Exhibit 10.13
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of October 11,
2004, by and among Advanced Photonix, Inc., a Delaware corporation, with
headquarters located at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "Company"),
and the investors listed on the Schedule of Buyers attached hereto
(individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and each Buyer is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 Act"), and Rule 506 of
Regulation D ("Regulation D") as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the 1933 Act.
B. The Company has authorized a new series of senior secured convertible
notes of the Company, which Notes shall be convertible into the Company's Class
A common stock, $.001 par value per share (the "Common Stock"), in accordance
with the terms of the Notes.
C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement, (i) that aggregate principal
amount of Notes, in substantially the form attached hereto as Exhibit A (the
"Initial Notes"), set forth opposite such Buyer's name in column (3) on the
Schedule of Buyers (which aggregate amount for all Buyers shall be $5,000,000)
(as converted, collectively, the "Initial Conversion Shares"), (ii) warrants, in
substantially the form attached hereto as Exhibit B (the "Initial Warrants"), to
acquire up to that number of additional shares of Common Stock set forth
opposite such Buyer's name in column (4) of the Schedule of Buyers (as
exercised, collectively, the "Initial Warrant Shares"), (iii) a right, in
substantially the form attached hereto as Exhibit C (the "Additional Investment
Rights"), to acquire up to that principal amount of additional Notes, in
substantially the form attached hereto as Exhibit D (the "Additional Notes" and
together with the Initial Notes and any senior secured convertible notes issued
in replacement of the Initial Notes or the Additional Notes in accordance with
the terms thereof, the "Notes"), set forth opposite such Buyer's name in column
(5) on the Schedule of Buyers (such Additional Notes as converted, the
"Additional Conversion Shares" and together with the Initial Conversion Shares,
the "Conversion Shares") and (iv) warrants in substantially the form attached
hereto as Exhibit E (the "Additional Warrants" and together with the Initial
Warrants, the "Warrants") to acquire up to that number of additional shares of
Common Stock set forth opposite such Buyer's name in column (6) of the Schedule
of Buyers (as exercised, collectively, the "Additional Warrant Shares" and
together with the Initial Warrant Shares, the "Warrant Shares"). The Additional
Warrants shall only be exercisable in proportion to the exercise of the
Additional Investment Rights.
D. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit F (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights with respect to the Conversion Shares and the Warrant Shares
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
E. The Notes, the Conversion Shares, the Warrants, the Warrant Shares and
the Additional Investment Rights collectively are referred to herein as the
"Securities".
F. The Notes will rank senior to all outstanding and future indebtedness of
the Company (other than the Current Debt Facility (as defined in the Notes)) and
will be secured by a second priority, perfected security interest in the assets
of the Company and the stock and assets of all of the Company's subsidiaries, as
evidenced by the pledge and security agreement attached hereto as Exhibit G (the
"Pledge and Security Agreement") and the guarantee attached hereto as Exhibit H
(the "Guarantee").
G. The Initial Notes also are to be secured by the balance contained in the
Cash Collateral Account (as defined in Section 1(b)(i) below) pursuant to an
Account Control Agreement (as defined in Section 1(b)(i) below (together with
the Pledge and Security Agreement and the Guarantee, the "Security Documents").
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF NOTES, WARRANTS AND ADDITIONAL INVESTMENT RIGHTS.
(a) Purchase of Notes, Warrants and Additional Investment Rights.
(i) Subject to the satisfaction (or waiver) of the conditions set
forth in Sections 6 and 7 below, the Company shall issue and sell to each
Buyer, and each Buyer severally, but not jointly, agrees to purchase from
the Company on the Closing Date (as defined below), (w) a principal amount
of Notes as is set forth opposite such Buyer's name in column (3) on the
Schedule of Buyers, (x) Initial Warrants to acquire up to that number of
Initial Warrant Shares as is set forth opposite such Buyer's name in column
(4) on the Schedule of Buyers, (y) Additional Investment Rights to acquire
up to that principal amount of Additional Notes as is set forth opposite
such Buyer's name in column (5) on the Schedule of Buyers and (z)
Additional Warrants to acquire up to that number of Additional Warrant
Shares as is set forth opposite such Buyer's name in column (6) on the
Schedule of Buyers (the "Closing").
(ii) Closing. The date and time of the Closing (the "Closing Date")
shall be 10:00 a.m., New York City Time, on the date hereof (or such later
date as is mutually agreed to by the Company and each Buyer) after
notification of satisfaction (or waiver) of the conditions to the Closing
set forth in Sections 6 and 7 below at the offices of ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇
LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇.
(iii) Purchase Price. The aggregate purchase price for the Notes, the
Warrants and the Additional Investment Rights to be purchased by each Buyer
at the Closing (the "Purchase Price") shall be the amount set forth
opposite such Buyer's name in column (7) of the Schedule of Buyers. Each
Buyer shall pay $1.00 for each $1.00 of principal amount of Initial Notes
and related Warrants and Additional Investment Rights to be purchased by
such Buyer at the Closing.
(b) Form of Payment. (i) On the Closing Date, (x) each Buyer shall pay its
Purchase Price to the Company for the Initial Notes, the Warrants and the
Additional Investment Rights to be issued and sold to such Buyer at the Closing,
(1) by wire transfer of immediately available funds for one-half of the Purchase
Price in accordance with the Company's written wire instructions, and (2) by
wire transfer of immediately available funds for one-half the Purchase Price in
accordance with the Company's written wire instructions into the Cash Collateral
Account (as defined in Section 4(p)) and (y) deliver to each Buyer (A) the
Initial Notes (in the principal amounts as such Buyer shall request) which such
Buyer is then purchasing, (B) the Initial Warrants (in the amounts as such Buyer
shall request) such Buyer is purchasing, (C) the Additional Warrants (in the
amounts as such Buyer shall request) such Buyer is purchasing, and (D) the
Additional Investment Rights (in the amounts as such Buyer shall request) such
Buyer is purchasing, in each case duly executed on behalf of the Company and
registered in the name of such Buyer or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
(a) No Public Sale or Distribution. Such Buyer is (i) acquiring the Notes,
the Warrants and the Additional Investment Rights (ii) upon conversion of the
Notes and exercise of the Warrants (other than pursuant to a Cashless Exercise
(as defined in the Warrants)) and Additional Investment Rights will acquire the
Conversion Shares issuable upon conversion of the Notes, the Warrant Shares
issuable upon exercise of the Warrants and the Additional Notes issuable upon
exercise of the Additional Investment Rights, for its own account and not with a
view towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act;
provided, however, that by making the representations herein, such Buyer does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
Such Buyer is acquiring the Securities hereunder in the ordinary course of its
business. Such Buyer does not presently have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the Securities.
(b) Accredited Investor Status. Such Buyer is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D.
(c) Reliance on Exemptions. Such Buyer understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
(d) Information. Such Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities which
have been requested by such Buyer. Such Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
herein. Such Buyer understands that its investment in the Securities involves a
high degree of risk. Such Buyer has sought such accounting, legal and tax advice
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Securities.
(e) No Governmental Review. Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(f) Transfer or Resale. Such Buyer understands that except as provided in
the Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the
1933 Act, as amended, (or a successor rule thereto) (collectively, "Rule 144");
(ii) any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person (as defined in Section 3(s)) through whom the sale is made) may
be deemed to be an underwriter (as that term is defined in the ▇▇▇▇ ▇▇▇) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
Person is under any obligation to register the Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder.
