
Corporation from the sale of the Securities shall be used by the Corporation
generally for the purposes and in the respective amounts set forth in Exhibit
H attached hereto.
5.18. Offering Exemption. The offering and sale of the
Securities are each exempt from registration under the Securities Act pursuant
to Section 4(2) thereof. The aforesaid offering and sale is also exempt from
registration under applicable state securities and "blue sky" laws.
5.19. No Governmental Consent or Approval Required. Except
for the filing of any notice subsequent to the Closing that may be required
under applicable federal and/or state securities laws (which, if required,
shall be filed on a timely basis as may be so required), no consent, approval
or authorization of, or declaration to, or filing with, any governmental or
regulatory authority is required for the valid authorization, execution,
delivery and performance by the Corporation of this Agreement or the
Employment Agreement or for the valid authorization, issuance, sale and
delivery of the Securities.
5.20. Brokers. Neither the Corporation nor any of the
Corporation's officers, directors, employees or shareholders has employed or
is liable for fees to any broker or finder in connection with the transactions
contemplated by this Agreement.
5.21. Registration Rights. Except as contemplated by this
Agreement, no person has any contractual right to cause the Corporation to
effect the registration under the Securities Act of any shares of Common Stock
or any other securities (including debt securities) of the Corporation.
5.22. Non-Competition, Non-Disclosure, Proprietary
Information and Patent and Invention Assignment Agreements. The Designated
Persons, Hwang and each current employee of the Corporation who has or is
proposed to have access to confidential and proprietary information of the
Corporation is a signatory to, and is bound by, an agreement with the
Corporation relating to non-competition, non disclosure, proprietary
information and patent and invention assignment (copies of each of which are
attached hereto as Exhibit I), none of which agreements shall be modified or
amended in any respect without the prior consent of a majority of the Board of
Directors of the Corporation.
5.23. Financial Information. The Corporation has previously
delivered to the Lenders the unaudited balance sheet of the Corporation as of
August 30, 1989 (the "Interim Balance Sheet") and related unaudited statements
of income, stockholders' equity and changes in financial position for the
fiscal period then ended, prepared by the Corporation (collectively, the
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"Financial Statements"). The Financial Statements (i) fairly present in all
material respects the financial condition of the Corporation as of the
respective dates indicated and the results of operations, stockholders' equity
and changes in financial position of the Corporation for the respective
periods indicated and (ii) unless otherwise stated therein, have been prepared
in accordance with generally accepted accounting principles consistently
applied, subject to routine year-end adjustments.
5.24. Absence of Undisclosed Liabilities. Except as
disclosed in the Financial Statements, (a) the Company had no liability in
excess of $5,000 individually or $15,000 in the aggregate (matured or
unmatured) which was not provided for or disclosed on the Interim Balance
Sheet, and (b) all liability reserves established by the Company and set forth
on the Interim Balance Sheet were adequate for the purposes indicated therein.
5.25. Absence of Changes. Since the date of the Interim
Balance Sheet to the date of this Agreement, there has not been (a) any
adverse change in the financial condition, results of operations, assets,
liabilities or business of the Corporation, (b) any liability or obligation
incurred by the Corporation, other than current liabilities or obligations
incurred in the ordinary course of business, (c) any asset or property of the
Corporation made subject to a lien of any kind, (d) any waiver of any right of
the Corporation, or the cancellation of any debt or claim held by the
Corporation, (e) any payment of dividends on, or other distributions with
respect to, or any direct or indirect redemption or acquisition of, any shares
of the capital stock of the Corporation, or any agreement or commitment
therefor, (f) any issuance of any stock, bonds or other securities of the
Corporation or options, warrants or rights or agreements or commitments to
purchase or issue such securities or grant such options, warrants or rights
other than pursuant to or in connection with the transactions contemplated by
this Agreement, (g) any mortgage, pledge, sale, assignment or transfer of any
tangible or intangible assets of the Corporation, except, with respect to
tangible assets, in the ordinary course of business, (h) any loan by the
Corporation to any officer, director, employee or stockholder of the
Corporation, or any agreement or commitment therefor, (i) any damage,
destruction or loss (whether or not covered by insurance) which is or may
adversely affect the assets, property or business of the Corporation, j) any
increase, direct or indirect, in the compensation paid or payable to any
officer, director, employee or agent of the Corporation or (k) any change in
the accounting methods or practices followed by the Corporation.
5.26. Encumbrances. Except as disclosed on the Interim
Balance Sheet, the Corporation owns outright all the property and assets,
real, personal or mixed, tangible or intangible, reflected as assets in the
Interim Balance Sheet (other than assets disposed of in the ordinary course of
business), including, but not limited to, the Requisite Rights, subject to no
mortgages, hens, security interests, pledges, charges or other encumbrances of
any kind, except as reflected in the Financial Statements. The Corporation
owns, or has a valid leasehold interest in, or valid license for, all assets
necessary for the conduct of its business as presently conducted or as
proposed to be conducted, subject to the consummation of the acquisition of
$617,582 of equipment pursuant to an invoice dated June 19, 1989 to the
Corporation from Siemens Corporate Research, Inc.
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5.27. Complaince e with ERISA: Benefit Plans: Etc. The
Corporation does not (a) maintain and has never maintained any employee
benefit plan subject to the Employee Retirement Income Security Act of 1974,
as amended or (b) contribute to and has never contributed to any such employee
benefit plan maintained by any other person or entity.
5.28. Burdensome Restrictions. The Corporation is not
obligated under any contract or agreement or subject to any charter or other
corporate restriction which presently materially adversely affects, or in the
future may reasonably be expected to materially adversely affect its business,
properties, assets, prospects or condition (financial or otherwise).
5.29. Disclosure. Neither this Agreement nor any other
document, certificate, instrument or statement furnished or made to the
Lenders by or on behalf of the Corporation in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein and therein not misleading.
SECTION 6. Representations and Warranties of the Lenders.
(a) Each Lender represents and warrants to the Corporation
that it is acquiring the Securities for investment and not with a view to the
distribution thereof within the meaning of the Securities Act.
(b) Each Lender understands that none of the securities
which are being purchased pursuant to this Agreement have been registered
under the Securities Act, and such securities cannot be sold unless they are
subsequently registered under the Securities Act or unless an exemption from
such registration is available.
(c) Each Lender further understands that Rule 144 (the
provisions of which are known to such Lender) promulgated under the Securities
Act is not currently available as a basis for exemption from registration of
any of the securities purchased by such Lender and, except as otherwise
expressly provided in this Agreement, the Corporation is under no obligation
to take any actions which may be necessary in order to render the provisions
of Rule 144 available as a basis for such exemption from registration.
(d) Each Lender represents and warrants that it has not
employed any broker or finder in connection with the transactions contemplated
by this Agreement.
(e) NEPA represents and warrants that it has been duly
formed under the Limited Partnership Act of Pennsylvania, it is validly
subsisting as of the date of this Agreement and the execution, delivery and
performance of this Agreement has been authorized by all requisite limited
partnership action. NEPA's principal place of business is located in
Pennsylvania.
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(f) NEPA is an "institutional investor" as that term is
defined in Section 102 of the Pennsylvania Securities Act of 1972, as amended,
and is a limited partnership, not formed for the specific purpose of acquiring
the Securities, with total assets in excess of $5,000,000.
(g) The Lenders have no present arrangement, understanding
or agreements for transferring or disposing of any of the Securities.
(h) The Lenders are familiar with the Corporation's
business, financial condition, affairs and prospects and also are aware that
the Corporation is a development-stage company, does not have any operating
history and that the Securities represent a very speculative investment with
the possibility of complete loss of all funds the Lenders have invested.
(i) Before executing this Agreement, each Lender was
furnished with or given access to all information with respect to the
Corporation, which was requested. The Lenders or their representatives also
were given the opportunity to ask the Founder and the Corporation's officers
any and all questions which such persons had, and confirm that such persons
received satisfactory answers relating to the Corporation's business,
financial condition, affairs and prospects.
(j) Hwang represents and warrants that (A) he is a resident
of New Jersey, (B) he is an"accredited investor" as such term is defined in
Rule 501 of Regulation D promulgated under the Securities Act of 1933, as
amended, with individual net worth (or joint net worth with his spouse) in
excess of $1,000,000, or with individual income in excess of $200,000 in each
of the two most recent years (or joint income with his spouse in excess of
$300,000 in each of those years) and has a reasonable expectation of reaching
the same income level in the current year, (C) no third party may assert any
valid claim against the Corporation or him relating to those matters set forth
in Section 5.9.
