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2,737,500 Units

 

HUDSON TECHNOLOGIES, INC.

 

Common Stock

 

 

PLACEMENT AGENCY AGREEMENT

 

 

July 1, 2010

 

 

Canaccord Genuity Inc.

99 High Street

Boston, Massachusetts 02110

 

Ladies and Gentlemen:

 

Hudson Technologies, Inc., a New York corporation (the “ Company ”), proposes, subject to the terms and conditions stated in this Placement Agency Agreement (this “ Agreement ”) and the Subscription Agreements in the form of Exhibit A attached hereto (the “ Subscription Agreements ”) entered into with the investors identified therein (each, an “ Investor ” and collectively, the “ Investors ”), to issue and sell up to an aggregate of 2,737,500 units (the (“ Units ”) with each Unit consisting of (i) one share (a “ Share ,” collectively, the “ Shares ”) of the Company’s common stock, par value $0.01 per share (the “ Common Stock ”) and (ii) a warrant to purchase 0.50 shares of Common Stock (the “ Warrants ”). The terms and conditions of the Warrants are set forth in the form of Exhibit B attached hereto.  The shares of Common Stock issuable upon exercise of the Warrants are referred to herein as the “ Warrant Shares ” and, together with the Units, the Shares and the Warrants, are referred to herein as the “ Securities ”). The Company hereby confirms its agreement with Canaccord Genuity Inc. (“ Canaccord ” or, the “ Placement Agent ”) as set forth below.  The Units are more fully described in the Prospectus (as defined below).

 

1.            Agreement to Act as Placement Agent; Delivery and Payment . On the basis of the representations, warranties and agreements of the Company herein contained, and subject to the terms and conditions set forth in this Agreement:

 

(a)             The Company hereby engages Canaccord, as the exclusive agent of the Company, to, on a best efforts basis, solicit offers to purchase Units from the Company on the terms and subject to the conditions set forth in the Subscription Agreements and Prospectus (as defined below).  Canaccord shall use its best efforts to assist the Company in obtaining performance by each Investor whose offer to purchase the Units was solicited by Canaccord and accepted by the Company, but Canaccord shall not, except as otherwise provided in this Agreement, have any liability to the Company in the event any such purchase is not consummated for any reason. Under no circumstances will Canaccord or any of its affiliates be obligated to underwrite or purchase any of the Units for its own account or otherwise provide any financing. Canaccord shall act solely as the Company’s agent and not as principal. Canaccord shall not have any authority to bind the Company with respect to any prospective offer to purchase Units and the Company shall have the sole right to accept offers to purchase Units and may reject any such offer, in whole or in part.  Canaccord has the right, in its discretion, without notice to the Company, to reject any offer to purchase Units received by it, in whole or in part, and any such rejection shall not be deemed a breach of this Agreement.

 

 

 

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(b)             As compensation for services rendered by Canaccord hereunder, on the Closing Date (as defined below), the Company shall pay or cause to be paid to Canaccord by wire transfer of immediately available funds to an account or accounts designated by Canaccord, an aggregate amount equal to six and one half percent (6.5%) of the gross proceeds received by the Company from the sale of the Units on such Closing Date.  Such amount may be deducted from the payment made by the Investor(s) to the Company and paid directly to Canaccord on the Closing Date (the “ Agency Fee ”).  Canaccord agrees that the foregoing compensation, together with any expense reimbursement payable hereunder, constitutes all of the compensation that Canaccord shall be entitled to receive in connection with the Offering contemplated hereby. Canaccord may allow concessions, or pay commissions, to other dealers participating in the offering of the Units.

 

(c)             The Units are being sold to the Investors at a price of $2.00 per Unit (the “ Purchase Price ”) as set forth on the cover page of the Prospectus (as defined below). The purchases of Units by the Investors shall be evidenced by the execution of the Subscription Agreements by each of the parties thereto in the form attached hereto as Exhibit A .

 

(d)             Prior to the earlier of (i) the date on which this Agreement is terminated and (ii) the Closing Date, the Company shall not, without the prior written consent of Canaccord, solicit or accept offers to purchase Units otherwise than through Canaccord in accordance herewith.