(g) Legends. Such Buyer understands that the certificates or other
instruments representing the Notes, Warrants and Additional Investment Rights
and, until such time as the resale of the Conversion Shares and the Warrant
Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the stock certificates representing the
Conversion Shares and the Warrant Shares, except as set forth below, shall bear
any legend as required by the "blue sky" laws of any state and a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of such stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[CONVERTIBLE] [EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)
UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT
SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale, assignment or other transfer, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that such
sale, assignment or transfer of the Securities may be made without registration
under the applicable requirements of the 1933 Act, or (iii) such holder provides
the Company with reasonable assurance that the Securities can be sold, assigned
or transferred pursuant to Rule 144 or Rule 144A.
(h) Validity; Enforcement. This Agreement, the Registration Rights
Agreement and the Security Documents to which such Buyer is a party have been
duly and validly authorized, executed and delivered on behalf of such Buyer and
shall constitute the legal, valid and binding obligations of such Buyer
enforceable against such Buyer in accordance with their respective terms, except
as such enforceability may be limited by general principles of equity or to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
(i) No Conflicts. The execution, delivery and performance by such Buyer of
this Agreement, the Registration Rights Agreement and the Security Documents to
which such Buyer is a party and the consummation by such Buyer of the
transactions contemplated hereby and thereby will not (i) result in a violation
of the organizational documents of such Buyer or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which such Buyer is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws) applicable to such Buyer, except in the case of clauses (ii)
and (iii) above, for such conflicts, defaults, rights or violations which would
not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of such Buyer to perform its obligations
hereunder.
(j) Residency. Such Buyer is a resident of that jurisdiction specified
below its address on the Schedule of Buyers.
(k) Trading in Common Stock. Since July 15, 2004, such Buyer has not
entered into any purchase or sale of the Common Stock or executed any Short
Sales and, prior to the 8-K Filing (as defined in Section 4(i)), such Buyer and
its affiliates shall not enter into any purchase or sale of the Common Stock or
execute any Short Sale. For purposes of this Section, "Short Sales" means all
types of direct and indirect stock pledges, forward sale contracts, options,
puts, calls, short sales, swaps (including on a total return basis), and sales
and any other similar transactions whether or not having the effect of hedging
any position in the Common Stock.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
(a) Organization and Qualification. The Company and its "Subsidiaries"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest) are entities duly organized and validly existing and (other than SDC)
in good standing under the laws of the jurisdiction in which they are formed,
and have the requisite power and authorization to own their properties and to
carry on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign entity to do business and is in good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not
have a Material Adverse Effect. Notwithstanding anything herein to the contrary,
SDC is currently inactive and has no assets. As used in this Agreement, (i)
"SDC" shall mean Silicon Detector Corporation, a California corporation and (ii)
"Material Adverse Effect" means any material adverse effect on the business,
properties, assets, operations, results of operations, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries, taken as a whole,
or on the transactions contemplated hereby and the other Transaction Documents
or by the agreements and instruments to be entered into in connection herewith
or therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). The Company has
no Subsidiaries except as set forth on Schedule 3(a).
(b) Authorization; Enforcement; Validity. The Company has the requisite
power and authority to enter into and perform its obligations under this
Agreement, the Notes, the Registration Rights Agreement, the Security Documents,
the Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), the
Warrants, the Additional Investment Rights, and each of the other agreements
entered into by the parties hereto in connection with the transactions
contemplated by this Agreement (collectively, the "Transaction Documents") and
to issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Notes, the Warrants and the
Additional Investment Rights, the reservation for issuance and the issuance of
the Conversion Shares issuable upon conversion of the Notes, the reservation for
issuance and issuance of Warrant Shares issuable upon exercise of the Warrants,
and the granting of a security interest in the Collateral (as defined in the
Security Documents) have been duly authorized by the Company's Board of
Directors and (other than (i) the filing of appropriate UCC financing statements
with the appropriate states and other authorities pursuant to the Pledge and
Security Agreement, and (ii) the filing with the SEC of one or more Registration
Statements in accordance with the requirements of the Registration Rights
Agreement) no further filing, consent, or authorization is required by the
Company, its Board of Directors or its stockholders. This Agreement and the
other Transaction Documents of even date herewith have been duly executed and
delivered by the Company, and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies. As of the date of
issuance of any Additional Notes, such Additional Notes shall have been duly
executed and delivered by the Company, and shall constitute the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditor's rights and
remedies.
(c) Issuance of Securities. The issuance of the Notes, the Warrants and the
Additional Investment Rights are duly authorized and are free from all taxes,
liens and charges with respect to the issue thereof. As of the Closing, a number
of shares of Common Stock shall have been duly authorized and reserved for
issuance which equals 130% of the maximum number of shares Common Stock issuable
upon conversion of the Notes and upon exercise of the Warrants. Upon conversion
in accordance with the Notes or exercise in accordance with the Warrants, as the
case may be, the Conversion Shares and the Warrant Shares, respectively, will be
validly issued, fully paid and nonassessable and free from all preemptive or
similar rights, taxes, liens and charges with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of Common Stock.
The offer and issuance by the Company of the Securities is exempt from
registration under the 1933 Act.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Notes, the Warrants and the Additional Investment Rights, the
granting of a security interest in the Collateral (as defined in the Security
Documents) and reservation for issuance and issuance of the Conversion Shares
and the Warrant Shares) will not (i) result in a violation of the Certificate of
Incorporation (as defined in Section 3(r)) of the Company, any capital stock of
the Company or Bylaws (as defined in Section 3(r)) of the Company or any of its
Subsidiaries or (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the American Stock
Exchange (the "Principal Market")) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected.
(e) Consents. The Company is not required to obtain any consent,
authorization or order of, or, except for a listing application for the
Conversion Shares and Warrant Shares with the Principal Market, make any filing
or registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the Closing Date, and the Company and its Subsidiaries
are unaware of any facts or circumstances which might prevent the Company from
obtaining or effecting any of the registration, application or filings pursuant
to the preceding sentence. The Company is not in violation of the listing
requirements of the Principal Market and has no knowledge of any facts which
would reasonably lead to delisting or suspension of the Common Stock in the
foreseeable future.
(f) Acknowledgment Regarding Buyer's Purchase of Securities. The Company
acknowledges and agrees that each Buyer is acting solely in the capacity of
arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) an "affiliate" of the Company (as defined in
Rule 144) or (iii) to the knowledge of the Company, a "beneficial owner" of more
than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of
the Securities Exchange Act of 1934, as amended (the "1934 Act")). The Company
further acknowledges that no Buyer is acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer's purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
(g) No General Solicitation; Placement Agent's Fees. Neither the Company,
nor any of its affiliates, nor any Person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D) in connection with the offer or sale of the Securities.
The Company shall be responsible for the payment of any placement agent's fees,
financial advisory fees, or brokers' commissions (other than for persons engaged
by any Buyer or its investment advisor) relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
attorney's fees and out-of-pocket expenses) arising in connection with any such
claim. The Company acknowledges that it has engaged ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ Associates
Inc. as placement agent (the "Agent") in connection with the sale of the
Securities. Other than the Agent, the Company has not engaged any placement
agent or other agent in connection with the sale of the Securities.
(h) No Integrated Offering. None of the Company, its Subsidiaries, any of
their affiliates, and any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated. None of the
Company, its Subsidiaries, their affiliates and any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of any of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings.
