Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as
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of October 21, 2004, by and between Applied Digital Solutions, Inc., a
Missouri corporation (the "Company"), and Satellite Strategic Finance
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Associates, LLC, a Delaware limited liability company (the "Investor").
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The Company wishes to sell to the Investor, and the
Investor wishes to purchase, on the terms and subject to the conditions set
forth in this Agreement, (i) shares (the "Shares") of the Company's common
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stock, par value $.01 per share (the "Common Stock"), (ii) a Series C
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Warrant in the form attached hereto as Exhibit A (the "Series C Warrant")
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and (iii) a Series D Warrant in the form attached hereto as Exhibit B (the
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"Series D Warrant"). The Series C Warrant and the Series D Warrant are
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collectively referred to herein as the "Warrants".
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On the terms and subject to the conditions specified
herein, the Company will issue and sell two million five hundred thousand
(2,500,000) Shares to the Investor at a purchase price per Share equal to
the Share Price (as defined below). The Series C Warrant will entitle the
Investor to purchase one million five hundred thousand (1,500,000) shares of
Common Stock, will have an exercise price equal to $4.33 (subject to
adjustment as provided therein) and will expire on the one hundred and
fiftieth (150th) day following the Effective Date (as defined below). The
Series D Warrant will entitle the Investor to purchase six hundred sixty six
thousand, six hundred and sixty seven (666,667) shares of Common Stock, will
have an exercise price equal to $5.05 (subject to adjustment as provided
therein) and will be exercisable beginning on the one-year anniversary of
the Closing Date and ending on the date that is six (6) years following the
Closing Date.
The shares of Common Stock into which the Warrants are
exercisable are referred to herein as the "Warrant Shares". The Shares and
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the Warrants are collectively referred to herein as the "Purchased
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Securities", and the Purchased Securities and the Warrant Shares are
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collectively referred to herein as the "Securities".
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The Company has agreed to effect the registration of the
Registrable Securities under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Rights Agreement in the form
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attached hereto as Exhibit C (the "Registration Rights Agreement"). The sale
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of the Securities by the Company to the Investor will be effected in
reliance upon the exemption from securities registration afforded by the
provisions of Section 4(2) of the Securities Act or Regulation D
("Regulation D") promulgated by the Securities and Exchange Commission (the
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"Commission") thereunder.
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In consideration of the mutual promises made herein and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Investor hereby agree as
follows:
1. PURCHASE AND SALE OF PURCHASED SECURITIES.
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1.1 Purchase and Sale of Shares and Warrants. Upon the terms and
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subject to the satisfaction or waiver of the conditions set forth herein,
the Company agrees to sell and the Investor agrees to purchase (i) two
million five hundred thousand (2,500,000) Shares, (ii) a Series C Warrant
and (iii) a Series D Warrant. The purchase price for the Purchased
Securities being purchased by the Investor (the "Purchase Price") shall be
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equal to (x) the number of Shares purchased by the Investor times (y) the
Share Price. The closing of the purchase and sale of the Purchased
Securities (the "Closing") will be deemed to occur at the offices of Xxxxx &
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Stachenfeld, LLP, 000 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, when (A)
this Agreement and the other Transaction Documents (as defined below) have
been executed and delivered by the Company and, to the extent applicable, by
the Investor, (B) each of the conditions to Closing described in Section 5
hereof has been satisfied or waived by the Company or the Investor, as the
case may be and (C) the Investor shall have delivered the Purchase Price to
the Company by wire transfer of immediately available funds against physical
delivery of duly executed certificates representing the Purchased Securities
being purchased by the Investor. The date on which the Closing occurs is
referred to herein as the "Closing Date".
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1.2 Certain Definitions. When used herein, the following terms
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shall have the respective meanings indicated:
"Affiliate" means, as to any Person (the "subject
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Person"), any other Person (a) that directly or indirectly through one or
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more intermediaries controls or is controlled by, or is under direct or
indirect common control with, the subject Person, (b) that directly or
indirectly beneficially owns or holds ten percent (10%) or more of any class
of voting equity of the subject Person, or (c) ten percent (10%) or more of
the voting equity of which is directly or indirectly beneficially owned or
held by the subject Person. For the purposes of this definition, "control"
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when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, through representation on such
Person's Board of Directors or other management committee or group, by
contract or otherwise.
"Business Day" means any day other than a
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Saturday, a Sunday or a day on which the New York Stock Exchange or
commercial banks located in New York City are authorized or permitted by law
to close.