 

(e)             No Units which the Company has agreed to sell pursuant to this Agreement and the Subscription Agreements shall be deemed to have been purchased and paid for, or sold by the Company, until such Units shall have been delivered to the Investor purchasing such Units against payment therefor by such Investor. If the Company shall default in its obligations to deliver Units to an Investor whose offer it has accepted, the Company shall indemnify and hold Canaccord harmless against any loss, claim, damage or liability directly or indirectly arising from or as a result of the default by the Company in accordance with the procedures set forth in Section 6(c) hereof.

 

(f)             Payment of the purchase price for the Units, and delivery of the Shares and Warrants shall be made at a closing (the “ Closing ”) at the offices of Blank Rome LLP, counsel for the Company, located at 405 Lexington Avenue, New York, New York , at 10:00 a.m., local time, on July 7, 2010 or at such other time, date and place as Canaccord and the Company determine pursuant to Rule 15c6-1(a) under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) (such date of payment and delivery being herein referred to as the “ Closing Date ”).  Unless otherwise specified in the applicable Subscription Agreement, the Shares will be settled through delivery versus payment (“ DVP ”) through the facilities of The Depository Trust & Clearing Corporation.  The executed Warrants shall be delivered in accordance with the terms thereof.

 

2.            Representations and Warranties of the Company . The Company represents and warrants to Canaccord as of the date hereof, and as of the Closing Date and agrees with Canaccord, as follows:

 

(a)              Filing of Registration Statement . The Company has prepared and filed, in conformity with the requirements of the Securities Act of 1933, as amended (the “ Securities Act ”), and the published rules and regulations thereunder (the “ Rules and Regulations ”) adopted by the Securities and Exchange Commission (the “ Commission ”), a registration statement, including a prospectus, on Form S-3 (File No. 333-151973), which became effective as of September 5, 2008, relating to the Units and the offering thereof (the “ Offering ”) from time to time in accordance with Rule 415(a)(1)(x) of the Rules and Regulations, and such amendments thereof as may have been required to the date of this Agreement. The term “ Registration Statement ” as used in this Agreement means the aforementioned registration statement, as amended at the time of such registration statement’s effectiveness for purposes of Section 11 of the Securities Act, (the “ Effective Time ”), including (i) all documents filed as a part thereof or incorporated or deemed to be incorporated by reference therein and (ii) any information in the corresponding Base Prospectus (as defined below) or a prospectus supplement filed with the Commission pursuant to Rule 424(b) under the Securities Act, to the extent such information is deemed pursuant to Rule 430A (“ Rule 430A ”), 430B (“ Rule 430B ”) or 430C (“ Rule 430C ”) under the Securities Act to be a part thereof at the Effective Time. For purposes of this Agreement, all references to the Registration Statement, the Base Prospectus, any Preliminary Prospectus (as defined below), the Prospectus (as defined below) or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval System (“ EDGAR ”). All references in this Agreement to amendments or supplements to the Registration Statement, the Base Prospectus, any Preliminary Prospectus or the Prospectus shall be deemed to mean and include the subsequent filing of any document under the Exchange Act and which is deemed to be incorporated therein by reference therein or otherwise deemed to be a part thereof.

 

 

 

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(b)              Effectiveness of Registration Statement; Certain Defined Terms . The Company and the transactions contemplated by this Agreement meet the requirements and comply with the conditions for the use of Form S-3 under the Securities Act.  The Registration Statement meets, and the offering and sale of the Units as contemplated hereby complies with, the requirements of Rule 415 under the Securities Act. The Company has complied, to the Commission’s satisfaction, with all requests of the Commission for additional or supplemental information relating to the Registration Statement. No stop order preventing or suspending use of the Registration Statement, any Preliminary Prospectus or the Prospectus or the effectiveness of the Registration Statement has been issued by the Commission, and no proceedings for such purpose pursuant to Section 8A of the Securities Act against the Company or related to the Offering have been instituted or are pending or, to the Company’s knowledge, are contemplated or threatened by the Commission, and any request received by the Company on the part of the Commission for additional information has been complied with. As used in this Agreement: 

 

(1)   “ Base Prospectus ” means the prospectus dated September 5, 2008 filed by the Company with the Commission pursuant to Rule 424(b)(3) of the Securities Act.