(i) Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Notes in accordance with this Agreement
and the Notes and its obligation to issue the Warrant Shares upon exercise of
the Warrants in accordance with this Agreement and the Warrants is, in each
case, absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company.
(j) Application of Takeover Protections; Rights Agreement. The Company and
its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the jurisdiction of its formation which is or could become applicable to any
Buyer as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and any Buyer's
ownership of the Securities. The Company has adopted a stockholder rights plan
or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company.
(k) SEC Documents; Financial Statements. During the two (2) years prior to
the date hereof, the Company has filed all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the 1934 Act (all of the foregoing filed prior to the
date hereof and all exhibits included therein and financial statements, notes
and schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC Documents"). The Company has delivered to
the Buyers or their respective representatives true, correct and complete copies
of the SEC Documents not available on the ▇▇▇▇▇ system. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the 1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted 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. As of their respective dates, the
financial statements of the Company included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyers which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) of this Agreement, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading.
(l) Absence of Certain Changes. Except as disclosed in Schedule 3(l), since
December 31, 2003, there has been no material adverse change and no material
adverse development in the business, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company or
its Subsidiaries. Since December 31, 2003, the Company has not (i) declared or
paid any dividends, (ii) sold any assets, individually or in the aggregate, in
excess of $100,000 outside of the ordinary course of business or (iii) had
capital expenditures, individually or in the aggregate, in excess of $100,000
outside of the ordinary course of business. The Company has not taken any steps
to seek protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so. The Company is not as of the date hereof,
and after giving effect to the transactions contemplated hereby to occur at the
Closing, will not be Insolvent (as defined below). For purposes of this Section
3(l), "Insolvent" means (i) the present fair saleable value of the Company's
assets is less than the amount required to pay the Company's total Indebtedness
(as defined in Section 3(s)), (ii) the Company is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) the Company intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) the Company has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.
(m) No Undisclosed Events, Liabilities, Developments or Circumstances. No
event, liability, development or circumstance has occurred or exists, or is
contemplated to occur with respect to the Company or its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.
(n) Conduct of Business; Regulatory Permits. Neither the Company nor its
Subsidiaries is in violation of any term of or in default under its Certificate
of Incorporation or Bylaws or their organizational charter or certificate of
incorporation or bylaws, respectively. Neither the Company nor any of its
Subsidiaries is in violation of any judgment, decree or order or any statute,
ordinance, rule or regulation applicable to the Company or its Subsidiaries, and
neither the Company nor any of its Subsidiaries will conduct its business in
violation of any of the foregoing, except for possible violations which would
not, individually or in the aggregate, have a Material Adverse Effect. Without
limiting the generality of the foregoing, the Company is not in violation of any
of the rules, regulations or requirements of the Principal Market and has no
knowledge of any facts or circumstances which would reasonably lead to delisting
or suspension of the Common Stock by the Principal Market in the foreseeable
future. Since December 31, 2003, (i) the Common Stock has been designated for
quotation on the Principal Market, (ii) trading in the Common Stock has not been
suspended by the SEC or the Principal Market and (iii) the Company has received
no communication, written or oral, from the SEC or the Principal Market
regarding the suspension or delisting of the Common Stock from the Principal
Market. The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate regulatory authorities
necessary to conduct their respective businesses, except where the failure to
possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.
(o) Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company (i) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
(p) ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act. The Company is in compliance with any and all
applicable requirements of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof, except where
such noncompliance would not have, individually or in the aggregate, a Material
Adverse Effect.
(q) Transactions With Affiliates. Except as set forth in the SEC Documents
filed at least ten days prior to the date hereof and other than the grant of
stock options disclosed on Schedule 3(r), none of the officers, directors or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for ordinary course services as
employees, officers or directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any such officer, director or employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any such
officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner.
(r) Equity Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 50,000,000 shares of Class A Common Stock,
of which as of the date hereof 13,399,059 shares are issued and outstanding, no
shares are held in treasury, 2,443,922 shares are reserved for issuance pursuant
to the Company's stock option and purchase plans and no shares are issuable and
reserved for issuance pursuant to securities (other than the Notes and Warrants)
exercisable or exchangeable for, or convertible into, shares of Class A Common
Stock, (ii) 4,420,113 shares of Class B Common Stock, of which as of the date
hereof 31,691 shares are issued and outstanding, no shares are held in treasury,
no shares are reserved for issuance pursuant to the Company's stock option and
purchase plans and no shares are issuable and reserved for issuance pursuant to
securities (other than the Notes and Warrants) exercisable or exchangeable for,
or convertible into, shares of Class B Common Stock and (iii) 10,000,000 shares
of preferred stock, of which 780,000 shares have been designated Class A
Redeemable Convertible Preferred Stock with a par value of $.001 per share, of
which as of the date hereof, 40,000 are issued and outstanding or held in
treasury. All of such outstanding shares have been, or upon issuance will be,
validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(r): (i) none of the Company's share capital is subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company; (ii) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any share capital of the Company or any of its Subsidiaries,
or contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to issue additional share
capital of the Company or any of its Subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any share capital of the Company or any of its Subsidiaries;
(iii) there are no outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments evidencing Indebtedness
of the Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company; (v) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement); (vi) there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company's or
its Subsidiaries' respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect. The Company has
furnished to the Buyer true, correct and complete copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate of Incorporation"), and the Company's Bylaws, as amended and
as in effect on the date hereof (the "Bylaws"), and the terms of all securities
convertible into, or exercisable or exchangeable for, shares of Common Stock and
the material rights of the holders thereof in respect thereto.
(s) Indebtedness and Other Contracts. Except as disclosed in Schedule 3(s),
neither the Company nor any of its Subsidiaries (i) has any outstanding
Indebtedness (as defined below), (ii) is a party to any contract, agreement or
instrument, the violation of which, or default under which, by the other
party(ies) to such contract, agreement or instrument would result in a Material
Adverse Effect, (iii) is in violation of any term of or in default under any
contract, agreement or instrument relating to any Indebtedness, except where
such violations and defaults would not result, individually or in the aggregate,
in a Material Adverse Effect, or (iv) is a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which, in the
judgment of the Company's officers, has or is expected to have a Material
Adverse Effect. Schedule 3(s) provides a detailed description of the material
terms of any such outstanding Indebtedness. For purposes of this Agreement: (x)
"Indebtedness" of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (other than trade payables
entered into in the ordinary course of business), (C) all reimbursement or
payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; (y) "Contingent Obligation" means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; and (z)
"Person" means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
(t) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company, the
Common Stock or any of the Company's Subsidiaries or any of the Company's or the
Company's Subsidiaries' officers or directors in their capacities as such,
except as set forth in Schedule 3(t).
(u) Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
(v) Employee Relations. (i) Neither the Company nor any of its Subsidiaries
is a party to any collective bargaining agreement or employs any member of a
union. The Company and its Subsidiaries believe that their relations with their
employees are good. No executive officer of the Company (as defined in Rule
501(f) of the ▇▇▇▇ ▇▇▇) has notified the Company that such officer intends to
leave the Company or otherwise terminate such officer's employment with the
Company. No executive officer of the Company, to the knowledge of the Company,
is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each such executive
officer does not subject the Company or any of its Subsidiaries to any liability
with respect to any of the foregoing matters. (ii) The Company and its
Subsidiaries are in compliance with all federal, state, local and foreign laws
and regulations respecting labor, employment and employment practices and
benefits, terms and conditions of employment and wages and hours, except where
failure to be in compliance would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(w) Title. The Company and its Subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and any of its Subsidiaries. Any real property and facilities held under
lease by the Company and any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries.