(k) Based on the foregoing representations and warranties of
the Lenders, the representatives and warranties of the Corporation and
Founder, and the information and schedules provided by the Corporation to the
Lenders in connection with the execution of this Agreement, each Lender
confirms that he or it possesses sufficient knowledge and experience in
financial and business matters generally, and sufficient familiarity with the
Corporation in particular, to evaluate the risks of investment in the
Securities and to execute and deliver this Agreement. Each Lender also
confirms that he or it is able to bear the economic risk inherent in his or
its investment and understands that there is and will be no private or public
market for the Securities in the event such Lender needs to liquidate his or
its investment.
(l) The parties acknowledge that notwithstanding the
foregoing representations and warranties of the Lenders, the Lenders shall be
entitled to rely on the representations and warranties of the Corporation and
the Founder contained in this Agreement, which later representations and
warranties shall not be diminished in any respect by the contents of this
Section 6 (except insofar as a breach of the Corporation's and the Founder's
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representations and warranties is directly attributed to a breach of one or
more of these Section 6 representations and warranties).
SECTION 7. Conditions Precedent to Closing by the Lenders on the
Closing Date. The obligation of the Lenders to purchase and pay for the
Securities on the Closing Date is subject to the following conditions
precedent:
7.1. Corporate Proceedings;Consents, Etc. All corporate and
other proceedings to be taken and all waivers and consents to be obtained in
connection with the transactions contemplated by this Agreement and the
Employment Agreement shall have been taken or obtained. All documents incident
thereto and all legal matters incident to this Agreement and the Closing shall
be reasonably satisfactory in form and substance to the Lenders and their
counsel, each of whom shall have received all such originals or certified or
other copies of such documents either may reasonably request.
7.2. Opinion of Counsel. At the Closing, the Lenders shall
have received from counsel for the Corporation its opinion addressed to the
Lenders, dated the date of the Closing, in the form of Exhibit J attached
hereto.
7.3. Amendment. The Board of Directors and shareholders of
the Corporation shall have duly adopted resolutions in the form of the
Amendment attached hereto as Exhibit A and the Amendment shall have been filed
with and accepted by the Secretary of State of the Commonwealth of
Pennsylvania and become effective, and evidence of the foregoing in form
satisfactory to the Lenders shall have been delivered to the Lenders.
7.4. Blue Sky Matters. All consents, approvals,
qualifications and/or registrations required to be obtained or effected under
any applicable state securities or "blue sky" laws in connection with the
issuance, sale and delivery of the Securities shall have been obtained or
effected (except for the filing of any notice subsequent to the Closing which
may be required under applicable state securities laws which, if required,
shall be filed on a timely basis as may be so required) and copies of the same
delivered to the Lenders.
7.5. Reconstitution of Board of Directors; Election of
Directors. Simultaneously with the Closing, the Board of Directors of the
Corporation shall be reconstituted with up to five directors in accordance
with the terms of this Agreement and at least the following three individuals
shall have been elected as members of the Board of Directors, as
reconstituted:
Xxxxxx X. Xxxxx Xxxxx X.X. Xxxxx
Xxxxxxx X. Xxxxxx
7.6. Secretary's Certificate. The Lenders shall have
received a certificate, dated the date of the Closing, of the Secretary or an
Assistant Secretary of the Corporation to the effect (i) that attached thereto
is a true and complete copy of the Articles of Incorporation and the Bylaws of
the Corporation, in each case as in effect on the date thereof, (ii) that
attached thereto is a
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true and complete copy of resolutions adopted by the Board of Directors of the
Corporation authorizing the execution, delivery and performance of this
Agreement and the Employment Agreement and consummation of the transactions
contemplated hereby and thereby, and authorizing the issuance and delivery of
the Securities, (iii) that the Corporation is validly subsisting under the
laws of the Commonwealth of Pennsylvania and is duly qualified as a foreign
corporation in any other state in which the conduct of its business or its
ownership or leasing of property requires qualification of the Corporation,
and has paid all required franchise taxes in such states, (iv) that all
requested consents have been obtained, (v) that all conditions set forth in
this Section 7 have been fulfilled, and (vi) of such other matters as may
reasonably be requested by the Lenders or their counsel.
7.7. Amendments. The Corporation's By-laws shall be amended
to the extent necessary to conform to the provisions of this Agreement. Any
amendments to the Corporation's Bylaws and to the existing agreements between
the Corporation and other parties shall be satisfactory to the Lenders and
executed copies shall be delivered to the Lenders.
7.8. Insurance Policy. The Corporation shall deliver to the
Lenders a policy or binder representing $350,000 of life insurance on Xxxxx
which designates the Corporation as the beneficiary.
7.9. Key Employee Agreement. The Corporation shall deliver
to the Lenders copies of an executed employment agreement (in the form
attached hereto as Exhibit K) with the Founder (the "Employment Agreement").
7.10. Capital Contributions. The Corporation shall have
received capital contributions in the amount of $65,000 from Xxxxx.
7.11. Equipment Loan. The Corporation shall have purchased
or have binding agreements to purchase substantially all of the equipment
(including a Varian Molecular Beam EPITAXIAL)required for its business as set
forth in the Business Plan and shall have secured and closed bank financing in
the amount of $600,000 on terms acceptable to the Lenders.
SECTION 8. Management of the Corporation.
8.1. Access to Records. The Corporation shall afford to the
Lenders and their employees, counsel and other authorized representatives free
and full access, on a reasonable basis during normal business hours, to all of
the books, records and properties of the Corporation and to all officers and
employees of the Corporation for any reasonable purpose whatsoever. The
Lenders shall use their best efforts to maintain the confidentiality of any
confidential and proprietary information so obtained which is not otherwise
available from other sources; provided, however, that the foregoing shall in
no way limit or otherwise restrict the ability of NEPA or its authorized
representatives to disclose any such information concerning the Corporation
which it may be required to disclose (i) to its partners to the extent
required to
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satisfy its fiduciary obligations to such persons, provided NEPA takes
reasonable actions to make such partners aware of the confidential nature of
the material disclosed and the obligation of NEPA to use its best efforts to
preserve such confidentiality, or (ii) otherwise pursuant to or required by
law.
8.2. Financial Reports. The Corporation agrees to furnish the
Lenders with the following:
8.2.1. Within 20 days after the end of each month,
an unaudited financial report of the Corporation, which report shall include
the following:
(a) a profit and loss statement for such month, together
with a cumulative profit and loss statement form the first day of the current
year to the last day of such month, which statements shall be prepared in
accordance with generally accepted accounting principles consistently applied;
(b) a balance sheet as of the last day of such month, which
balance sheet shall be prepared in accordance with generally accepted
accounting principles consistently applied;
(c) a statement of changes in cash balances for such mont,
together with a cumulative statement of changes in cash balances form the
first day of the current year to the last day of such month, and a six month
projected statement of cash flow;
(d) except to the extent included in other monthly reports
provided to the Lenders, a schedule showing all expenditures of a capital
nature in excess of $10,000 individually during such month;
(e) an aging schedule (or summary thereof) of all accounts
receivable and accounts payable; and
(f) a comparison between the actual figures for such month
and the comparable figures included in the Budget (as defined in Section 8.4)
with variances delineated; certified by the chief executive officer and chief
financial officer of the Corporation as being prepared in accordance with
generally accepted accounting principles consistently applied.
8.2.2. Within 90 days after the end of each fiscal
year of the corporation, financial statements of the Corporation which shall
include a profit and loss statement for such fiscal year and a balance sheet
as of the last day thereof, each prepared in accordance with generally
accepted accounting principles consistently applied, and accompanied by the
unqualified audit report (unless otherwise waived by NEPA in writing) of an
independent certified public accountant firm as shall have been approved by
NEPA, together with a copy of such firm's letter management.
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8.2.3. If for any period the Corporation shall have
any subsidiary or subsidiaries whose accounts are consolidated with those of
the Corporation, then in respect of such period the financial statements
delivered shall be the consolidated and, where reasonably appropriate,
consolidating financial statements of the Corporation and all such
consolidated subsidiaries.