 

(2)    “ Disclosure Package ” means (i) the Statutory Prospectus, (ii) each Issuer Free Writing Prospectus, if any, filed or used by the Company on or before the Effective Time and listed on Schedule I hereto (other than a roadshow that is an Issuer Free Writing Prospectus but is not required to be filed under Rule 433 of the Rules and Regulations) and (iii) the pricing and other information as set forth on Exhibit C hereto, all considered together.

 

(3)  Issuer Free Writing Prospectus ” means any “issuer free writing prospectus , ” as defined in Rule 433 of the Rules and Regulations relating to the Units in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g) of the Rules and Regulations.

               

 

 

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(4)    “ Preliminary Prospectus ” means any preliminary prospectus supplement, subject to completion, relating to the Units, filed by the Company with the Commission pursuant to Rule 424(b) under the Securities Act for use in connection with the offering and sale of the Units, together with the Base Prospectus attached to or used with such preliminary prospectus supplement.

 

(5)  “ Prospectus ” means the final prospectus supplement, relating to the Units, filed by the Company with the Commission pursuant to Rule 424(b) under the Securities Act on or before the second business day after the date hereof (or such earlier time as may be required under the Securities Act), in the form furnished by the Company to Canaccord, for use in connection with the offering and sale of the Units that discloses the public offering price and other final terms of the Units, together with the Base Prospectus attached to or used with such final prospectus supplement.

 

(6)  “ Statutory Prospectus ” means the Preliminary Prospectus, if any, and the Base Prospectus, each as amended and supplemented immediately prior to the Time of Sale, including any document incorporated by reference therein and any prospectus supplement.

 

(7)  “Time of Sale” means 8:30 a.m., New York City time, on the date of this Agreement.

 

(c)              Contents of Registration Statement . The Registration Statement complied when it became effective, complies as of the date hereof and, as amended or supplemented, at the Time of Sale and at all times during which a prospectus is required by the Securities Act to be delivered (whether physically or through compliance with Rule 172 under the Securities Act or any similar rule) in connection with any sale of Units (the “ Prospectus Delivery Period ”), will comply, in all material respects, with the requirements of the Securities Act and the Rules and Regulations; the Registration Statement did not, as of the Effective Time, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, provided , that the Company makes no representation or warranty in this subsection (c) with respect to statements in or omissions from the Registration Statement in reliance upon, and in conformity with, written information furnished to the Company by Canaccord specifically for inclusion therein, which information the parties hereto agree is limited to the Placement Agent’s Information (as defined in Section 7 hereof).

 

(d)              Contents of Prospectus . The Prospectus will comply, as of the date that it is filed with the Commission, the date of its delivery to Investors and at all times during the Prospectus Delivery Period, in all material respects, with the requirements of the Securities Act; at no time during the period that begins on the date the Prospectus is filed with the Commission and ends at the end of the Prospectus Delivery Period will the Prospectus, as then amended or supplemented, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, provided , that the Company makes no representation or warranty with respect to statements in or omissions from the Prospectus in reliance upon, and in conformity with, written information furnished to the Company by Canaccord specifically for inclusion therein, which information the parties hereto agree is limited to the Placement Agent’s Information.  The Prospectus contains all required information under the Securities Act with respect to the Units and the distribution of the Units.

 

 

 

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(e)              Incorporated Documents . Each of the documents incorporated by reference in the Registration Statement, as amended, at the time such document was filed with the Commission or at the time such document became effective, as applicable, complied, in all material respects, with the requirements of the Exchange Act, was filed on a timely basis with the Commission and did not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

(f)              Disclosure Package . The Disclosure Package, as of the Time of Sale, did not, and at the Closing Date will not, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , that the Company makes no representations or warranties with respect to statements in or omissions from the Disclosure Package in reliance upon, and in conformity with, written information furnished to the Company by Canaccord specifically for inclusion therein, which information the parties hereto agree is limited to the Placement Agent’s Information.

 

(g)              Distributed Materials; Conflict with Registration Statement . Other than the Base Prospectus, any Preliminary Prospectus and the Prospectus, the Company has not made, used, prepared, authorized, approved or referred to and will not make, use, prepare, authorize, approve or refer to any “written communication” (as defined in Rule 405 under the Securities Act) that constitutes an offer to sell or a solicitation of an offer to buy the Units other than (i) any document not constituting a prospectus pursuant to Section 2(a)(10)(a) of the Securities Act or Rule 134 under the Securities Act or (ii) the documents listed on Schedule I hereto and other written communications approved in advance by Canaccord.