(x) Intellectual Property Rights. The Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service ▇▇▇▇ registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and other intellectual property rights ("Intellectual Property Rights")
necessary to conduct their respective businesses as now conducted. Except as set
forth in Schedule 3(x), none of the Company's Intellectual Property Rights have
expired or terminated, or are expected to expire or terminate, within three
years from the date of this Agreement. The Company does not have any knowledge
of any infringement by the Company or its Subsidiaries of Intellectual Property
Rights of others. There is no claim, action or proceeding being made or brought,
or to the knowledge of the Company, being threatened, against the Company or its
Subsidiaries regarding its Intellectual Property Rights. The Company is unaware
of any facts or circumstances which might give rise to any of the foregoing
infringements or claims, actions or proceedings. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
(y) Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all Environmental Laws (as hereinafter defined), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. The term "Environmental Laws" means
all federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(z) Subsidiary Rights. Except as set forth in Schedule 3(z), the Company or
one of its Subsidiaries has the unrestricted right to vote, and (subject to
limitations imposed by applicable law) to receive dividends and distributions
on, all capital securities of its Subsidiaries as owned by the Company or such
Subsidiary.
(aa) Tax Status. The Company and each of its Subsidiaries (i) has made or
filed all foreign, federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject, (ii) has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim.
(bb) Internal Accounting Controls. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset and liability
accountability, (iii) access to assets or incurrence of liabilities is permitted
only in accordance with management's general or specific authorization and (iv)
the recorded accountability for assets and liabilities is compared with the
existing assets and liabilities at reasonable intervals and appropriate action
is taken with respect to any difference.
(cc) Ranking of Notes. Except as set forth on Schedule (cc), no
Indebtedness of the Company is senior to or ranks pari passu with the Notes in
right of payment, whether with respect of payment of redemptions, interest,
damages or upon liquidation or dissolution or otherwise.
(dd) Form S-3 Eligibility. The Company is eligible to register the
Conversion Shares for resale by the Buyers using Form S-3 promulgated under the
1933 Act.
(ee) Manipulation of Price. The Company has not, and to its knowledge no
one acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result in the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities except for fees paid or payable
to the Placement Agent, or (iii) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company.
(ff) Disclosure. The Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Buyers or their agents or counsel
with any information that constitutes or could reasonably be expected to
constitute material, nonpublic information other than as a result of (and
concerning) the negotiations of this Agreement. The Company understands and
confirms that each of the Buyers will rely on the foregoing representations in
effecting transactions in securities of the Company. All disclosure provided to
the Buyers regarding the Company, its business and the transactions contemplated
hereby, including the Schedules to this Agreement, furnished by or on behalf of
the Company is true and correct and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. Each press release issued by the Company during the twelve
(12) months preceding the date of this Agreement did not at the time of release
contain any 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, in the light of the circumstances under which they are made, not
misleading. No event or circumstance has occurred or information exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed.
4. COVENANTS AND AGREEMENTS.
(a) Best Efforts. Each party shall use its best efforts timely to satisfy
each of the conditions to be satisfied by it as provided in Sections 6 and 7 of
this Agreement.
(b) Form D and Blue Sky. The Company agrees to file a Form D with respect
to the Securities as required under Regulation D and to provide a copy thereof
to each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for or to qualify the Securities for
sale to the Buyers at the Closing pursuant to this Agreement under applicable
securities or "Blue Sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to the Buyers on or prior to the Closing Date. The Company shall
make all filings and reports relating to the offer and sale of the Securities
required under applicable securities or "Blue Sky" laws of the states of the
United States following the Closing Date.
(c) Reporting Status. Until the date on which the Investors (as defined in
the Registration Rights Agreement) shall have sold all the Conversion Shares and
Warrant Shares and none of the Notes, Warrants or Additional Investment Rights
is outstanding (the "Reporting Period"), the Company shall file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale of the
Securities for one or more acquisitions of other businesses, products and
product lines and for working capital purposes and not for the (i) repayment of
any outstanding Indebtedness of the Company or any of its Subsidiaries or (ii)
redemption or repurchase of any of its equity securities.
(e) Financial Information. The Company agrees to send the following to each
Investor during the Reporting Period (i) unless the following are filed with the
SEC through ▇▇▇▇▇ and are available to the public through the ▇▇▇▇▇ system,
within one (1) Business Day after the filing thereof with the SEC, a copy of its
Annual Reports on Form 10-K or 10-KSB, any interim reports or any consolidated
balance sheets, income statements, stockholders' equity statements and/or cash
flow statements for any period other than annual, any Current Reports on Form
8-K and any registration statements (other than on Form S-8) or amendments filed
pursuant to the 1933 Act, (ii) on the same day as the release thereof, facsimile
copies of all press releases issued by the Company or any of its Subsidiaries,
and (iii) copies of any notices and other information made available or given to
the stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders.
(f) Listing. The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which the Common Stock is then listed (subject to official notice of issuance)
and shall maintain such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents. The Company shall
maintain the Common Stocks' authorization for quotation on the Principal Market.
Neither the Company nor any of its Subsidiaries shall take any action which
would be reasonably expected to result in the delisting or suspension of the
Common Stock on the Principal Market. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(f).
(g) Fees. Subject to Section 8 below, at the Closing, the Company shall pay
an expense allowance of $50,000 to Smithfield Fiduciary LLC (a Buyer) or its
designee(s) (in addition to any other expense amounts paid to any Buyer prior to
the date of this Agreement), which amount shall be withheld by such Buyer from
its Purchase Price at the Closing. The Company shall be responsible for the
payment of any placement agent's fees, financial advisory fees, or broker's
commissions (other than for Persons engaged by any Buyer) relating to or arising
out of the transactions contemplated hereby, including, without limitation, any
fees or commissions payable to the Agent. The Company shall pay, and hold each
Buyer harmless against, any liability, loss or expense (including, without
limitation, reasonable attorney's fees and out-of-pocket expenses) arising in
connection with any claim relating to any such payment. Except as otherwise set
forth in the Transaction Documents, each party to this Agreement shall bear its
own expenses in connection with the sale of the Securities to the Buyers.
(h) Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by an Investor (as defined in the Registration Rights
Agreement) in connection with a bona fide margin agreement or other loan or
financing arrangement that is secured by the Securities. The pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Investor effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(f) hereof; provided that an
Investor and its pledgee shall be required to comply with the provisions of
Section 2(f) hereof in order to effect a sale, transfer or assignment of
Securities to such pledgee. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by an Investor.
