EXHIBIT 10.27
Technology Investment Capital Corp.
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July 11, 2005
Advanced Aesthetics, Inc.
Anushka PBG Acquisition Sub, LLC
Anushka Boca Acquisition Sub, LLC
Wild Hare Acquisition Sub, LLC
▇▇▇▇▇▇▇▇ Corporation
Advanced K, LLC
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▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Re: Note and Warrant Purchase Agreement
Gentlemen:
Reference is hereby made to that certain Note and Warrant Purchase
Agreement dated as of March 31, 2004 (as heretofore amended, the "Purchase
Agreement"), by and among Technology Investment Capital Corp., as Collateral
Agent and Purchaser (the "Purchaser") and Advanced Aesthetics, Inc. (the
"Parent"), Anushka PBG Acquisition Sub, LLC, Anushka Boca Acquisition Sub, LLC,
Wild Hare Acquisition Sub, LLC, ▇▇▇▇▇▇▇▇ Corporation and Advanced K, LLC
(collectively, the "Co-Borrowers" and, together with the Parent, the
"Obligors"). Capitalized terms used in this letter agreement without definition
shall have the respective meanings ascribed to them in the Purchase Agreement.
On July 7, 2005, the Parent issued and sold to affiliates of Pequot
Capital Management an aggregate of 5,000 of its shares of Series F Preferred
Stock, par value $.01 per share, for an aggregate purchase price of $5,000,000,
in accordance with the terms set forth in the summary of terms attached hereto
as Exhibit A (the "Series F Investment").
We have been advised by Parent that it is contemplating a financing
pursuant to which it will issue shares of its Common Stock in exchange for cash
in an aggregate amount of not less than $5,000,000 and not more than $15,000,000
(the "Common Stock Investment").
We have also been advised by the Parent that it is contemplated that
the Parent and its shareholders (including the investors in the Common Stock
Investment) will execute a share exchange agreement or merger agreement (the
"Public Transaction") with a to-be-named public company ("Newco"). As a result,
the Parent will become a wholly-owned subsidiary of Newco and all existing and
new shareholders of the Parent will receive shares of common stock of Newco
("Newco Common Stock") in exchange for their equity in the Parent. In connection
with the Public Transaction it is also contemplated that the Purchaser will
exchange its Warrant for a warrant to purchase shares of Newco Common Stock.
The parties hereto hereby agree as follows:
1. Amendments to Financial Covenants. The parties hereto shall use
commercially reasonable efforts within sixty (60) days after the date hereof to
amend, in a manner reasonably satisfactory to the parties hereto, the financial
covenants set forth in Sections 7.1 through 7.5, inclusive, of the Purchase
Agreement based on the financial projections most recently prepared by the
Obligors in connection with the Series F Investment, true and complete copies of
which have been delivered to the Purchaser; provided, that (i) such amendments
shall become effective only upon the execution by the parties hereto of
definitive documentation setting forth such amendments, which documentation
shall be reasonably satisfactory in form and substance to the parties hereto,
and (ii) until the execution and delivery by all parties hereto of such
definitive documentation, the provisions of Sections 7.1 through 7.5, inclusive,
of the Purchase Agreement shall continue in effect without change.
2. Prepayment of Seller Notes. Notwithstanding any provisions of the
Transaction Documents to the contrary, the Purchaser hereby consents to the use
by the Parent of a portion of the net cash proceeds of the Series F Investment,
in an aggregate amount not to exceed $900,000, to prepay a portion of the
outstanding principal amount of the Seller Notes and accrued but unpaid interest
on such prepaid principal amount.
3. Public Transaction; Exchange of Warrant; Notices. Notwithstanding
any provisions of the Transaction Documents to the contrary, the Purchaser
hereby irrevocably consents to the consummation of the Public Transaction. In
connection therewith, Purchaser hereby irrevocably agrees (i) to exchange its
Warrant for a warrant to purchase a number of shares of Newco Common Stock equal
to its pro rata number of shares of the Newco Common Stock issued to the
securityholders of the Parent (the "Newco Warrant") and (ii) that this letter
agreement satisfies any and all notice requirements under the Transaction
Documents with respect to the Public Transaction and all other transactions
described herein. The Newco Warrant shall be identical in form and substance to
the Warrant other than the number of the Warrant Shares, the Exercise Price and
Trigger Price of the Warrant (and each as defined therein) which will be
adjusted in connection with the Public Transaction.
4. Conversion of KCO Note into Common Stock. Notwithstanding any
provisions of the Transaction Documents to the contrary, in connection with the
closing of the Public Transaction, the Purchaser hereby consents to the
conversion of the KCO Note (the "KCO Note Conversion"), including all interest
accrued and unpaid thereon, into shares of Common Stock of Parent at a
conversion price equal to the price per share of Common Stock in the Common
Stock Investment.