8.2.4. Promptly upon becoming available:
(a) except to the extent included in materials furnished to
the Lenders as shareholders, copies of all financial statements, reports,
press releases, notices, proxy statements and other documents sent by the
Corporation to its stockholders or released to the public and copies of all
regular and periodic reports, if any, filed by the Corporation with the
Securities and Exchange Commission (the "Commission") or any securities
exchange, and
(b) any other financial or other information available to
management of the Corporation as the Lenders shall have reasonably requested
on a timely basis.
8.3. No Default Certificate. With the financial statements
referred to in Sections 8.2.1 and 8.2.2, the Corporation shall deliver to the
Lenders a certificate executed by the chief executive officer and the chief
financial officer of the Corporation to the effect that no knowledge has been
obtained of any violation or default by the Corporation in the performance of
its agreements or covenants contained herein, in the Articles of
Incorporation, or in any other material agreement to which the Corporation is
a party or of the occurrence of any condition, event or act which, with or
without notice or lapse of time, or both, would constitute a violation or an
event of default, or, if such officer shall have obtained knowledge of any
such violation, condition, event or act he shall specify in such certificate
all such violations, conditions, events and acts and the nature and status
thereof.
8.4. Budget. At least 30 days prior to the beginning of each
fiscal year of the Corporation, the Corporation will prepare and submit to the
Board of Directors of the Corporation and the Lenders a comprehensive
operating and capital expenditures plan, with monthly projected income
statements, cash flows and balance sheets, statement of underlying assumptions
and a written business plan including planned product development, sales
activities and staffing, significant events and a qualitative description by
the chief executive officer of the Corporation's plan to achieve such results
(the "Budget"). The Budget shall be accepted as the Budget for such fiscal
year when it has been approved by the Board of Directors of the Corporation,
which approval shall occur within 30 days of submission to the Board. The
Budget shall be reviewed by the Corporation periodically and all material
changes therein and all material deviations therefrom shall be resubmitted to
the Board of Directors of the Corporation in advance and shall be accepted
when approved by, and the Corporation shall not make any such material changes
or material deviations to or from the Budget without such prior approval of,
the Board of Directors of the Corporation. Individual capital expenditures in
excess of $25,000 and aggregate capital expenditures in excess of $100,000 in
any fiscal year, including capitalized leases, will require Board of Directors
approval.
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8.5. Existence; Maintenance of Property. The Corporation
shall do or cause to be done all things necessary to maintain, preserve and
keep in full force and effect its corporate existence and all rights,
licenses, permits and franchises necessary to the proper conduct of its
business and the ownership, leasing or operation of its properties. The
Corporation shall maintain and operate its business and properties in
accordance with all applicable laws and regulations and take all reasonable
action which may be required to obtain, preserve, renew and extend all
licenses, permits, authorizations, tradenames, trademarks, copyrights and
patents which may be necessary for the continuance of the operation of any
such property by it. The Corporation shall at all times maintain and preserve
all property necessary in the conduct of its business and keep the same in
good repair, working order and condition, and from time to time make, or cause
to be made, all needful and proper repairs, renewals, replacements,
betterments and improvements thereto so that the business carried on in
connection therewith may properly and advantageously be conducted at all
times.
8.6. Property and Liability Insurance. The Corporation shall
maintain adequate insurance, by financially sound and reputable insurers, on
its properties of a character customarily insured by companies engaged in the
same or a similar business against liability, loss or damage resulting from
hazards, risks and other liabilities, including without limitation extended
coverage of the kind customarily insured against by such companies and public
liability insurance against claims for personal injury, death or property
damage occurring upon, in, about or in connection with the use of any of its
properties, and maintain such other insurance as may be required by law or
other agreements to which the Corporation is or shall become a party.
8.7. Payment of Debts, Taxes, Etc. The Corporation shall pay
all indebtedness and obligations promptly and in accordance with normal terms
and pay and discharge promptly all taxes, assessments and governmental charges
or liens imposed upon it or upon its income or receipts or in respect of any
of its property, before the same shall become in default, as well as all
lawful claims which, if unpaid, might result in the creation of a lien or
charge upon such properties or any part thereof; provided, however, that the
Corporation shall not be required to pay and discharge or to cause to be paid
and discharged any such indebtedness, obligation or tax so long as the
validity or amount thereof shall be contested in good faith and the
Corporation shall set aside on its books such reserves as are required by
generally accepted accounting principles with respect to any such
indebtedness, obligation or tax.
8.8. Litigation and Other Notices. The Corporation shall
deliver to the Lenders promptly following the occurrence thereof (but in any
event within 10 days) written notice and a description of and management's
proposed response to the following:
(i) all events of default or any event that would become an event of
default upon notice or lapse of time or both under any of the terms or
provisions of any note, agreement or contract, including without limitation
this Agreement;
(ii) levy of an attachment, execution or other process against any of
the property or assets, real or personal, of the Corporation or any of its
subsidiaries;
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(iii) the filing or commencement of any action, suit or proceeding by
or before any court or any federal, state, municipal or other governmental
department, commission, instrumentality or agency; and
(iv) any matter of non-general effect which has resulted in, or which
may result in, a material adverse change in the financial condition or
operations of the Corporation.
8.9. Non-Competition, Non-Disclosure and Patent and
Invention Assignment Agreements. The Corporation shall cause each person who
becomes a key consultant or employee of the Corporation or who shall have or
be proposed to have access to confidential or proprietary information of the
Corporation, to execute an agreement relating to matters of non-competition,
non-disclosure, proprietary information and patent assignment in such form as
is satisfactory to the Board of Directors of the Corporation. The Corporation
will take all reasonable actions to protect its proprietary information,
including without limitation the filing of copyright and patent applications
when appropriate.
8.10. Compensation. The Board of Directors shall approve all
compensation arrangements for key employees of the Corporation. An annual
bonus pool for management employees of up to 5% of the Corporation's pre-tax
income may be distributed to employees, including the Founders, at the sole
discretion of management of the Corporation.
8.11. System of Accounting. The Corporation shall maintain a
system of accounting established and administered in accordance with generally
accepted accounting principles, and will set aside on its books and cause each
of its subsidiaries to set aside on its books all such proper reserves as
shall be required by generally accepted accounting principles.
8.12. Life Insurance. The Corporation will maintain a life
insurance policy in the amount of $350,000 on Xxxxx, with the Corporation as
the designated beneficiary.
8.13. Negative Covenants. The Corporation shall not,
directly or indirectly, without the prior approval of the Board of Directors
of the Corporation and NEPA, take any of the following actions:
(a) directly or indirectly, sell, lease, transfer or
otherwise dispose of (whether in one transaction or in a series of related
transactions occurring within a 12 month period) assets valued in excess of
$50,000 (except for sales of product in the ordinary course of business), or
directly or indirectly purchase, lease or otherwise acquire (whether in one
transaction or in a series of related transactions occurring within a 12 month
period) assets valued in excess of $50,000 of any other person (except for
purchases of product in the ordinary course of business), consolidate with or
merge into any corporation or permit any corporation to merge into it, or sell
all or substantially all of the assets of the Corporation;
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(b) except as expressly provided in the Stock Restriction
Agreement, declare or pay any dividend on or make any other distribution
(whether by reduction of capital or otherwise) of cash or property or both
with respect to, or redeem, retire, purchase or otherwise acquire for value or
set apart any sum for, the reduction, retirement, purchase or other
acquisition of any shares of its capital stock, except for the repurchase of
stock options or shares of its capital stock at cost from employees of the
Company terminated from employment and except as expressly provided in the
Employment Agreement and Consulting Agreement.
(c) take any action to cause any amendment, alteration or
repeal of any provision of the Corporation's Articles of Incorporation or
By-laws;
(d) voluntarily dissolve, liquidate or wind-up or carry out
any partial liquidation, distribution or transaction in the nature of a
partial liquidation or distribution;
(e) except as provided in Section 9.4 and up to 20,000
shares of Common Stock reserved for issuance to a key marketing executive and
other newly hired key employees at a price of at least $.4649 per share, issue
any equity securities or any options or warrants to acquire equity securities
of the Corporation, or authorize or adopt any stock option plan or program;
(f) discontinue, abandon or materially change the character
of its business as such business is conducted on the date hereof or is
proposed to be conducted in the business Plan or enter a new business are;
(g) incur, create, assume or permit to exist any
indebtedness in excess of $100,000 (including capitalized leases), or
indebtedness which by its terms is convertible into capital stock of the
Corporation;
(h) increase the base compensation (excluding bonus) of any
officer or key employee by more than 10% per year or create any bonus plan
except as provided in Section 8.10;
(i) in any manner alter or change the designations, powers,
preferences or rights, or the qualifications, limitations or restrictions of
the Preferred Stock;
(j) enter into any Related Transactions except, with Board
of Directors' approval, on terms no less favorable to the Corporation than
those obtainable form a nonrelated person;
(k) create any committee of the Board of Directors which has
the authority to take any action requiring Board approval pursuant to this
Agreement, unless the director designated by NEPA is a member of such
committee; or
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(l) amend, terminate or waive any provision of the
Employment Agreement or Consulting Agreement.