(i) Disclosure of Transactions and Other Material Information. On or before
8:30 a.m., New York Time, on the first Business Day following the date of this
Agreement, the Company shall file a Current Report on Form 8-K describing the
terms of the transactions contemplated by the Transaction Documents in the form
required by the 1934 Act and attaching the material Transaction Documents
(including, without limitation, this Agreement (and all schedules to this
Agreement), the form of each of the Notes, the form of Warrant, the form of
Additional Investment Right, the Registration Rights Agreement and the Security
Documents) and the material transaction documents relating to the Acquisitions
as exhibits to such filing (including all attachments, the "8-K Filing"). From
and after the filing of the 8-K Filing with the SEC, no Buyer shall be in
possession of any material, nonpublic information received from the Company, any
of its Subsidiaries or any of its respective officers, directors, employees or
agents, that is not disclosed in the 8-K Filing. The Company shall not, and
shall cause each of its Subsidiaries and its and each of their respective
officers, directors, employees and agents, not to, provide any Buyer with any
material, nonpublic information regarding the Company or any of its Subsidiaries
from and after the filing of the 8-K Filing with the SEC without the express
written consent of such Buyer. In the event of a breach of the foregoing
covenant by the Company, any of its Subsidiaries, or any of its or their
respective officers, directors, employees and agents, in addition to any other
remedy provided herein or in the Transaction Documents, a Buyer shall have the
right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material, nonpublic information without the
prior approval by the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees or agents. No Buyer shall have any
liability to the Company, its Subsidiaries, or any of its or their respective
officers, directors, employees, stockholders or agents for any such disclosure.
Subject to the foregoing, neither the Company nor any Buyer shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Buyer, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Buyer shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release).
(j) Restriction on Redemption and Cash Dividends. So long as any Notes are
outstanding, the Company shall not, directly or indirectly, redeem, or declare
or pay any cash dividend or distribution on, the Common Stock without the prior
express written consent of the holders of Notes representing not less than a
majority of the aggregate principal amount of the then outstanding Notes.
(k) Additional Notes; Variable Securities; Dilutive Issuances. So long as
any Buyer beneficially owns any Securities, the Company will not issue any Notes
other than to the Buyers as contemplated hereby and the Company shall not issue
any other securities that would cause a breach or default under the Notes. For
long as any Notes or Warrants remain outstanding, the Company shall not, in any
manner, issue or sell any rights, warrants or options to subscribe for or
purchase Common Stock or directly or indirectly convertible into or exchangeable
or exercisable for Common Stock at a price which varies or may vary with the
market price of the Common Stock, including by way of one or more reset(s) to
any fixed price unless the conversion, exchange or exercise price of any such
security cannot be less than the then applicable Conversion Price (as defined in
the Notes) with respect to the Common Stock into which any Note is convertible
or the then applicable Exercise Price (as defined in the Warrants) with respect
to the Common Stock into which any Warrant is exercisable. For long as any
Notes, Warrants or Additional Investment Rights remain outstanding, the Company
shall not, in any manner, enter into or affect any Dilutive Issuance (as defined
in the Notes) if the effect of such Dilutive Issuance is to cause the Company to
be required to issue upon conversion of any Note or exercise of any Warrant any
shares of Common Stock in excess of that number of shares of Common Stock which
the Company may issue upon conversion of the Notes, including the Additional
Notes, and exercise of the Warrants without breaching the Company's obligations
under the rules or regulations of the Principal Market.
(l) Corporate Existence. So long as any Buyer beneficially owns any
Securities, the Company shall not be party to any Fundamental Transaction (as
defined in the Notes) unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes, the
Warrants and the Additional Investment Rights.
(m) Reservation of Shares. The Company shall take all action necessary to
at all times have authorized, and reserved for the purpose of issuance, after
the Closing Date, 130% of the number of shares of Common Stock issuable upon
conversion of all of the Notes (including the Additional Notes) and issuable
upon exercise of the Warrants.
(n) Conduct of Business. The business of the Company and its Subsidiaries
shall not be conducted in violation of any law, ordinance or regulation of any
governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect.
(o) Additional Issuances of Securities.
(i) For purposes of this Section 4(o), the following definitions shall
apply.
(1) "Convertible Securities" means any stock or securities (other
than Options) convertible into or exercisable or exchangeable for
shares of Common Stock.
(2) "Options" means any rights, warrants or options to subscribe
for or purchase shares of Common Stock or Convertible Securities.
(3) "Common Stock Equivalents" means, collectively, Options and
Convertible Securities.
(ii) From the date hereof until the date that is 90 Trading Days (as
defined in the Notes) following the Effective Date (as defined in the
Registration Rights Agreement) (the "Trigger Date"), the Company will not,
directly or indirectly, offer, sell, grant any option to purchase, or
otherwise dispose of (or announce any offer, sale, grant or any option to
purchase or other disposition of) any of its or its Subsidiaries' equity or
equity equivalent securities, including without limitation any debt,
preferred stock or other instrument or security that is, at any time during
its life and under any circumstances, convertible into or exchangeable or
exercisable for shares of Common Stock or Common Stock Equivalents (any
such offer, sale, grant, disposition or announcement being referred to as a
"Subsequent Placement").
(iii) From the Trigger Date until the twelve (12) month anniversary
thereof, the Company will not, directly or indirectly, effect any
Subsequent Placement unless the Company shall have first complied with this
Section 4(o)(iii).
(1) The Company shall deliver to each Buyer a written notice (the
"Offer Notice") of any proposed or intended issuance or sale or
exchange (the "Offer") of the securities being offered (the "Offered
Securities") in a Subsequent Placement, which Offer Notice shall (w)
identify and describe the Offered Securities, (x) describe the price
and other terms upon which they are to be issued, sold or exchanged,
and the number or amount of the Offered Securities to be issued, sold
or exchanged, (y) identify the persons or entities (if known) to which
or with which the Offered Securities are to be offered, issued, sold
or exchanged and (z) offer to issue and sell to or exchange with such
Buyers all of the Offered Securities, allocated among such Buyers (a)
based on such Buyer's pro rata portion of the aggregate principal
amount of Notes purchased hereunder (the "Basic Amount"), and (b) with
respect to each Buyer that elects to purchase its Basic Amount, any
additional portion of the Offered Securities attributable to the Basic
Amounts of other Buyers as such Buyer shall indicate it will purchase
or acquire should the other Buyers subscribe for less than their Basic
Amounts (the "Undersubscription Amount").
(2) To accept an Offer, in whole or in part, such Buyer must
deliver a written notice to the Company prior to the end of the tenth
(10th) Business Day after such Buyer's receipt of the Offer Notice
(the "Offer Period"), setting forth the portion of such Buyer's Basic
Amount that such Buyer elects to purchase and, if such Buyer shall
elect to purchase all of its Basic Amount, the Undersubscription
Amount, if any, that such Buyer elects to purchase (in either case,
the "Notice of Acceptance"). If the Basic Amounts subscribed for by
all Buyers are less than the total of all of the Basic Amounts, then
each Buyer who has set forth an Undersubscription Amount in its Notice
of Acceptance shall be entitled to purchase, in addition to the Basic
Amounts subscribed for, the Undersubscription Amount it has subscribed
for; provided, however, that if the Undersubscription Amounts
subscribed for exceed the difference between the total of all the
Basic Amounts and the Basic Amounts subscribed for (the "Available
Undersubscription Amount"), each Buyer who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that
portion of the Available Undersubscription Amount as the Basic Amount
of such Buyer bears to the total Basic Amounts of all Buyers that have
subscribed for Undersubscription Amounts, subject to rounding by the
Company to the extent its deems reasonably necessary.
(3) The Company shall have twenty (20) Business Days from the
expiration of the Offer Period above to offer, issue, sell or exchange
all or any part of such Offered Securities as to which a Notice of
Acceptance has not been given by the Buyers (the "Refused
Securities"), but only to the offerees described in the Offer Notice
(if so described therein) and only upon terms and conditions
(including, without limitation, unit prices and interest rates) that
are not more favorable to the acquiring person or persons or less
favorable to the Company than those set forth in the Offer Notice.