5. Conversion of Series B Preferred Stock into Common Stock.
Notwithstanding any provisions of the Transaction Documents to the contrary, in
connection with the closing of the Public Transaction, the Purchaser hereby
consents to the conversion of all issued and outstanding shares of Series B
Preferred Stock of the Parent, into shares of Common Stock (the "Series B
Conversion") at a conversion price equal to the price per share of Common Stock
in the Common Stock Investment.
6. Waiver of Preemptive Rights. Purchaser hereby waives its rights
under Section 4 of the Shareholders Agreement to purchase shares of Common Stock
in connection with: (i) the Series F Investment, (ii) the Common Stock
Investment (as long as the price per share of
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Common Stock in the Common Stock Investment is equal to at least the Trigger
Price (as defined in the Warrant)), (iii) the Public Transaction, (iv) the KCO
Note Conversion and (v) the Series B Conversion.
7. Termination of Shareholders Agreement. The parties agree that upon
consummation of the Public Transaction, without any further action by the
parties, the Shareholders Agreement will automatically terminate and be of no
further force and effect.
8. Registration Rights Agreement. Parent will cause Newco to assume all
obligations of Parent under the Registration Rights Agreement with respect to
the Newco Common Stock issuable upon exercise of the Newco Warrant.
9. Issuance of Additional Warrants.
(a) At the time of the execution of the amendment of the
Purchase Agreement pursuant to Section 1 hereof, Parent shall cause
Newco to execute and issue to the Purchaser additional warrants (the
"Additional Warrants") to purchase shares of Newco Common Stock,
subject to the following: (a) at the option of the Parent, such
warrants shall provide either (i) that they are initially exercisable
to purchase a number of shares of Newco Common Stock into which 50,000
shares of Common Stock will be exchangeable in connection with the
Public Transaction, at an initial exercise price per share equal to
$.01 divided by the number of shares of Newco Common Stock that will be
issued in exchange for each share of Common Stock of Parent in
connection with the Public Transaction, or (ii) that they are initially
exercisable to purchase, at an initial exercise price of an amount per
share equal to $2.50 divided by the number of shares of Newco Common
Stock that will be issued in exchange for each share of Common Stock of
Parent in connection with the Public Transaction, an aggregate number
of shares of Newco Common Stock equal to 0.978% of the aggregate number
of shares of Newco Common Stock then outstanding on a fully diluted
basis (after giving effect to the issuance of the Additional Warrants,
and assuming the exercise in full of all outstanding options, warrants
and other rights to subscribe for or purchase Common Stock or other
equity securities of the Parent and the conversion into shares of
Common Stock of all then outstanding shares of convertible preferred
stock and other convertible securities of the Parent (if any), whether
or not then currently exercisable or convertible); and (b) in all other
respects, the Additional Warrants shall be identical in form and
substance to the Warrant. Notwithstanding the foregoing, in lieu of the
issuance of the Additional Warrants, Parent may, at its option, make a
cash payment of $100,000 to the Purchaser.
(b) The Parent represents and warrants to, and agrees with,
the Purchaser that (x) the Newco Warrant and the Additional Warrants
shall be duly authorized and executed by Newco, and shall be the
legally valid and binding obligations of Newco, enforceable against
Newco in accordance with their terms; (y) the shares of Newco Common
Stock issuable upon exercise of the Newco Warrant and the Additional
Warrants shall be duly and validly reserved for issuance upon such
exercise and, when issued and delivered against payment therefor as
provided therein, will be validly issued, fully paid and non-assessable
and subject to no Liens in respect of the issuance thereof; and (z)
neither the issuance nor the exercise of the Newco Warrant and the
Additional Warrants shall violate or conflict with any agreement,
instrument or document to which the Parent or any of the other Obligors
is a party or require the consent of any third party.
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10. Representations and Warranties. Not later than the closing of the
Public Transaction the Obligors will deliver to the Purchaser updated Disclosure
Schedules (the "Updated Disclosure Schedules"). The Obligors hereby jointly and
severally represent and warrant to the Purchaser that at the closing of the
Public Transaction each of the representations and warranties made by the
Obligors in the Purchase Agreement (as qualified by the Updated Disclosure
Schedules) will be true and correct in all material respects on and as of the
date thereof to the same extent as if made on and as of the date hereof except
to the extent that such representations and warranties specifically relate to an
earlier date, in which case they are true and correct as of such earlier date.
The Obligors hereby jointly and severally represent and warrant to the Purchaser
that as of the date hereof no event has occurred and is continuing or will
result from the transactions contemplated hereby which constitutes (or with
notice or the passage of time or both would constitute) an Event of Default.