SECTION 9. Additional Agreements.
9.1. Meetings of the Board of Directors and Representation
Thereon, Etc.
(a) The Corporation shall call, and use its best efforts to
have, regular meetings of the Board of Directors of the Corporation not less
often than monthly until such time as the Corporation has two successive
profitable quarters, and thereafter not less often than bimonthly or quarterly
as determined by NEPA.
(b) The Corporation shall pay all reasonable travel expenses
and other out-of-pocket disbursements incurred by non-employee directors in
connection with attending meetings of the Board of Directors of the
Corporation.
(c) The Board of Directors shall consist of up to five
directors, one of which shall be designated (and subject to removal,
replacement and re-designation from time to time) by NEPA for so long as it is
at least a 5% shareholder (or has the right to acquire at least 5% of the
shares of the Corporation), one of which shall be Xxxxx X. X. Xxxxx for so
long as he is at least a 5% shareholder (or has the right to acquire at least
5% of the shares of the Corporation), two of which shall be designated (and
subject to removal, replacement and re-designation from time to time) by the
holders of the Corporation's Common Stock other than the Lenders and one of
which shall be an individual mutually agreed upon by the remaining four
directors. The Corporation, the Founder and the Lenders shall use their best
efforts to cause the directors specified above to be elected. Notwithstanding
the foregoing, Section 8 of the Amendment to the extent applicable shall
supersede the foregoing.
(d) In addition to the right to designate a director, NEPA
shall have the right to one observer at all Board of Directors and Board
committee meetings, which observer will be entitled to participate in
discussions, but shall not have voting rights. Such observer shall receive
notices of all meetings and copies of all materials distributed to the Board.
Such observer shall agree to be bound by the confidentiality restrictions set
forth in Section 8. 1.
9.2. Right of First Refusal.
(a) Except in the case of Excluded Securities (as hereafter
defined), the Corporation shall not issue, sell or exchange, agree to issue,
sell or exchange, or reserve or set aside for issuance, sale or exchange, any
(i) shares of Common Stock, (ii) any other equity security of the Corporation,
(iii) any debt security of the Corporation which by its terms is convertible
into or exchangeable for any equity security of the Corporation, (iv) any
security of the Corporation that is a combination of debt and equity, or (v)
any option, warrant or other right to subscribe for, purchase or otherwise
acquire any equity security or any such debt security of the Corporation,
unless in each case the Corporation shall have first offered (the "Offer") to
sell
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to the Lenders their Proportionate Percentage of such securities proposed to
be sold by the Corporation (the "Offered Securities"), at a price and on such
other terms as specified in the Offer, which Offer by its terms shall remain
open and irrevocable for a period of 20 days from the date notice is given by
the Corporation to the Lenders.
(b) Notice of a Lender's intention to accept, in whole or in
part, an Offer shall be evidenced by a writing signed by such Lender and
delivered to the Corporation prior to the end of the 20-day period of such
Offer, setting forth such portion of the Offered Securities as such Lender
elects to purchase (the "Notice of Acceptance"), provided, however that such
Lender shall have no obligation to make such purchase if no sale is ultimately
made of at least 90% (or at least the minimum required number of shares in a
predesignated minimum/maximum private placement) of the Offered Securities.
(c) The Corporation shall have 90 days from the expiration
of the foregoing 20-day period, to sell all or any part of such Offered
Securities as to which a Notice of Acceptance has not been given by such
Lender (the "Refused Securities"), but only upon terms and conditions in all
respects, including, without limitation, unit price and interest rates, which
are no more favorable to the purchaser or less favorable to the Corporation
than those set forth in the Offer. Upon the closing of the sale of the Refused
Securities, a Lender shall purchase from the Corporation, and the Corporation
shall sell to such Lender, the Offered Securities in respect of which Notice
of Acceptance was delivered to the Corporation by such Lender, at the terms
specified in the Offer. The purchase by a Lender of any Offered Securities is
subject in all cases to the preparation, execution and delivery by the
Corporation and such Lender of a purchase agreement containing the provisions
set forth in the Offer and Notice of Acceptance, and no less favorable to such
Lender than the purchase agreement executed by the purchasers of the Refused
Securities.
(d) In each case, any Offered Securities not purchased by a
Lender or other purchasers in accordance with Section 9.2(c) may not be sold
or otherwise disposed of until they are again offered to the Lenders under the
procedures specified in Sections 9.2(a), (b), and (c).
(e) The rights of the Lenders under this Section 9.2 shall
not apply to (i) Common Stock issued as a stock dividend or upon any stock
split or other subdivision or combination of shares of Common Stock, (ii)
Common Stock issued upon conversion of Class A Preferred Stock or upon
exercise of the Warrants, (iii) Class A Preferred Stock issued upon conversion
of the Convertible Notes, (iv) options and shares of Common Stock issued to
employees as provided in Section 9.4, and (v) up to 20,000 shares of Common
Stock reserved for issuance to a key marketing executive and other newly hired
key employees at a price of at least $.4649 per share (the "Excluded
Securities").
(f) Notwithstanding the foregoing provisions of this Section
9.2, the rights of the Lenders and the obligations of the Corporation under
this Section 9.2 shall be inapplicable to the consummation of an offering and
sale of securities of the Corporation as part of a public offering registered
under the Securities Act with a minimum price per share of Common Stock of
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$3.50 (subject to adjustment for subsequent stock splits, dividends and
combinations), and minimum gross proceeds to the Corporation of $2,500,000 (a
"Designated Offering"), and the provisions of this Section 9.2 shall terminate
upon the consummation of such Designated Offering.
(g) "Proportionate Percentage" shall mean as to a Lender,
that percentage figure which expresses the ratio which (x) the number of
shares of outstanding Common Stock then owned by such Lender bears to (y) the
aggregate number of shares of outstanding Common Stock then owned by all
shareholders of the Corporation. For purposes solely of the computation
required under clauses (x) and (y) above, a Lender holding a Convertible Note,
outstanding Class A Preferred Stock or a Warrant shall be treated as having
converted or exercised all of such Convertible Note, outstanding Class A
Preferred Stock and Warrant into shares of Common Stock at the rate which such
securities are convertible into or exercisable for Common Stock in effect at
the time of delivery by the Corporation of the notice of the Offer
contemplated by Section 9.2(a), and all outstanding convertible notes and
Class A Preferred Stock held by other parties shall likewise be deemed
converted, and all outstanding warrants held by other parties shall likewise
be deemed exercised.
9.3. Filing of Reports Under the Exchange Act. Subsequent to
a registered public offering of the Corporation's Common Stock, the
Corporation shall comply with public information reporting requirements of the
Commission as a condition to the availability of an exemption from the
Securities Act under Rule 144 (as amended from time to time or successor rule
thereto) for the sale of Common Stock by the Lenders, and the Corporation
shall cooperate with the Lenders in supplying such information as may be
necessary for the Lenders to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act under Rule 144 (as
amended from time to time, or successor rule thereto), for the sale of Common
Stock by the Lenders.
9.4. Employee Plans. The Corporation may establish and
maintain an employee stock option plan and/or stock purchase plan with respect
to up to 16,589 shares of Common Stock of the Corporation, which will (i)
provided for option grants and/or stock purchases as the Board of Directors in
its sole discretion shall determine, (ii) provide that the Corporation will
have the right, but not the obligation, to repurchase stock granted pursuant
to such stock option or purchase arrangements in certain circumstances to be
specified by the Board of Directors, (iii) provide for issuance and option
exercise prices of not less than fair market value on the date of grant, as
determined by the Board of Directors, (iv) provide for annual proportional
vesting over a five year period from the date of grant, and (v) have such
other terms as shall be approved by the Board of Directors; provided, however,
that in no event shall the Corporation be obligated to repurchase stock
granted pursuant to such stock option or purchase arrangements. Neither the
Corporation nor the Founder shall enter into any shareholder, voting, proxy,
purchase or right of first refusal agreement regarding options or shares
issued or obtained pursuant to such plans without the prior written consent of
NEPA.