(4) In the event the Company shall propose to sell less than all
the Refused Securities (any such sale to be in the manner and on the
terms specified in Section 4(o)(iii)(3) above), then each Buyer may,
at its sole option and in its sole discretion, reduce the number or
amount of the Offered Securities specified in its Notice of Acceptance
to an amount that shall be not less than the number or amount of the
Offered Securities that such Buyer elected to purchase pursuant to
Section 4(o)(iii)(2) above multiplied by a fraction, (i) the numerator
of which shall be the number or amount of Offered Securities the
Company actually proposes to issue, sell or exchange (including
Offered Securities to be issued or sold to Buyers pursuant to Section
4(o)(iii)(3) above prior to such reduction) and (ii) the denominator
of which shall be the original amount of the Offered Securities. In
the event that any Buyer so elects to reduce the number or amount of
Offered Securities specified in its Notice of Acceptance, the Company
may not issue, sell or exchange more than the reduced number or amount
of the Offered Securities unless and until such securities have again
been offered to the Buyers in accordance with Section 4(o)(iii)(1)
above.
(5) Upon the closing of the issuance, sale or exchange of all or
less than all of the Refused Securities, the Buyers shall acquire from
the Company, and the Company shall issue to the Buyers, the number or
amount of Offered Securities specified in the Notices of Acceptance,
as reduced pursuant to Section 4(o)(iii)(3) above if the Buyers have
so elected, upon the terms and conditions specified in the Offer. The
purchase by the Buyers of any Offered Securities is subject in all
cases to the preparation, execution and delivery by the Company and
the Buyers of a purchase agreement relating to such Offered Securities
reasonably satisfactory in form and substance to the Buyers and their
respective counsel.
(6) Any Offered Securities not acquired by the Buyers or other
persons in accordance with Section 4(o)(iii)(3) above may not be
issued, sold or exchanged until they are again offered to the Buyers
under the procedures specified in this Agreement.
(iv) The restrictions contained in subsections (ii) and (iii) of this
Section 4(o) shall not apply in connection with the issuance of any
Excluded Securities (as defined in the Notes).
(p) Cash Collateral Account.
(i) On or prior to the Closing, the Company shall establish with a
bank acceptable to the Collateral Agent (as defined in Section 4(q)) (the
"Cash Collateral Bank") a deposit account (together with all monies on
deposit in such deposit account and all certificates and instruments, if
any, representing or evidencing such deposit account, the "Cash Collateral
Account"), and shall cause the Cash Collateral Bank to enter to an account
control agreement with the Collateral Agent, substantially in the form of
Exhibit M. Upon the request of the Collateral Agent, the Company shall also
execute and deliver such other customary agreements and instruments
necessary to grant the Buyers a first priority perfected security interest
in the Cash Collateral Account to secure the Initial Notes. The Company
agrees that it shall not permit the Cash Collateral Account to be subject
to any lien, pledge, charge, security interest or other encumbrance other
than as provided in the immediately preceding sentence.
(ii) The funds in the Cash Collateral Account shall be distributed as
set forth below:
(1) If the Agreement Condition (as defined below in Section
4(p)(iii)) is satisfied on or before January 31, 2005, then on the
third Business Day after the date the Agreement Condition is
satisfied, the Collateral Agent shall deliver written instructions to
the Cash Collateral Bank directing the release of $1,250,000 less any
amount previously released pursuant to Section 4(p)(ii)(4) from the
Cash Collateral Account to the Company;
(2) If the Transaction Condition (as defined below in Section
4(p)(iii)) is satisfied on or before March 31, 2005, then on the third
Business Day after the date the Transaction Condition is satisfied,
the Collateral Agent shall deliver written instructions to the Cash
Collateral Bank directing the release of the balance of any amount
remaining in the Cash Collateral Account to the Company;
(3) Upon delivery by any holder or holders of the Initial Notes
(each a "Redeeming Holder" and, collectively, the "Redeeming Holders")
of a Condition Failure Redemption Notice (as defined in the Notes),
the Collateral Agent shall deliver written instructions to the Cash
Collateral Bank directing the release of funds from the Cash
Collateral Account to the Redeeming Holders;
(4) In connection with any conversion by a holder of the Initial
Notes that is subject to Section 3(e) of the Initial Notes, the Cash
Collateral Agent shall deliver written instructions to the Cash
Collateral Bank directing the release to the Company, from the Cash
Collateral Account, of the amount determined in accordance with
formula set forth in Section 3(e) of the Initial Notes; and
(5) If any balance remains in the Cash Collateral Account on the
Maturity Date, the Collateral Agent shall deliver written instructions
to the Cash Collateral Bank directing it to release to the holders of
the Initial Notes (allocated pro rata among the holders based on the
principal amount of the Initial Notes held by each holder) the balance
of any such amount remaining in the Cash Collateral Account.
(iii) For purposes of this Agreement, (A) "Agreement Condition" means
the Company shall have entered into definitive agreements for Permitted
Acquisitions; (B) "Transaction Condition" means the Company shall have
consummated Permitted Acquisitions pursuant to the terms of the definitive
agreements that satisfied in the aggregate the Agreement Condition; (C) a
"Permitted Acquisition" means the purchase by the Company of a Person with
(I) EBITDA during the twelve (12) months immediately preceding the
acquisition as set forth in the most recent financial statements of such
Person, which financial statements are as of a period ending no earlier
than sixty (60) days prior to such acquisition of not less than $750,000
and (II) revenues during the twelve (12) months immediately preceding the
acquisition as set forth in the most recent financial statements of such
Person, which financial statements are as of a period ending no earlier
than sixty (60) days prior to such acquisition of not less than $4,000,000,
in each case as calculated in accordance with such Person's audited
financial statements or as otherwise evidenced to the Buyers in written
form satisfactory to the Buyers in their sole discretion; and (D) "EBITDA"
means with respect to any Person for any applicable period, the Net Income
of such Person and its subsidiaries for such period, plus without
duplication, the sum of the following amounts of such Person and its
subsidiaries for such period and to the extent deducted in determining Net
Income of such Persons for such period: (1) Net Interest Expense, (2)
income tax expense, (3) depreciation expense, and (4) amortization expense,
(E) "Net Income" means, with respect to any Person for any applicable
period, the net income (loss) of such Person for such period, determined on
a consolidated basis and in accordance with generally accepted accounting
principles, but excluding from the determination of Net Income (without
duplication): (1) any extraordinary or non recurring gains or losses or
gains, (2) restructuring charges, (3) effects of discontinued operations,
and (4) interest income; and (F) "Net Interest Expense" means, with respect
to any Person for any applicable period, gross interest expense of such
Person for such period determined on a non-consolidated basis and in
accordance with generally accepted accounting principles, (including,
without limitation, interest expense paid to affiliates of such Person),
less (1) gains for such period on hedging agreements (to the extent not
included in interest income above and to the extent not deducted in the
calculation of gross interest expense), plus (2) the sum of (Y) losses for
such period on hedging agreements (to the extent not included in gross
interest expense) and (Z) the upfront costs or fees for such period
associated with hedging agreements (to the extent not included in gross
interest expense), in each case, determined on a non-consolidated basis and
in accordance with generally accepted accounting principles.