 

(h)              Issuer Free Writing Prospectuses . Each Issuer Free Writing Prospectus, if any, conformed or will conform in all material respects to the requirements of the Securities Act and the Rules and Regulations on the date of first use, and the Company has complied or will comply with any filing requirements applicable to such Issuer Free Writing Prospectus pursuant to the Rules and Regulations. Each Issuer Free Writing Prospectus, if any, when considered together with the Disclosure Package, as of its issue date and at all subsequent times through the completion of the Prospectus Delivery Period did not, does not and will not include any information that conflicted, conflicts or will conflict with the information contained in the Registration Statement, the Statutory Prospectus or the Prospectus, including any document incorporated by reference therein and any prospectus supplement deemed to be a part thereof that has not been superseded or modified, or includes an untrue statement of a material fact or omitted or would omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , that the Company makes no representation or warranty with respect to statements in or omissions from any Issuer Free Writing Prospectus in reliance upon, and in conformity with, written information furnished to the Company by under which they were made specifically for inclusion therein, which information the parties hereto agree is limited to the Placement Agent’s Information.

 

(i)              Not an Ineligible Issuer . (i) At the earliest time after the filing of the Registration Statement that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) under the Securities Act) of the Units and (ii) at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405 under the Securities Act (“ Rule 405 ”).

 

 

 

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(j)              Due Incorporation . The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of New York, with the corporate power and authority to own its properties and to conduct its business as it is currently being conducted and as described in the Registration Statement, the Prospectus and the Disclosure Package. The Company is duly qualified to transact business and is in good standing as a foreign corporation or other legal entity in each other jurisdiction in which its ownership or leasing of property or the conduct of its business requires such qualification, except where the failure to be so qualified or in good standing or have such power or authority would not (i) have, individually or in the aggregate, a material adverse effect upon, the general affairs, business, operations, prospects, properties, financial condition, or results of operations of the Company and its subsidiaries, taken as a whole, or (ii) impair in any material respect the power or ability of the Company to perform its obligations under this Agreement or to consummate any transactions contemplated by the Agreement and the Subscription Agreements, including the issuance and sale of the Units (any such effect as described in clauses (i) or (ii), a “ Material Adverse Effect ”).

 

(k)              Subsidiaries . Except for Hudson Holdings, Inc., a Nevada corporation, and Hudson Technologies Company, a Tennessee corporation, the Company has no subsidiaries and, except for owning 187,500 shares of EOS Climate, Inc. (representing a 0.5% interest), does not own any beneficial interest, directly or indirectly, in any corporation, partnership, joint venture or other business entity. Each subsidiary has been duly organized and is validly existing as a corporation in good standing (or foreign equivalent thereof) under the laws of its jurisdiction of organization. Each subsidiary is duly qualified to transact business and is in good standing as a foreign corporation or other legal entity in each other jurisdiction in which its ownership or leasing of property or the conduct of its business requires such qualification, except where the failure to be so qualified or in good standing or have such power or authority would not have a Material Adverse Effect.

 

(l)              Due Authorization and Enforceability . The Company has the full right, power and authority to enter into this Agreement, the Subscription Agreements and the Warrants, and to perform and discharge its obligations hereunder and thereunder; and each of this Agreement and the Subscription Agreements has been duly authorized, executed and delivered by the Company, and constitutes a valid, legal and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as rights to indemnity hereunder may be limited by federal or state securities laws and except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and subject to general principles of equity.

 

(m)              The Shares and Warrant Shares . The issuance of the Shares and Warrant Shares have been duly and validly authorized by the Company and, the Shares, when issued, delivered and paid for in accordance with the terms of this Agreement and the Subscription Agreements, and the Warrant Shares, when issued, delivered and paid for in accordance with the terms of the Warrants, will have been duly and validly issued and will be fully paid and nonassessable, will not be subject to any statutory or contractual preemptive rights or other rights to subscribe for or purchase or acquire any shares of Common Stock of the Company that have not been waived or complied with, and will conform in all material respects to the description thereof contained in the Disclosure Package and the Prospectus and such description conforms in all material respects to the rights set forth in the instruments defining the same.