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9.5. Right of Co-Sale. In the event the Founder or Lender
(the "Section 9.5 Offeree") receives a bona fide offer (the "Section 9.5
Offer") from a third party (the "Section 9.5 Offeror") to purchase from the
Section 9.5 Offeree shares of the Corporation's capital stock or the
securities (which offer must be for a specified price payable in cash and on
specified terms and conditions) such Section 9.5 Offeree shall promptly
forward a copy of the Section 9.5 Offer to the Corporation and the Lenders.
the Section 9.5 Offeree shall not sell any such stock or Securities to the
Section 9.5 Offeror unless the Section 9.5 Offer is extended to the Lenders in
an amount equal to their respective Proportionate Percentages of the total
amount of stock to be purchased by the Section 9.5 Offeror. Legends referring
to this Section shall be placed on all stock certificates and Securities held
by the Founder and Lenders.
SECTION 10. Transfer of Securities.
10.1. Restriction on Transfer. The Restricted Securities,
any shares of capital stock received in respect thereof, whether by reason of
a stock split or share reclassification thereof, a stock dividend thereon or
otherwise, shall not be transferable except upon compliance with the
provisions of the Securities Act in respect of the transfer thereof.
10.2. Definitions. As used in this Section 10, the following
terms shall have the following respective meanings:
"Person" shall mean and include an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Restricted Securities" shall mean the Warrants, Convertible Notes,
Non-Convertible Notes, Preferred Stock obtained upon converstion of
Convertible Notes, Common Stock obtained upon conversion of Preferred Stock or
exercise of Warrants, any shares of Common Stock purchased by a Lender
pursuant to Section 9.2 and any securities received in respect of any thereof,
in each case which have not been sold to the public (a) pursuant to
registration under the Securities Act or (b) subsequent to the Corporation's
initial public offering of securities registered under the Securities Act,
pursuant to Rule 144 (or similar or successor rule) promulgated under the
Securities Act.
"Restricted Shares" shall mean the shares of Common Stock constituting
Restricted Securities.
"Transfer" shall include any disposition of any shares of Restricted
Securities or of any interest therein which would constitute a sale thereof
within the meaning of the Securities Act.
10.3. Restrictive Legend. Each certificate for the
Restricted Securities and any securities received in respect thereof, whether
by reason of a stock split or share reclassification thereof, a stock dividend
thereon or otherwise and each certificate for any such securities issued to
subsequent transferees of any such certificate shall (unless otherwise
permitted by the
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provisions of Sections 10.4 or 10. 12) be stamped or otherwise imprinted with
legends in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT
TO THE CONDITIONS SPECIFIED IN SECTION 10 OF THE NOTE AND WARRANT
PURCHASE AGREEMENT DATED AUGUST 30,1989, AMONG QUANTUM EPITAXIAL
DESIGNS, INC. AND CERTAIN OTHER SIGNATORIES THERETO.
10.4. Notice of Transfer. The holder of any Restricted
Securities, by acceptance thereof agrees, prior to any transfer of any
Restricted Securities, to give written notice to the Corporation of such
holder's intention to effect such transfer and to comply in all other respects
with the provisions of this Section 10.4. Each such notice shall describe the
manner and circumstances of the proposed transfer and shall be accompanied by
(a) the written opinion, addressed to the Corporation, of counsel for the
holder of such Restricted Securities, as to whether in the opinion of such
counsel (which counsel and opinion shall be reasonably satisfactory to the
Corporation) such proposed transfer involves a transaction requiring
registration of such Restricted Securities under the Securities Act, and (b)
in the case of Restricted Shares, if in the opinion of such counsel such
registration is required, a written request addressed to the Corporation by
the holder of Restricted Securities, describing in detail the proposed method
of disposition and requesting the Corporation to effect the registration of
such Restricted Shares pursuant to the terms and provisions of Sections 10.5,
10.6 or 10.7 as the case may be. If in such opinion of counsel the proposed
transfer of Restricted Securities may be effected without registration under
the Securities Act, the holder of Restricted Securities shall thereupon be
entitled to transfer Restricted Securities in accordance with the terms of the
notice delivered by it to the Corporation. Each certificate or other
instrument evidencing the securities issued upon the transfer of any
Restricted Securities (and each certificate or other instrument evidencing any
untransferred balance of such securities) shall bear the legend set forth in
Section 10.3 unless (a) in such opinion of counsel registration of future
transfer is not required by the applicable provisions of the Securities Act
and such securities may immediately be sold by the holder without taking any
other actions in order to comply with an applicable exemption from such
registration requirements, or (b) the Corporation shall have waived the
requirement of such legend; provided, however, that such legend shall not be
required (a) on any certificate or other instrument evidencing the securities
issued upon such transfer in the event such transfer shall be made in
compliance with the requirements of Rule 144 (as amended from time to time)
promulgated under the Securities Act (or successor rule thereto which would
allow the purchaser to rely on the exemption provided by Section 4(l) of the
Securities Act) or (b) on any certificate or other instrument which is
immediately resalable (whether or not such resale is proposed) under Rule 144
(k) or successor thereto. The holder of Restricted Securities shall not
transfer such Restricted Securities until such opinion of counsel has been
given to and accepted by the
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Corporation (unless waived by the Corporation or unless such opinion is not
required in accordance with the provisions of this Section 10.4) or until
registration of the Restricted Shares involved in the above-mentioned request
has become effective under the Securities Act
10.5. Required Registration. If at any time the Corporation
shall be requested by NEPA to effect the registration under the Securities Act
of Restricted Shares, the Corporation shall promptly give written notice of
such proposed registration to all holders of outstanding Restricted
Securities, and thereupon the Corporation shall promptly use its best efforts
as expeditiously as practicable to effect the registration under the
Securities Act of the Restricted Shares that the Corporation has been
requested to register for disposition described in the request of said holder
or holders of Restricted Securities; provided, however, that the Corporation
shall not be obligated to effect any registration under the Securities Act
except in accordance with the following provisions:
(a) The Corporation shall not be obligated to file and cause
to become effective more than one registration statements in which Restricted
Shares are registered under the Securities Act pursuant to this Section 10.5
and effectively sold thereunder.
(b) Anything contained herein to the contrary
notwithstanding, with respect to each registration requested pursuant to this
Section 10.5, the Corporation may include in such registration any authorized
but unissued shares of Common Stock for sale by the Corporation or any issued
and outstanding shares of Common Stock for sale by others; provided, however,
that if the number of shares of Common Stock so included pursuant to this
clause (b) exceeds the number of Restricted Shares registered by the holder or
holders of outstanding Restricted Securities requesting such registration,
then such registration shall be deemed to be a registration in accordance with
and pursuant to Section 10.6; provided further, however, that the inclusion of
such previously authorized but unissued shares by the Corporation or issued
and outstanding shares of Common Stock by others in such registration shall
not prevent the holder or holders of outstanding Restricted Securities
requesting such registration from registering the entire number of Restricted
Shares requested by them and, in the event the registration is, in whole or in
part, an underwritten public offering and the managing underwriter determines
and advises in writing that the inclusion of all Restricted Shares proposed to
be included in such registration and such previously authorized but unissued
shares of Common Stock by the Corporation and/or issued and outstanding shares
of Common Stock by persons other than the holders of Restricted Securities
proposed to be included in such registration would interfere with the
successful marketing (including pricing) of such securities, then the number
of Restricted Shares and such other previously authorized but unissued shares
of Common Stock proposed to be included by the Corporation and issued and
outstanding shares of Common Stock proposed to be included by persons other
than the holders of Restricted Securities shall be reduced, first, pro rata
among the Corporation and the holders of shares of Common Stock other than the
holders of Restricted Securities, based upon the number of shares requested by
holders thereof to be registered in such offering, and, thereafter, if
necessary, pro rata among the holders of Restricted Securities, based upon the
number of Restricted Securities then owned by the holders thereof.