(q) Collateral Agent. Smithfield Fiduciary LLC is hereby appointed the
Collateral Agent hereunder and under the other Security Documents and each Buyer
hereby authorizes the Collateral Agent (and its officers, directors, employees
and agents) to take such action on such Buyer's behalf in accordance with the
terms hereof and thereof. The Collateral Agent shall not have, by reason hereof
or any of the other Security Documents, a fiduciary relationship in respect of
any Buyer. Neither the Collateral Agent nor any of its officers, directors,
employees and agents shall have any liability to any Buyer for any action taken
or omitted to be taken in connection hereof or any other Security Document
except to the extent caused by its own gross negligence or willful misconduct,
and each Buyer agrees to defend, protect, indemnify and hold harmless the
Collateral Agent and all of its officers, directors, employees and agents
(collectively, the "Indemnitees") from and against any losses, damages,
liabilities, obligations, penalties, actions, judgments, suits, fees, costs and
expenses (including, without limitation, reasonable attorneys' fees, costs and
expenses) incurred by such Indemnitee, whether direct, indirect or
consequential, arising from or in connection with the performance by such
Indemnitee of the duties and obligations of Collateral Agent pursuant hereto or
any of the Security Documents.
(r) Dissolution of SDC. SDC shall be dissolved in accordance with the laws
of the State of California no later than March 31, 2005 and until the time of
such dissolution shall continue to own no assets and remain inactive at all
times.
5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
(a) Register. The Company shall maintain at its principal executive offices
(or such other office or agency of the Company as it may designate by notice to
each holder of Securities), a register for the Notes, the Warrants and the
Additional Investment Rights, in which the Company shall record the name and
address of the Person in whose name the Notes, the Warrants and Additional
Investment Rights have been issued (including the name and address of each
transferee), the principal amount of Notes held by such Person, the number of
Conversion Shares issuable upon conversion of the Notes and Warrant Shares
issuable upon exercise of the Warrants held by such Person. The Company shall
keep the register open and available at all times during business hours for
inspection of any Buyer or its legal representatives.
(b) Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates or credit shares to the applicable balance accounts at The
Depository Trust Company ("DTC"), registered in the name of each Buyer or its
respective nominee(s), for the Conversion Shares and the Warrant Shares issued
at the Closing or upon conversion of the Notes or exercise of the Warrants in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Notes or exercise of the Warrants in the form of Exhibit I
attached hereto (the "Irrevocable Transfer Agent Instructions"). The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5(b), and stop transfer instructions to
give effect to Section 2(g) hereof, will be given by the Company to its transfer
agent, and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the other Transaction Documents. If a Buyer effects a sale, assignment or
transfer of the Securities in accordance with Section 2(f), the Company shall
permit the transfer and shall promptly instruct its transfer agent to issue one
or more certificates or credit shares to the applicable balance accounts at DTC
in such name and in such denominations as specified by such Buyer to effect such
sale, transfer or assignment. In the event that such sale, assignment or
transfer involves Conversion Shares or Warrant Shares sold, assigned or
transferred pursuant to an effective registration statement or pursuant to Rule
144, the transfer agent shall issue such Securities to the Buyer, assignee or
transferee, as the case may be, without any restrictive legend. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Buyer. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5(b) will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5(b), that a Buyer shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
Closing Date. The obligation of the Company hereunder to issue and sell the
Notes, the related Warrants and the related Additional Investment Rights to each
Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing each Buyer with prior written notice thereof:
(i) Such Buyer and each other Buyer shall have executed each of the
Transaction Documents to which it is a party and delivered the same to the
Company.
(ii) Such Buyer and each other Buyer shall have delivered to the Company
the Purchase Price (less, in the case of Smithfield Fiduciary LLC, the amounts
withheld pursuant to Section 4(g)) for the Notes and the related Warrants and
Additional Investment Rights being purchased by such Buyer at the Closing by
wire transfer of immediately available funds pursuant to the wire instructions
provided by the Company.
(iii) The representations and warranties of such Buyer and each other Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer and each other
Buyer shall have performed, satisfied and complied in all material respects with
the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Buyer at or prior to the Closing
Date.
(iv) The Company shall have received written approval from the Principal
Market for the transactions contemplated hereunder.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
Closing Date. The obligation of each Buyer hereunder to purchase the Notes
and the related Warrants and Additional Investment Rights at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for each Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion by
providing the Company with prior written notice thereof:
(i) The Company and, to the extent it is a party thereto, each of its
Subsidiaries shall have executed and delivered to such Buyer (i) each of the
Transaction Documents, (ii) the Initial Notes (in such principal amounts as such
Buyer shall request) being purchased by such Buyer at the Closing pursuant to
this Agreement, (iii) the Warrants (in such amounts as such Buyer shall request)
being purchased by such Buyer at the Closing pursuant to this Agreement and (iv)
the Additional Investment Rights (in such amounts as such Buyer shall request)
being purchased by such Buyer at the Closing pursuant to this Agreement.
(ii) Such Buyer shall have received the opinions of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP, the Company's outside counsel, dated as of the
Closing Date, in substantially the form of Exhibit J attached hereto.
(iii) The Company shall have delivered to such Buyer a copy of the
Irrevocable Transfer Agent Instructions, in the form of Exhibit I attached
hereto, which instructions shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
(iv) The Company shall have delivered to such Buyer a certificate
evidencing the formation and good standing of the Company and each of its
Subsidiaries in such entity's jurisdiction of formation issued by the Secretary
of State (or comparable office) of such jurisdiction, as of a date within 10
Business Days of the Closing Date.
(v) The Company shall have delivered to such Buyer a certificate evidencing
the Company's qualification as a foreign corporation and good standing issued by
the Secretary of State (or comparable office) of each jurisdiction in which the
Company conducts business, as of a date within 10 Business Days of the Closing
Date.
(vi) The Company shall have delivered to such Buyer a certified copy of the
Certificate of Incorporation as certified by the Secretary of State of the State
of Delaware within ten (10) Business Days of the Closing Date.
(vii) The Company shall have delivered to such Buyer a certificate,
executed by the Secretary of the Company and dated as of the Closing Date, as to
(i) the resolutions consistent with Section 3(b) as adopted by the Company's
Board of Directors in a form reasonably acceptable to such Buyer, (ii) the
Certificate of Incorporation and (iii) the Bylaws, each as in effect at the
Closing, in the form attached hereto as Exhibit K.
(viii) The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date) and the Company shall have performed, satisfied and complied in all
respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company
at or prior to the Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be reasonably
requested by such Buyer in the form attached hereto as Exhibit L.
(ix) The Company shall have delivered to such Buyer a letter from the
Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five days of the Closing Date.
(x) The Common Stock (I) shall be designated for quotation or listed on the
Principal Market and (II) shall not have been suspended, as of the Closing Date,
by the SEC or the Principal Market from trading on the Principal Market nor
shall suspension by the SEC or the Principal Market have been threatened, as of
the Closing Date, either (A) in writing by the SEC or the Principal Market or
(B) by falling below the minimum listing maintenance requirements of the
Principal Market.
(xi) The Company shall have obtained all governmental, regulatory or third
party consents and approvals, if any, necessary for the sale of the Securities.
Without limiting the generality of the foregoing, the Company shall also have
obtained the consent or waiver of Santa ▇▇▇▇▇▇▇ Bank and Trust Company under the
Current Credit Facility with respect to the issuance of the Notes and the
granting of a second priority security interest in the Collateral, together with
such other agreements as the Buyers shall reasonably require to ensure that the
Buyers enjoy full rights with respect to the Collateral, evidence of which shall
have been provided to the Buyers.