 

(n)              Capitalization . The information regarding the capitalization of the Company contained in the Statutory Prospectus and the Disclosure Package is fairly presented on a basis consistent with the Company’s financial statements. Any certificates evidencing shares of Common Stock are in due and proper legal form and have been duly authorized for issuance by the Company.  The authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus and the Disclosure Package. The issued and outstanding shares of capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable, and have been issued in compliance with all federal and state securities laws. None of the outstanding shares of Common Stock was issued in violation of any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase or acquire any securities of the Company or any of its subsidiaries. There are no authorized or outstanding shares of capital stock, options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable for, any capital stock of the Company or any of its subsidiaries other than those described in the Prospectus and the Disclosure Package. The description of the Company’s stock plans or arrangements, and the options or other rights granted thereunder, as described in the Prospectus and the Disclosure Package, accurately and fairly present the information required to be shown with respect to such plans, arrangements, options and rights.  The issued and outstanding shares of capital stock of each of the Company’s subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and are owned directly by the Company or by another wholly-owned subsidiary of the Company free and clear of any lien, encumbrance, security interest, claim or charge, other than those described in, or incorporated by reference into the Registration Statement and the Prospectus.

 

 

 

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(o)              No Conflict . The execution, delivery and performance by the Company of this Agreement and the Subscription Agreements, and the consummation of the transactions contemplated hereby and thereby, including the issuance and sale of the Units by the Company, will not conflict with or result in a breach or violation of, or constitute a default under (nor constitute any event which with or without notice, lapse of time or both would result in any breach or violation of or constitute a default under), give rise to any right of termination or other right or the cancellation or acceleration of any right or obligation or loss of a benefit under, or give rise to the creation or imposition of any lien, encumbrance, security interest, claim or charge upon any property or assets of the Company or its subsidiaries pursuant to (i) any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which either the Company or its subsidiaries or any of their properties may be bound or to which any of their property or assets is subject, (ii) result in any violation of the provisions of the charter or by-laws of the Company or any of its subsidiaries, or (iii) result in any violation of any law, statute, rule, regulation, judgment, order or decree of any court or governmental agency or body, domestic or foreign, having jurisdiction over the Company or its subsidiaries or any of their properties or assets.

 

(p)              No Consents Required . No approval, authorization, consent or order of or filing, qualification or registration with, any court or governmental agency or body, foreign or domestic, which has not been made, obtained or taken and is not in full force and effect, is required in connection with the Company’s execution, delivery and performance of this Agreement or the Subscription Agreements, the consummation by the Company of the transactions contemplated hereby or thereby or the issuance and sale of the Units other than (i) as may be required under the Securities Act, (ii) any necessary qualification of the Units under the securities or blue sky laws of the various jurisdictions in which the Units are being offered by Canaccord, (iii) under the rules and regulations of the Financial Industry Regulatory Authority (“ FINRA ”) or (iv) the NASDAQ Capital Market.

 

 

 

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(q)              Preemptive Rights . There are no preemptive rights or other similar rights (other than rights which have been waived in writing in connection with the transactions contemplated by this Agreement or otherwise satisfied) to subscribe for or to purchase any shares of Common Stock or shares of any other capital stock or other equity interests of the Company or any of its subsidiaries, or any agreement or arrangement between the Company and any of the Company’s stockholders or between any of the Company’s subsidiaries and any of such subsidiary’s stockholders, or to the Company’s knowledge, between or among any of the Company’s stockholders or any of its subsidiaries’ stockholders, which grant special rights with respect to any shares of the Company’s or any of its subsidiaries’ capital stock or which in any way affect any stockholder’s ability or right to alienate freely or vote such shares.

 

(r)              Registration Rights . There are no contracts, agreements or understandings between the Company or any of its subsidiaries and any person granting such person the right (other than rights which have been waived in writing in connection with the transactions contemplated by this Agreement or otherwise satisfied) to require the Company or any of its subsidiaries to register any securities with the Commission.

 

(s)              Independent Accountants . BDO Seidman, LLP, whose reports on the consolidated financial statements of the Company are incorporated by reference in the Registration Statement, the Prospectus and the Disclosure Package, is (i) an independent public accounting firm within the meaning of the Securities Act, (ii) a registered public accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”)), and (iii) to the Company’s knowledge, not in violation of the auditor independence requirements of the Sarbanes-Oxley Act.  Except as disclosed in the Registration Statement and as pre-approved in accordance with the requirements set forth in Section 10A of the Exchange Act, BDO Seidman LLP has not been engaged by the Company to perform any “prohibited activities” (as defined in Section 10A of the Exchange Act).