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10.6. Incidental Registration. If the Corporation at any
time proposes for any reason to register any of its securities under the
Securities Act (other than pursuant to a registration statement on Form X-0,
X-0 or similar or successor form (collectively, "Excluded Forms")), it shall
each such time promptly give written notice to all holders of outstanding
Restricted Securities of its intention so to do, and, upon the written
request, given within 30 days after receipt of any such notice, of the holder
of any such Restricted Securities to register any Restricted Shares (which
request shall specify the holders and shall state the intended method of
disposition of such Restricted Shares by the prospective seller), the
Corporation shall use its best efforts to cause all such Restricted Shares (in
minimum aggregate amounts of 10,000 shares as presently constituted and
subject to adjustment for subsequent stock splits, combinations and dividends)
to be registered under the Securities Act promptly upon receipt of the written
request of such holders for such registration, all to the extent requisite to
permit the sale or other disposition (in accordance with the intended methods
thereof, as aforesaid) by the prospective seller or sellers of the Restricted
Shares so registered. In the event that the proposed registration by the
Corporation is, in whole or in part, an underwritten public offering of
securities of the Corporation, any request pursuant to this Section 10.6 to
register Restricted Shares may specify that such shares are to be included in
the underwriting (a) on the same terms and conditions as the shares of Common
Stock, if any, otherwise being sold through underwriters under such
registration or (b) on terms and conditions comparable to those normally
applicable to offerings of common stock in reasonably similar circumstances in
the event that no shares of Common Stock other than Restricted Shares are
being sold through underwriters under such registration; provided, however,
that if the managing underwriter determines and advises in writing that the
inclusion of all Restricted Shares proposed to be included in the underwritten
public offering and other issued and outstanding shares of Common Stock
proposed to be included therein by persons other than holders of Restricted
Securities and other than Xxxxx (the "Other Shares") would interfere with the
successful marketing (including pricing) of such securities, then the number
of Restricted Shares, Heirl shares and Other Shares to be included in such
underwritten public offering shall be reduced first, pro rate among the
holders of Other Shares; second, if necessary, pro rata among the holders of
Restricted Shares and Heirl, based upon the number of shares requested by
holders thereof to be registered in such underwritten public offering; and
lastly , if necessary, among the Corporation's shares requested by the
Corporation to be registered in such Section 10.6 underwritten public
offering, subject however to Section 10.5 (b).
10.7. Registrations on Forms S-2 and S-3. After the
Corporation's initial registered public offering , the Corporation shall use
its best efforts to qualify for registration under the Securities Act on Forms
S-2 or S-3 (or any similar form or forms promulgated under the Securities
Act) the holders of Restricted Securities shall each have the right to request
registrations on Forms S-2 or S-3 (which request or requests shall be in
writing, shall specify the Restricted Shares intended to be sold or disposed
of by the holders thereof, shall state the intended method of disposition of
the intended method of disposition of such Restricted Shares intended to be
sold or disposed of by the holders thereof and shall state the intended method
of disposition of such Restricted Shares by the holder(s) requesting such
registration) and the Corporation shall be obligated to use its best efforts
to effect such registration, or registrations on Forms S-2 or S-3 (as the case
may be); provided however, that the Corporation shall not be
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obligated to file and cause to become effective more than two registration
statement on Forms S-2 or S-3 in which Restricted Securities are registered
under the Securities Act pursuant to this Section 10.7 and effectively sold
thereunder.
10.8. Granting of Registration Rights. The Corporation shall
not grant any rights to any persons to register any shares of capital stock or
other securities of the Corporation if such Restricted Securities granted
pursuant to this Agreement.
10.9. Preparation and Filing. If and whenever the
Corporation is under and obligation pursuant to the provisions of this Section
10 to use its best efforts to effect the registration of any Restricted
Shares, the Corporation shall, as expeditiously as practicable:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its reasonable efforts to
cause such registration statement to become and remain effective in accordance
with Section 10.9(b), provided that the holders and prospective sellers of
Restricted Shares shall provide the Corporation with such information as
reasonably necessary in connection with the preparation of the registration
statement;
(b) prepare and file with the Commission such amendments and
supplements to such registration statements and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for at least six months and to comply with the provisions of the
Securities act with respect to the sale or other disposition of all
restriction Shares covered by such registration statement;
(c) furnish to each selling shareholder copies of any
prospectus subject to completion and final prospectus, in conformity with the
requirements of the Securities Act, in order to facilitate the public sale or
other disposition of such Restricted Shares;
(d) use its best efforts to register or qualify the
Restricted Shares covered by such registration statement under the securities
or "blue sky" laws of such jurisdictions as each such seller shall reasonably
request (provided however, that the Corporation shall not be required to
consent to general service of process for all purposes in any jurisdiction
where it is not then qualified) and do any and all other reasonable acts or
things which may be reasonably necessary to enable such seller to consummate
the public sale or other disposition in such jurisdictions of such securities;
(e) notify each seller of Restricted Shares covered by such
registration statement, at any time when a prospectus relating thereto covered
by such registration statement is required to be delivered under the
Securities Act within the appropriate period mentioned in Section 10.9(b), of
the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein in light of the
circumstances under which such statements were made not misleading and at the
reasonable request of such seller, prepare and furnish to such seller a
reasonable number of
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copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such shares,
such prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein in the light of the circumstances under which such
statements were made, not misleading; and
(f) furnish, at the request of any holder or holders
requesting registration of Restricted Shares pursuant to this Section 10, on
the date that such Restricted Shares are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 10, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) to the underwriter an
opinion, dated such date, of the counsel representing the Corporation for the
purposes of such registration, in form and substance as is customarily given
to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the holder or holders making such request, or, at
the option of the Corporation, reimburse the holders' for the expense of
holders' counsel providing such opinion; and (ii) a letter dated such date,
from the independent certified public accountants of the Corporation, in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to
the underwriters, if any, and to the holder or holders making such request.
10.10. Expenses. All expenses incurred by the Corporation in
complying with Section 10.9, including, without limitation, all registration
and filing fees (including all expenses incident to filing with the National
Association of Securities Dealers, Inc.), fees and expenses of complying with
securities and "blue sky" laws, printing expenses and fees and disbursements
of counsel, including with respect to each registration effected pursuant to
Sections 10.5, 10.6 and 10.7, reasonable fees and disbursements of not more
than one counsel for the holders of Restricted Securities requesting
registration hereunder, and of the independent certified public accountants
(but excluding the compensation of regular employees of the Corporation which
shall be paid in any event by the Corporation) shall be paid by the
Corporation to the extent permitted under applicable federal and state
regulations or by federal or state agencies having jurisdiction over the
registration, provided however if NEPA shall request a registration under
Section 10.5 and shares are not effectively sold thereunder by reason of
unfavorable market conditions or action by NEPA, NEPA shall pay the forgoing
expenses to the extent related to its securities sought to be registered in a
subsequently requested registration by NEPA under Section 10.5. The holders of
Restricted Shares included in such registration shall, if and to the extent
required by such applicable regulations and agencies, pay their proportionate
share of expenses of the offering, in proportion to the number of their shares
included in the offering; under no circumstances shall underwriting discounts
and selling commissions applicable to the Restricted Shares covered by
registrations effected pursuant to Sections 10.5, 10.6 or 10.7 become by the
Corporation; such expenses shall be become by the seller or sellers, in
proportion to the number of Restricted Shares sold by such seller or sellers.
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10.11. Indemnification. In the event of any registration of
any Restricted Shares under the Securities Act pursuant to this Section 10 or
registration or qualification of any Restricted Shares pursuant to Section
10.9(d), the Corporation shall indemnify and hold harmless the seller of such
shares, each underwriter of such shares, if any, each broker or any other
person acting on behalf of such seller and each other person, if any, who
controls any of the foregoing persons, within the meaning of the Securities
Act, against any losses, claims, damages or liabilities, joint or several, to
which any of the foregoing persons may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any registration
statement under which such Restricted Shares were registered under the
Securities Act, any prospectus subject to completion or final prospectus
contained therein, or any amendment or supplement thereto, or any document
furnished to any agency with jurisdiction over securities laws by the
Corporation required for the registration or qualification of any Restricted
Shares pursuant to Section 10.9(d), or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading, or any violation by
the Corporation of the Securities Act or state securities or "blue sky" laws
applicable to the Corporation and relating to action or inaction required of
the Corporation in connection with such registration or qualification under
such state securities or blue sky laws; and shall reimburse (except to the
extent the Corporation assumes the defense and costs thereof as hereinafter
provided) such seller, such underwriter, broker or other person acting on
behalf of such seller and each such controlling person for any legal or any
other expenses reasonably incurred by any of them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Corporation shall not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of or
is based upon such seller's or such underwriter's failure to deliver a
prospectus subject to completion or final prospectus as provided by the
Corporation in accordance with Section 10.9, or an untrue statement or alleged
untrue statement or omission or alleged omission made in said registration
statement, said prospectus subject to completion or said prospectus or said
amendment or supplement or any document incident to the registration or
qualification of any Restricted Shares pursuant to Section 10.9(d) in reliance
upon and in conformity with written information furnished to the Corporation
through an instrument duly executed by such seller or such underwriter for use
in the preparation thereof.