11. Deposit of Additional Escrow Amount. Within 60 days of the date
hereof, the Co-Borrowers shall deposit in the Escrow Account, to be maintained
therein and disposed of in accordance with the terms of the Escrow Account
Control Agreement, an additional sum equal to the aggregate amount of interest
that would accrue under the Notes during a period of three (3) calendar quarters
(assuming that the outstanding principal amount of the Notes during all of such
period is $10,000,000 and that the interest rate per annum currently in effect
under the Notes shall remain in effect at all times during such period).
12. Additional Mandatory Prepayment of Notes. In the event that, at any
time on or after the date hereof, the Parent and/or Newco shall have issued in
one or more issuances commencing on the date hereof, equity securities of the
Parent of any class or series in exchange for cash in an aggregate amount of
$20,000,000 or more, from the date hereof until the one-year anniversary of the
date hereof, then the Parent shall promptly give written notice thereof to the
Purchaser and the Purchaser shall then have the right, by written notice
delivered to the Parent within 30 days after its receipt of such notice, to
require the Co-Borrowers thereupon to prepay in respect of the Notes an amount
equal in the aggregate to not more than $2,000,000, such amount to be paid and
applied in accordance with Sections 2.6, 2.7 and 2.8 of the Purchase Agreement,
which right to prepayment shall be in addition to and not in lieu of all other
rights of the holders of Notes to prepayment set forth in Section 2.5 and
elsewhere in the Purchase Agreement and the Notes.
13. Expenses. Promptly after the date hereof, in accordance with the
terms of Section 11.6 of the Purchase Agreement, the Obligors shall reimburse
the Purchaser for all reasonable expenses incurred by it in connection with the
negotiation, preparation and execution of this letter agreement and the Consent,
including, without limitation, the reasonable fees and expenses of ▇▇▇▇▇ Peabody
LLP, in an amount not to exceed $15,000.
14. Obligations Independent. The obligations of the parties hereto
under each of Sections 1 through 13 hereof are independent of, and are not
conditioned on the performance or fulfillment of, the obligations of the parties
under any other of such Sections.
15. Counterparts. This letter agreement may be executed in multiple
counterparts, each of which shall constitute an original, but all of which shall
constitute one and the same agreement.
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16. Governing Law. This letter agreement shall be governed by and
construed under the law of the State of New York (other than those conflict of
law rules that would defer to the substantive laws of another jurisdiction).
If you are in agreement with the foregoing, please so indicate by
signing this letter agreement where indicated below and returning a copy hereof
to the undersigned.
Very truly yours,
TECHNOLOGY INVESTMENT CAPITAL CORP.
By:
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President
ACCEPTED AND AGREED:
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ADVANCED AESTHETICS, INC.
By:
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Name:
Title:
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ANUSHKA PBG ACQUISITION SUB, LLC
By:
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Name:
Title:
ANUSHKA BOCA ACQUISITION SUB, LLC
By:
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Name:
Title:
WILD HARE ACQUISITION SUB, LLC
By:
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Name:
Title:
▇▇▇▇▇▇▇▇ CORPORATION
By:
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Name:
Title:
ADVANCED K, LLC
By:
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Name:
Title:
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EXHIBIT A
TERMS OF SERIES F INVESTMENT
ISSUER: Advanced Aesthetics, Inc., a Delaware
corporation (the "Company").
PURCHASER: Pequot Capital Management or its
affiliates ("Investor").
INVESTMENT AMOUNT: $5,000,000.
SECURITIES OFFERED: 5,000 shares of Series F Preferred Stock
(the "Series F Preferred") and warrants
to purchase shares of Common Stock (the
"Warrants").
PURCHASE PRICE: $1,000 per share of Series F Preferred.
PUBLIC TRANSACTION: Shortly after the closing of this
transaction, the Company and all its
shareholders (including the Series F
Preferred holders) will execute a
definitive share exchange agreement or
merger agreement (the "Public
Transaction") with a to-be-named public
company ("Newco") acceptable to the
Company. As a result, the Company will
become a wholly-owned subsidiary of
Newco and all existing and new
shareholders of the Company (including
the investors in the Series F Preferred)
will receive shares of common stock of
Newco in exchange for their equity in
the Company. For more details see
"Public Transaction."
LIQUIDATION PREFERENCES: In the event of any liquidation,
dissolution or winding up of the
Company, the holders of the Series F
Preferred (together with the holders of
the shares of Series D Preferred Stock
of the Company) will receive in
preference to the holders of any other
class or series of capital stock of the
Company, a per share amount equal to the
original purchase price of a share of
Series F Preferred, plus any accrued and
unpaid dividends.
DIVIDENDS: 10% per annum dividends, when, as and if
declared by the Company's board of
directors, prior to any dividends being
paid on the common stock of the Company
("Common Stock").
At the time of any conversion of any
Series F Preferred into Common Stock, the
holder of such Series F Preferred shall
be entitled to receive payment of all
accrued and unpaid dividends thereon.