 

(t)              Financial Statements . The consolidated financial statements of the Company, together with the related schedules and notes thereto, set forth or incorporated by reference in the Registration Statement, the Prospectus and the Disclosure Package comply in all material respects with the applicable requirements of the Securities Act and the Exchange Act, as applicable, and present fairly in all material respects (i) the financial condition of the Company and its consolidated subsidiaries as of the dates indicated and (ii) the consolidated results of operations, stockholders’ equity and changes in cash flows of the Company and its consolidated subsidiaries for the periods therein specified; and such financial statements and related schedules and notes thereto have been prepared in conformity with United States generally accepted accounting principles, consistently applied throughout the periods involved (except as otherwise stated therein and subject, in the case of unaudited financial statements, to the absence of footnotes and normal year-end adjustments). There are no other financial statements (historical or pro forma) that are required to be included or incorporated by reference in the Registration Statement, the Prospectus or the Disclosure Package; and the Company does not have any material liabilities or obligations, direct or contingent (including any off-balance sheet obligations), not disclosed in the Registration Statement, the Disclosure Package and the Prospectus; and all disclosures contained in the Registration Statement, the Disclosure Package and the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission) comply with Regulation G of the Exchange Act and Item 10(e) of Regulation S-K under the Securities Act, to the extent applicable, and present fairly the information shown therein and the Company’s basis for using such measures.

 

 

 

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(u)              Absence of Material Changes . Subsequent to the respective dates as of which information is given in the Registration Statement, the Prospectus and the Disclosure Package, and except as may be otherwise stated or incorporated by reference in the Registration Statement, the Prospectus and the Disclosure Package, there has not been (i) any Material Adverse Effect, (ii) any transaction which is material to the Company or any of its subsidiaries, (iii) any obligation, direct or contingent (including any off-balance sheet obligations), incurred by the Company or any of its subsidiaries, which is material to the Company or any of its subsidiaries, (iv) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company, (v) any change in the capital stock (other than a change in the number of outstanding shares of Common Stock due to the issuance of shares upon the exercise of outstanding options or warrants or the conversion of convertible indebtedness), or material change in the short-term debt or long-term debt of the Company or any of its subsidiaries (other than upon conversion of convertible indebtedness, or other than in the usual and customary operation and use of the Company’s existing credit line facility) or any issuance of options, warrants, convertible securities or other rights to purchase the capital stock (other than grants of stock options under the Company’s stock option plans existing on the date hereof) of the Company or any of its subsidiaries.

 

(v)              Legal Proceedings . There are no legal or governmental actions, suits, claims or proceedings pending or, to the Company’s knowledge, threatened or contemplated to which the Company or any of its subsidiaries is or would be a party or of which any of their respective properties is or would be subject at law or in equity, before or by any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency, or before or by any self-regulatory organization or other non-governmental regulatory authority which are required to be described in the Registration Statement, the Disclosure Package or the Prospectus or a document incorporated by reference therein and are not so described therein, or which, singularly or in the aggregate, if resolved adversely to the Company or such subsidiary, would reasonably be likely to result in a Material Adverse Effect. To the Company’s knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by other third parties.

 

(w)              No Violation . Neither the Company nor any of its subsidiaries is in breach or violation of or in default (nor has any event occurred which with notice, lapse of time or both would result in any breach or violation of, or constitute a default) (i) under the provisions of its charter or bylaws (or analogous governing instrument, as applicable) or (ii) in the performance or observance of any term, covenant, obligation, agreement or condition contained in any indenture, mortgage, deed of trust, bank loan or credit agreement or other evidence of indebtedness, or any license, lease, contract or other agreement or instrument to which the Company or such subsidiary is a party or by which any of its properties may be bound or affected, or (iii) in the performance or observance of any statute, law, rule, regulation, ordinance, judgment, order or decree of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Company or such subsidiary or any of its properties, as applicable, except, with respect to clauses (ii) and (iii) above, to the extent any such contravention has been waived or would not result in a Material Adverse Effect.