Before Restricted Shares held by any prospective seller shall be sold
pursuant to any registration pursuant to Section 10, such prospective seller
and any underwriter acting on its behalf shall have agreed to indemnify and
hold harmless (in the same manner and to the same extent as set forth in the
preceding paragraph of this Section I0.11) the Corporation, each director of
the Corporation, each officer of the Corporation who shall sign such
registration statement, any person consenting to be named as a person becoming
an officer or director and any person who controls the Corporation within the
meaning of the Securities Act, with respect to any untrue statement or
omission from such registration statement, any prospectus subject to
completion or final prospectus contained therein, or any amendment or
supplement thereto, if such untrue statement or omission was made in reliance
upon and in conformity with written information
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furnished to the Corporation through an instrument duly executed by such
seller or such underwriter for use in the preparation of such registration
statement, prospectus subject to completion, final prospectus or amendment or
supplement; provided that the maximum amount of liability in respect of such
indemnification shall be limited, in the case of each prospective seller of
Restricted Shares, to an amount equal to the net proceeds actually received by
such prospective seller from the sale of Restricted Shares effected pursuant
to such registration.
Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 10.11, such indemnified party will, if a claim in
respect thereof is made against an indemnifying party, give written notice to
the latter of such claim and/or the commencement of such action. In case any
such action is brought against an indemnified party, the indemnifying party
will be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
responsible for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof, provided that if
representation of both the indemnified and indemnifying parties by the same
counsel is inappropriate under applicable standards of professional conduct
due to defenses available to the indemnified party which conflict with those
available to the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party
and such indemnifying party shall reimburse such indemnified party and any
person controlling such indemnified party for that portion of the fees and
expenses of any counsel retained by the indemnified party which are reasonably
related to the matters covered by the indemnity agreement provided in this
Section 10.11. The indemnifying party shall not be liable for the expenses of
more than one separate counsel representing the indemnified parties pursuant
to this Section 10.11.
Neither the indemnifying party nor the indemnified party shall make
any settlement of any claims indemnified against hereunder without the written
consent of the other party or parties, which consent shall not be unreasonably
withheld.
Notwithstanding the foregoing provisions of this Section 10.11, if
pursuant to an underwritten public offering of the Common Stock, the
Corporation, the selling shareholders and the underwriters enter into an
underwriting or purchase agreement relating to such offering which contains
provisions covering indemnification among the parties thereto in connection
with such offering, the indemnification provisions of this Section 10.11 shall
be deemed inoperative for purposes of such offering.
10.12. Removal of Legends, Etc. Notwithstanding the
foregoing provisions of this Section 10, the restrictions imposed by this
Section 10 upon the transferability of any Restricted Securities shall cease
and terminate when any such Restricted Securities are sold or otherwise
disposed of in accordance with the intended method of disposition by the
seller or sellers thereof set forth in the registration statement or as
otherwise contemplated by Section 10.4
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which does not require that the securities transferred bear the legend set
forth in Section 10.3. Whenever the restrictions imposed by this Section 10
shall terminate as herein provided, the holder of any Restricted Securities as
to which such restrictions have terminated shall be entitled to receive from
the Corporation, without expense, one or more new certificates not bearing the
restrictive legend set forth in Section 10.3 and not containing any other
reference to the restrictions imposed by this Section 10.
10.13. Suspension of Rights. Notwithstanding the foregoing
provisions of this Section 10, the registration rights set forth herein shall
be inapplicable to the extent and for the period during which all Restricted
Shares sought to be registered hereunder could be immediately sold in a
transaction complying with the requirements of Rule 144 (as amended from time
to time) promulgated under the Securities Act (or successor rule thereto which
would allow reliance on the exemption provided by Section 4(l) of the
Securities Act) without additional expense or time delay to the seller beyond
that which would be incurred by such seller in a registration.
SECTION 11. Fees.
(a) The Corporation will pay, and save NEPA harmless against
all liability for the payment of the fees (not to exceed $15,000) and
disbursements of counsel to NEPA, for its services in connection with the
transactions contemplated by this Agreement, which fees and disbursements will
be paid by the Corporation at the Closing.
(b) The Corporation further agrees that it will pay all
issue and stamp taxes, if any, in respect of the issuance of the Securities
SECTION 12. Exchanges; Lost, Stolen or Mutilated Instruments, Upon
surrender by a Lender to the Corporation of any instrument representing
Securities, the Corporation at its expense will issue in exchange therefor,
and deliver to such Lender, a new instrument representing such Securities, in
such denominations as may be requested by such Lender. Upon receipt of
evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of any instrument representing any Securities, and in case of any
such loss, theft or destruction, upon delivery of an indemnity agreement and
bond satisfactory to the Corporation, or in case of any such mutilation, upon
surrender and cancellation of such instrument, the Corporation at its expense
will issue and deliver to such Lender a new instrument for such Securities of
like tenor, in lieu of such lost, destroyed, stolen or mutilated instrument.
SECTION 13. Survival of Representations, Warranties and Agreements.
All representations and warranties hereunder shall survive the Closing and
shall terminate on the earlier to occur of a Designated Offering or the date
two years after the Closing Date. The agreements and covenants contained in
Sections 8 and 9 (except 9. 1 (c) and (d) and 9.3) shall terminate upon the
earliest to occur of (i) conversion into Common Stock of at least 75% of the
aggregate Preferred Stock obtained upon conversion of the Convertible Notes,
(ii) consummation of a required registration in accordance with Section 10.5,
and (iii) consummation of a
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Designated Offering. All other agreements contained herein shall survive
indefinitely until, by their respective terms, they are no longer operative.
Termination of any representation, warranty, agreement or covenant shall not
affect any claim or action commenced prior to the date of termination.
SECTION 14. Indemnification. The Corporation and the Founder shall,
with respect to the representations, warranties, covenants and agreements made
by the Corporation and the Founder herein, indemnify, defend and hold the
Lenders harmless against all liability, loss or damage, together with all
reasonable costs and expenses related thereto (including legal and accounting
fees and expenses), arising from the untruth, inaccuracy or breach of any such
representations or warranties. Without limiting the generality of the
foregoing, the Lenders shall be deemed to have suffered liability, loss or
damage as a result of the untruth, inaccuracy or breach of any such
representations or warranties if such liability, loss or damage shall be
suffered by the Corporation as a result of, or in connection with, such
untruth, inaccuracy or breach or any facts or circumstances constituting such
untruth, inaccuracy or breach, provided such liability, loss or damages to a
Lender shall be deemed not to exceed the actual liability, loss or damage to
the Corporation, multiplied by such Lender's Proportionate Percentage.
SECTION 15. Remedies. In case any one or more of the covenants and/or
agreements set forth in this Agreement shall have been breached by the
Corporation or the Founder in any material respect, the Lenders may proceed to
protect and enforce their rights either by suit in equity and/or by action at
law, including, but not limited to, an action for damages as a result of any
such breach and/or an action for specific performance of any such covenant or
agreement contained in this Agreement, including reasonable legal and
accounting fees and expenses.
SECTION 16. Successors and Assigns. This Agreement shall bind and
inure to the benefit of the Corporation, the Lenders and (a) each other person
who shall become a registered holder of any instrument representing the
Securities, except those who receive them in connection with 144 sales, after
any Designated Offering or offering pursuant to a 1933 Act registration
statement, after registration of any of the Corporation's securities under the
Securities Exchange Act of 1934 or in any trade on a recognized trading market
or exchange and (b) the respective successors and assigns of the Corporation,
the Lenders and each such other person. Notwithstanding the foregoing, the
Corporation may not assign or transfer any of its rights or obligations
hereunder without the prior written consent of the Lenders. NEPA may assign or
transfer, in whole or in part, any of its right or obligations hereunder in
connection with a transfer by NEPA of some or all of the Securities to which
such rights or obligations pertain.
SECTION 17. Entire Agreement. This Agreement and the exhibits and
schedules which form a part hereof contain the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
arrangements or understandings with respect thereto.