(xii) Within six (6) Business Days prior to the Closing, the Company shall
have delivered or caused to be delivered to each Buyer (A) certified copies of
UCC search results, listing all effective financing statements which name as
debtor the Company or any of its Subsidiaries filed in the prior five years to
perfect an interest in any assets thereof, together with copies of such
financing statements, none of which, except as otherwise agreed in writing by
the Buyers, shall cover any of the Collateral (as defined in the Security
Documents) and the results of searches for any tax lien and judgment lien filed
against such Person or its property, which results, except as otherwise agreed
to in writing by the Buyers shall not show any such Liens (as defined in the
Security Documents); and (B) a perfection certificate, duly completed and
executed by the Company and each of its Subsidiaries, in form and substance
satisfactory to the Buyers.
(xiii) The Company shall have delivered to such Buyer such other documents
relating to the transactions contemplated by this Agreement as such Buyer or its
counsel may reasonably request.
(xiv) The Company shall have received written approval from the Principal
Market for the transactions contemplated hereunder.
8. TERMINATION.
In the event that the Closing shall not have occurred on or before five (5)
Business Days from the date hereof due to the Company's or any Buyer's failure
to satisfy the conditions set forth in Sections 6 and 7 above (and the
nonbreaching party's failure to waive such unsatisfied condition(s)), the
nonbreaching party or parties shall have the option to terminate this Agreement
with respect to such breaching party at the close of business on such date
without liability of any party to any other party; provided, however, this if
this Agreement is terminated pursuant to this Section 8, the Company shall
remain obligated to reimburse the non-breaching Buyers for the expenses
described in Section 4(g) above; provided that if the termination has resulted
from a breach by one or more of the Buyers, such breaching Buyers shall not be
entitled to such reimbursement and the Company may seek recovery from such
breaching Buyer for any expenses reimbursed to a non-breaching Buyer hereunder.
9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement supersedes all other prior
oral or written agreements between the Buyers, the Company, their affiliates and
Persons acting on their behalf with respect to the matters discussed herein, and
this Agreement and the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and the
holders of at least a majority of the aggregate number of Registrable Securities
issued and issuable hereunder, and any amendment to this Agreement made in
conformity with the provisions of this Section 9(e) shall be binding on all
Buyers and holders of Securities, as applicable. No provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement is sought. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the applicable Securities then
outstanding. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration also is offered to all of the parties to
the Transaction Documents, holders of Notes, holders of the Warrants or holders
of the Additional Investment Rights, as the case may be. The Company has not,
directly or indirectly, made any agreements with any Buyers relating to the
terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents.
(f) Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
an overnight courier service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
Advanced Photonix, Inc.
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Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President
Copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP
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Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
If to the Transfer Agent:
Continental Stock Transfer & Trust Company
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Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers,
with a copy (for informational purposes only) to:
▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇ LLP
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Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively.
(g) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes, the Warrants or the Additional Investment
Rights. The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the holders of at least a
majority of the aggregate number of Registrable Securities issued and issuable
hereunder, including by way of a Fundamental Transaction (unless the Company is
in compliance with the applicable provisions governing Fundamental Transactions
set forth in the Notes, the Warrants and the Additional Investment Rights).
Subject to the provision of Section 2(f), a Buyer may assign some or all of its
rights hereunder without the consent of the Company, in which event such
assignee shall be deemed to be a Buyer hereunder with respect to such assigned
rights.
(h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
(i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and
9 shall survive the Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
(j) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(k) Indemnification. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons' agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Indemnitees")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant to
the transactions contemplated by the Transaction Documents. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. Except as otherwise set forth herein, the mechanics and procedures with
respect to the rights and obligations under this Section 9(k) shall be the same
as those set forth in Section 6 of the Registration Rights Agreement.
(l) No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
(m) Remedies. Each Buyer and each holder of the Securities shall have all
rights and remedies set forth in the Transaction Documents and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.
(n) Payment Set Aside. To the extent that the Company makes a payment or
payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
(o) Independent Nature of Buyers' Obligations and Rights. The obligations
of each Buyer under any Transaction Document are several and not joint with the
obligations of any other Buyer, and no Buyer shall be responsible in any way for
the performance of the obligations of any other Buyer under any Transaction
Document. Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. Each Buyer confirms that
it has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each Buyer
shall be entitled to independently protect and enforce its rights, including,
without limitation, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any other Buyer to be
joined as an additional party in any proceeding for such purpose.
[Signature Page Follows]
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
COMPANY:
ADVANCED PHOTONIX, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
--------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Title: Chairman and Chief Executive Officer
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
BUYERS:
SMITHFIELD FIDUCIARY LLC
By: /s/ ▇▇▇▇ ▇. Chill
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Name: ▇▇▇▇ ▇. Chill
Title: Authorized Signatory
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
IROQUOIS CAPITAL LP
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Partner
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
BLUEGRASS GROWTH FUND, LP
By: BLUEGRASS GROWTH FUND PARTNERS LLC,
its general partner
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By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: Managing Member
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
BLUEGRASS GROWTH FUND, LTD
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: Director
SCHEDULE OF BUYERS
(1) (2) (3) (4) (5) (6) (7) (8)
Aggregate
Aggregate Number Principal Number of
Principal of Initial Amount of Additional Legal Representative's
Address and Amount of Warrant Additional Warrant Purchase Address and Facsimile
Buyer Facsimile Number Initial Notes Shares Notes Shares Price Number
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Smithfield Fiduciary c/o Highbridge Capital $3,750,000 638,117 $3,750,000 638,117 $3,750,000 ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇ LLP
LLC Management, LLC ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ 10022
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Attention:
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
▇▇▇▇ ▇. Chill Facsimile:
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇ Telephone:
Residence: Cayman Islands (▇▇▇) ▇▇▇-▇▇▇▇
Iroquois Capital LP c/o Vertical Ventures, LLC $250,000 42,541 $250,000 42,541 $250,000
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Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Residence: New York
Bluegrass Growth c/o Bluegrass Growth Fund $500,000 85,082 $500,000 85,082 $500,000
Fund, LP Partners LLC
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Attention: ▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Residence: Delaware
Bluegrass Growth c/o Bluegrass Growth Fund $500,000 85,082 $500,000 85,082 $500,000
Fund, Ltd. Partners LLC
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▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Residence: Delaware
EXHIBITS
Exhibit A Form of Initial Notes
Exhibit B Form of Initial Warrants
Exhibit C Form of Additional Investment Rights
Exhibit D Form of Additional Notes
Exhibit E Form of Additional Warrants
Exhibit F Registration Rights Agreement
Exhibit G Form of Pledge and Security Agreement
Exhibit H Form of Guarantee
Exhibit I Irrevocable Transfer Agent Instructions
Exhibit J Form of Outside Company Counsel Opinion
Exhibit K Form of Secretary's Certificate
Exhibit L Form of Officer's Certificate
Exhibit M Form of Account Control Agreement
SCHEDULES
Schedule 3(a) Subsidiaries
Schedule 3(l) Absence of Certain Changes
Schedule 3(r) Capitalization
Schedule 3(s) Indebtedness and Other Contracts
Schedule 3(t) Litigation
Schedule 3(x) Intellectual Property
Schedule 3(z) Subsidiary Rights
Schedule 3(cc) Ranking of Notes