 

(x)              Permits . The Company and each of its subsidiaries have made all filings, applications and submissions required by, and owns or possesses all approvals, licenses, certificates, certifications, clearances, consents, exemptions, marks, notifications, orders, permits and other authorizations issued by, the appropriate federal, state or foreign regulatory authorities necessary to conduct its business as described in the Disclosure Package (collectively, “ Permits ”), and is in compliance in all material respects with the terms and conditions of all such Permits. All such Permits are valid and in full force and effect. Neither the Company nor any of its subsidiaries has received any notice of any proceedings relating to revocation or modification of, any such Permit, which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect.

 

 

 

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(y)              Not an Investment Company . The Company is not or, after giving effect to the offering and sale of the Units and the application of the proceeds thereof as described in the Disclosure Package and the Prospectus, will not be (i) required to register as an “investment company” as defined in the Investment Company Act of 1940, as amended (the “ Investment Company Act” ), and the rules and regulations of the Commission thereunder or (ii) a “business development company” (as defined in Section 2(a)(48) of the Investment Company Act).

 

(z)              No Price Stabilization . Neither the Company nor any of its subsidiaries, or any of their respective officers, directors, affiliates or controlling persons has taken or will take, directly or indirectly, any action designed to or that might be reasonably expected to cause or result in, or which has constituted or which might reasonably be expected to constitute the stabilization or manipulation of the price of any security of the Company to facilitate the sale of the Units or resale of the Shares or Warrant Shares.

 

(aa)              Good Title to Property . The Company and each of its subsidiaries has good and valid title to all property (whether real or personal) described in the Registration Statement, the Disclosure Package and the Prospectus as being owned by it, in each case free and clear of all liens, claims, security interests, other encumbrances or defects (collectively, “ Liens ”), except such as are described in the Registration Statement, the Disclosure Package and the Prospectus and those that would not, individually or in the aggregate materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company or any of its subsidiaries. All of the property described in the Registration Statement, Disclosure Package and the Prospectus as being held under lease by the Company or any of its subsidiaries is held thereby under valid, subsisting and enforceable leases, without any liens, restrictions, encumbrances or claims, except those that, individually or in the aggregate, are not material and do not materially interfere with the use made and proposed to be made of such property by the Company or such subsidiary.

 

(bb)              Intellectual Property Rights . The Company and each of its subsidiaries owns or possesses the right to use or otherwise commercially exploit all patents, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, licenses, inventions, software, databases, know-how, Internet domain names, trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures, and other intellectual property (collectively, “ Intellectual Property ”) which the Company believes is necessary to carry on its businesses as currently conducted, and as proposed to be conducted as described in the Disclosure Package and the Prospectus, and the Company is not aware of any claim to the contrary or any challenge by any other person to the rights of the Company or any of its subsidiaries with respect to the foregoing except for those that could not have a Material Adverse Effect. The Intellectual Property licenses described in the Disclosure Package and the Prospectus are, to the knowledge of the Company, valid, binding upon, and enforceable by or against the parties thereto in accordance with their terms. The Company and each of its subsidiaries has complied in all material respects with, and is not in breach nor has received any asserted or threatened claim of breach of, any Intellectual Property license, and the Company has no knowledge of any breach or anticipated breach by any other person of any Intellectual Property license.  The Company’s and each of its subsidiaries’ business as now conducted and as proposed to be conducted, to the knowledge of the Company, does not and will not infringe or

 

 

 