Such dividends
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shall be payable, at the option of the
holder, either in cash or in the form of
such number of additional shares of
Common Stock equal to (a) the amount of
such dividends, divided by (b) the then
applicable conversion price of the Series
F Preferred.
At the time of any Public Transaction,
the holder of any Series F Preferred
shall be entitled to receive payment of
all accrued and unpaid dividends thereon.
Such dividends shall be payable, at the
option of the holder, either in cash or
in the form of such number of additional
shares of common stock of Newco equal to
(a) the amount of such dividends, divided
by (b) the effective conversion/exchange
price in respect of the
conversion/exchange of the Series F
Preferred into common stock of Newco in
such Public Transaction.
VOTING RIGHTS: The Series F Preferred will vote with
the Common Stock as a class on an as
converted basis. Certain transactions
will require the consent of the holders
of a majority of the Series F Preferred.
CONVERSION RIGHTS: The Investor will have the right
to convert each share of its Series F
Preferred into 400 shares of Common Stock
($2.50/share conversion price).
The Series F Preferred will be
automatically converted into Common Stock
as long as the Public Transaction is
effected with Medical Makeover
Corporation of America or IGI, Inc. as
described in this Memorandum
("Pre-Approved Transactions").
ANTI-DILUTION PROTECTIONS: Proportional adjustments of the Series F
Preferred conversion rate will be made
for splits, combinations, stock
dividends, recapitalizations and the
like. Additionally, following the
Closing, in the event that the Company
shall issue any additional shares of
Common Stock or Common Stock equivalents
at a issuance price (or deemed issuance
price) less than the then effective
conversion price of the Series F
Preferred, the conversion price for the
Series F Preferred shall be subject to a
weighted-average anti-dilution
adjustment.
PROTECTIVE PROVISIONS: Consent of the holders of a majority of
the outstanding Series F Preferred shall
be required for the consummation of the
Public Transaction (other than the
Pre-Approved Transactions) or any
amendment or change of the rights,
preferences, privileges or powers of, or
the restrictions provided for the
benefit of, the
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Series F Preferred.
REDEMPTION: Each holder of Series F Preferred shall
have the right , but not the obligation,
to require the Company to redeem any or
all of such holder's Series F Preferred
upon the earliest to occur of: (i) the
liquidation or dissolution of the
Company, (ii) an IPO of the Company,
(iii) the sale of all or substantially
all the assets of the Company, (iv) a
merger, consolidation or business
combination of the Company (except for
the Public Transaction) and (v) a change
of control of the Company and the
Company shall have such right as long as
the Investor would receive 2x its
original investment upon such redemption
or in such other transaction.
TERMS OF THE WARRANTS: The Company will issue to the Investor a
warrant exercisable for the number of
shares of Common Stock equal to thirty
percent (30%) of the number of shares of
Common Stock issuable to the Investor
upon conversion of its shares Series F
Preferred.
The warrants will be exercisable for five
(5) years from the date of issuance and
will have an exercise price equal to 120%
of the Conversion Price ($3.00).
PROPOSED CLOSING DATE: On or before July 15, 2005.
REGISTRATION RIGHTS: Newco will file a registration statement
with the SEC covering the shares of
common stock of Newco issued to the
holders of the Series F Preferred in
connection with the Public Transaction
and the shares of common stock of Newco
issuable upon exercise of the warrants
(collectively, the "Registrable
Securities") within 60 days after
consummation of the Public Transaction
and shall use commercially reasonable
efforts to cause such registration
statement to be declared effective
within 105 days after the consummation
of the Public Transaction. In the event
that either (i) Newco shall fail to file
such registration statement within 60
days of the Public Transaction, (ii)
such registration statement shall not be
declared effective within 105 days of
the Public Transaction or (iii) such
registration statement shall not remain
continuously effective for a period of
at least two years, the Company shall be
required to pay liquidated damages to
the holders of the Registrable
Securities in an amount equal to 1% of
the purchase price of the Series F
Preferred to which such Registrable
Securities relate for each 30-day period
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during which any such condition exists.
REPRESENTATIONS AND WARRANTIES: Customary representations and warranties
covering, among other things,
capitalization, authority, no conflicts
and valid private placement.
OTHER CLOSING CONDITIONS: Customary closing conditions, including
compliance with blue sky laws, receipt
of all necessary corporate and
regulatory approvals and investor
suitability.
EXPENSES: The Company shall pay the out-of-pocket
expenses of the Investor in connection
with this transaction. (including legal
fees and expenses of counsel to the
Investor), up to an amount not exceeding
$25,000.
CONDITIONS PRECEDENT TO FINANCING: This summary of terms is not intended as
a legally binding commitment by the
Company or the Investor and any
obligation on the part of either is
subject to the completion of legal
documentation and due diligence to the
satisfaction of the Investor and the
Company.
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