SECTION 18. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or duly sent by
reputable overnight carrier or first class registered or certified
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mail, return receipt requested, postage prepaid, addressed to such party at
the address set forth in the first paragraph of this Agreement or such other
address as may hereafter be designated in writing by the addressee to the
addressor listing all parties. All such notices, advices and communication
shall be deemed to have been received (a) in the case of personal delivery on
the date of such delivery, (b) in the case of overnight carrier, on the next
business day, and (c) in the case of mailing, on the third day after the
posting thereof.
SECTION 19. Changes. The terms and provisions of this Agreement may
not be modified or amended, or any of the provisions hereof waived,
temporarily or permanently, except pursuant to the written consent of the
parties hereto.
SECTION 20. Counterparts. This Agreement may be executed in any
number of counterparts, and each such counterpart hereof shall be deemed to be
original instrument, but all such counterparts together shall constitute but
one agreement.
SECTION 21. Headings. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed
to be a part of this Agreement.
SECTION 22. Nouns and Pronouns. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice-versa.
SECTION 23. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
SECTION 24. Severability. Any provision of this Agreement that is
prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.
SECTION 25. No Waivers. No failure or delay of any party in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies hereunder are cumulative and not
exclusive of any rights or remedies which a party would otherwise have. No
notice or demand in any case shall entitle a party to any other or further
notice or demand in similar or other circumstances.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first set forth above.
NEPA VENTURE FUND, L.P. QUANTUM EPITAXIAL DESIGNS, INC.
By: NEPA MANAGEMENT CORPORATION
By:___________________________________ By:________________________________
Xxxx X. Xxxxxxxx, Secretery Xxxxxxx X. Xxxxx, President
Attest_______________________________
, Secretary
Witness:_______________________________ ___________________________________
Xxxxx X. X. Xxxxx
Witness:_______________________________ ___________________________________
Xxxxxx X. Xxxxx
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AMENDMENT TO NOTE AND WARRANT PURCHASE AGREEMENT
THIS AMENDMENT TO NOTE AND WARRANT PURCHASE AGREEMENT (this
"Amendment") is hereby made on this 8th day of September, 1995 by and among
QUANTUM EPITAXIAL DESIGNS, INC., a Pennsylvania corporation (the "Company"),
NEPA VENTURE FUND, L.P., a Pennsylvania limited partnership ("NEPA"), XXXXX
X.X. XXXXX ("Xxxxx") and XXXXXX X. XXXXX ("Xxxxx").
Preliminary Statements
A. Each of the Company, NEPA, Hwang and Xxxxx are parties to that
certain Note and Warrant Purchase Agreement dated August 30, 1989 (the
"Purchase Agreement").
B. The Company's board of directors and shareholders have approved a
split of the Company's common stock, par value $0.01 per share (the "Common
Stock") on a ten (10) for one (1) basis (the "Stock Split").
C. The Company, NEPA, Hwang and Xxxxx desire to amend and restate
Section 8.13(e), Section 9.2(e)(v) and Section 9.4 of the Purchase Agreement
to accommodate the Stock Split.
IN CONSIDERATION of the foregoing, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto, intending to be legally bound, hereby agree to the
following:
Section 1. Amendment to Purchase Agreement. The Purchase Agreement is
amended as follows:
(a) Section 8.13(e) of the Purchase Agreement is deleted and
restated in its entirety to be and read as follows:
"(e) except as provided in Section 9.4 and up to 165,890 shares of Common
Stock reserved for issuance to a key marketing executive and other newly
hired key employees at a price of at least $.04649 per share, issue any
equity securities or any options or warrants to acquire equity securities
of "the Corporation, or authorize or adopt any stock option plan or
program;"
(b) Section 9.2(e) of the Purchase Agreement is deleted and
restated in its entirety to be and read as follows:
"(e) The rights of the Lenders under this Section 9.2 shall not apply to
(i) Common Stock issued as a stock dividend or upon any stock split or
other subdivision or combination of shares of Common Stock, (ii) Common
Stock issued upon conversion of Class A Preferred Stock or upon the
exercise of the Warrants, (iii) Class A Preferred Stock issued upon
conversion of the Convertible Notes, (iv) options and shares of Common
Stock issued to key employees as provided in
Section 9.4, and (v) up to 165,890 shares of Common Stock reserved for
issuance to a key marketing executive and other newly hired key employees
at a price of at least $.04649 per share (the "Excluded Securities")."
(b) Section 9.4 of the Purchase Agreement is deleted and restated
in its entirety to be and read as follows:
"9.4. The Corporation may establish and maintain an employee stock option
plan and/or stock purchase plan with respect to up to 165,890 shares of
Common Stock of the Corporation, which will (i) provide for option grants
and/or stock purchases as the Board of Directors in its sole discretion
shall determine, (ii) provide that the Corporation will have the right,
but not the obligation, to repurchase stock granted pursuant to such stock
option or purchase arrangements in certain circumstances to be specified
by the Board of Directors, (iii) provide for issuance and option exercise
prices of not less than fair market value on the date grant, as determined
by the Board of Directors, (iv) provide for annual proportional vesting
over a five year period from the date of grant, and (v) have such other
terms as shall be approved by the Board of Directors; provided, however,
that in no event shall the Corporation be obligated to repurchase stock
granted pursuant to such stock option or purchase arrangements. Neither
the Corporation nor the Founder shall enter into any shareholder, voting,
proxy, purchase or right of first refusal agreement regarding options or
shares issued or obtained pursuant to such plans without the prior written
consent of NEPA."
Section 2. Ratification. Except as expressly amended by this
Amendment, the Purchase Agreement is hereby ratified and confirmed in all
respects.
IN WITNESS WHEREOF, the parties to this Amendment have executed
and delivered this Amendment as of the date set forth above.
NEPA VENTURE FUND, L.P. QUANTUM EPITAXIAL DESIGNS,
INC.
By: NEPA MANAGEMENT CORPORATION
By:____________________________ By: /s/ Xxxxxx X. Xxxxx
------------------------------
Print Name:____________________ Xxxxxx X. Xxxxx, President
Title:_________________________
/s/ Xxxxxx X. Xxxxx /s/ Xxxxx X.X. Xxxxx 9/8/95
------------------------------- -------------------------------
Xxxxxx X. Xxxxx Xxxxx X.X. Xxxxx
2
Section 9.4, and (v) up to 165,890 shares of Common Stock reserved for
issuance to a key marketing executive and other newly hired key employees
at a price of at least $.04649 per share (the "Excluded Securities")."
(b) Section 9.4 of the Purchase Agreement is deleted and restated
in its entirety to be and read as follows:
"9.4. The Corporation may establish and maintain an employee stock option
plan and/or stock purchase plan with respect to up to 165,890 shares of
Common Stock of the Corporation, which will (i) provide for option grants
and/or stock purchases as the Board of Directors in its sole discretion
shall determine, (ii) provide that the Corporation will have the right,
but not the obligation, to repurchase stock granted pursuant to such stock
option or purchase arrangements in certain circumstances to be specified
by the Board of Directors, (iii) provide for issuance and option exercise
prices of not less than fair market value on the date grant, as determined
by the Board of Directors, (iv) provide for annual proportional vesting
over a five year period from the date of grant, and (v) have such other
terms as shall be approved by the Board of Directors; provided, however,
that in no event shall the Corporation be obligated to repurchase stock
granted pursuant to such stock option or purchase arrangements. Neither
the Corporation nor the Founder shall enter into any shareholder, voting,
proxy, purchase or right of first refusal agreement regarding options or
shares issued or obtained pursuant to such plans without the prior written
consent of NEPA."
Section 2. Ratification. Except as expressly amended by this
Amendment, the Purchase Agreement is hereby ratified and confirmed in all
respects.
IN WITNESS WHEREOF, the parties to this Amendment have executed
and delivered this Amendment as of the date set forth above.
NEPA VENTURE FUND, L.P. QUANTUM EPITAXIAL DESIGNS,
INC.
By: NEPA MANAGEMENT CORPORATION
By: /s/ Xxxx X. Xxxxxxxx By:
--------------------------- ------------------------------
Xxxxxx X. Xxxxx, President
Print Name: Xxxx X. Xxxxxxxx
-------------------
Title: Vice President
-------------------------
------------------------------- ---------------------------------
Xxxxxx X. Xxxxx Xxxxx X.X. Xxxxx
2