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conflict with any patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses or other Intellectual Property or franchise right of any person. Neither the Company nor any of its subsidiaries has received notice of any claim against the Company or any of its subsidiaries, nor does the Company or any of its subsidiaries have knowledge of any such claim, alleging the infringement by the Company or any of its subsidiaries of any patent, trademark, service mark, trade name, copyright, trade secret, license in or other intellectual property right or franchise right of any person.  All right, title and interest to patents, patent applications, trademarks, and service-marks, and applications and registrations thereof that the Company claims ownership to (together the “ Company Registered IP ”) belong exclusively to the Company or its subsidiaries.  The Company is not aware of any third party infringing any of the Company Registered IP or other proprietary Company Intellectual Property except for those that could not have a Material Adverse Effect.  All of the Company Registered IP (other than Patent #5,022,230 and Trademark #1,970,673) are current and up-to-date, and any and all fees and documents necessary to maintain the Company Registered IP have been paid and filed.  The Company and each of its subsidiaries has taken all reasonable steps to protect, maintain and safeguard its rights in all Intellectual Property, including the execution of appropriate nondisclosure and confidentiality agreements. The consummation of the transactions contemplated by this Agreement will not result in the loss or impairment of or payment of any additional amounts with respect to, nor require the consent of any other person in respect of, the Company’s or any of its subsidiaries’ right to own, use, hold or otherwise commercially exploit any of the Intellectual Property as owned, used, held or otherwise commercially exploited in the conduct of the businesses as currently conducted.  The Company and each of its subsidiaries has duly and properly filed or caused to be filed with the United States Patent and Trademark Office (the “ PTO ”) and applicable foreign and international patent authorities all patent applications owned by the Company and its subsidiaries, including any patent application which has previously issued or granted into patent. To the knowledge of the Company, the Company and each of its subsidiaries has complied with the PTO’s duty of candor and disclosure for the patent applications owned by the Company or its subsidiaries, including any patent application owned by the Company which has previously issued or granted into a patent (together the “Company Patents”), and has made no material misrepresentation in the Company Patents. The Company is not aware of any information material to a determination of patentability regarding the Company Patents not previously called to the attention of the PTO or similar foreign authority which requires such submission. The Company is not aware of any information not previously called to the attention of the PTO or similar foreign authority that would preclude the grant of a patent for the Company Patents. The Company has no knowledge of any information that would preclude the Company or any of its subsidiaries from having clear title to the Company Patents.  To the knowledge of the Company, all of the issued or granted Company Patents are valid and enforceable.  All inventors of the Company Patents have duly executed assignments assigning all their right, title and interest in the Company Patents to the Company or its subsidiaries.  To the Company’s knowledge, no employee of the Company or any of its subsidiaries is the subject of any claim or proceeding involving a violation of any term of any employment contract, patent disclosure agreement, invention assignment agreement, non-competition agreement, non-solicitation agreement, nondisclosure agreement or any restrictive covenant to or with a former employer where the basis of such violation relates to such employee’s employment with the Company or any of the Company’s subsidiaries or actions undertaken by the employee while employed with the Company or any of the Company’s subsidiaries.

 

(cc)              No Labor Disputes . No labor problem or dispute with the employees of the Company or any of the Company’s subsidiaries exists, or, to the Company’s knowledge, is threatened or imminent, which would reasonably be expected to result in a Material Adverse Effect. The Company is not aware that any key employee or significant group of employees of the Company or any of the Company’s subsidiaries plans to terminate employment with the Company or any of the Company’s subsidiaries. Neither the Company nor any of its subsidiaries has engaged in any unfair labor practice.  Except for matters which would not, individually or in the aggregate, result in a Material Adverse Effect, (i) there is (A) no unfair labor practice complaint pending or, to the Company’s knowledge, threatened against the Company or any of its subsidiaries before the National Labor Relations Board, and no grievance or arbitration proceeding arising out of or under collective bargaining agreements is pending or to the Company’s knowledge, threatened, (B) no strike, labor dispute, slowdown or stoppage pending or, to the Company’s knowledge, threatened against the Company or any of its subsidiaries and (C) no union representation dispute currently existing concerning the employees of the Company or any of its subsidiaries and (ii) to the Company’s knowledge, (A) no union organizing activities are currently taking place concerning the employees of the Company or any of its subsidiaries and (B) there has been no violation of any federal, state, local or foreign law relating to discrimination in the hiring, promotion or pay of employees, any applicable wage or hour laws or any provision of the Employee Retirement Income Security Act of 1974 (“ ERISA ”) or the rules and regulations promulgated thereunder concerning the employees of the Company or any of its subsidiaries.

 

 

 

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(dd)              Taxes . The Company and each of its subsidiaries (i) has timely filed all necessary federal, state, local and foreign income and franchise tax returns (or timely filed applicable extensions therefor) that have been required to be filed and (ii) is not in default in the payment of any taxes which were payable pursuant to such returns or any assessments with respect thereto, other than any which the Company or any of its subsidiaries is contesting in good faith and for which adequate reserves have been provided and reflected in the Company’s financial statements


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