"Closing" and "Closing Date" have the respective
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meanings specified in Section 1.1 hereof.
"Common Stock" means the common stock, par value
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$0.01 per share, of the Company.
"Debt" means, as to any Person at any time:
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(a) all indebtedness, liabilities and obligations of such Person for
borrowed money; (b) all indebtedness, liabilities and obligations of such
Person to pay the deferred purchase price of Property or services, except
trade accounts payable of such Person arising in the ordinary course of
business that are not past due by more than
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90 days; (c) all capital lease obligations of such Person; (d) all
indebtedness, liabilities and obligations of others guaranteed by such
Person; (e) all indebtedness, liabilities and obligations secured by a Lien
existing on Property owned by such Person, whether or not the indebtedness,
liabilities or obligations secured thereby have been assumed by such Person
or are non-recourse to such Person; (f) all reimbursement obligations of
such Person (whether contingent or otherwise) in respect of letters of
credit, bankers' acceptances, surety or other bonds and similar instruments;
and (g) all indebtedness, liabilities and obligations of such Person to
redeem or retire shares of capital stock of such Person.
"Disclosure Documents" means all SEC Documents
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filed by the Company at least two (2) Business Days prior to the date of
this Agreement via the Commission's Electronic Data Gathering, Analysis and
Retrieval system (XXXXX) in accordance with the requirements of Regulation
S-T under the Exchange Act.
"Effective Date" has the meaning set forth in the
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Registration Rights Agreement.
"Environmental Law" means any federal, state,
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provincial, local or foreign law, statute, code or ordinance, principle of
common law, rule or regulation, as well as any Permit, order, decree,
judgment or injunction issued, promulgated, approved or entered thereunder,
relating to pollution or the protection, cleanup or restoration of the
environment or natural resources, or to the public health or safety, or
otherwise governing the generation, use, handling, collection, treatment,
storage, transportation, recovery, recycling, discharge or disposal of
hazardous materials.
"ERISA" means the Employee Retirement Income
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Security Act of 1974, as amended, and the regulations and published
interpretations thereunder.
"Exchange Act" means the Securities Exchange Act
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of 1934, as amended (or any successor act), and the rules and regulations
thereunder (or respective successors thereto).
"Execution Date" means the date on which this
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Agreement and each other Transaction Document have been executed and
delivered by the Company and, to the extent applicable, the Investor.
"GAAP" means generally accepted accounting
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principles, applied on a consistent basis, as set forth in (i) opinions of
the Accounting Principles Board of the American Institute of Certified
Public Accountants, (ii) statements of the Financial Accounting Standards
Board and (iii) interpretations of the Commission and the Staff of the
Commission. Accounting principles are applied on a "consistent basis" when
the accounting principles applied in a current period are comparable in all
material respects to those accounting principles applied in a preceding
period.
"Governmental Authority" means any nation or
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government, any state, provincial or political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including without
limitation
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any stock exchange, securities market or self-regulatory organization.
"Governmental Requirement" means any law,
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statute, code, ordinance, order, rule, regulation, judgment, decree,
injunction, franchise, license or other directive or requirement of any
federal, state, county, municipal, parish, provincial or other Governmental
Authority or any department, commission, board, court, agency or any other
instrumentality of any of them.
"Intellectual Property" means any U.S. or foreign
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patents, patent rights, patent applications, trademarks, trade names,
service marks, brand names, logos and other trade designations (including
unregistered names and marks), trademark and service xxxx registrations and
applications, copyrights and copyright registrations and applications,
inventions, invention disclosures, protected formulae, formulations,
processes, methods, trade secrets, computer software, computer programs and
source codes, manufacturing research and similar technical information,
engineering know-how, customer and supplier information, assembly and test
data drawings or royalty rights.
"Investment Certificate" has the meaning
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specified in Section 4.7 hereof.
"Lien" means, with respect to any Property, any
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mortgage or mortgages, pledge, hypothecation, assignment, deposit
arrangement, security interest, tax lien, financing statement, pledge,
charge, or other lien, charge, easement, encumbrance, preference, priority
or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Material Adverse Effect" means an effect that is
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material and adverse to (i) the consolidated business, operations,
properties, financial condition or results of operations of the Company and
the Subsidiaries taken as a whole or (ii) the transactions contemplated by
this Agreement or the other Transaction Documents.
"Material Contracts" means, as to the Company,
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any agreement required pursuant to Item 601 of Regulation S-B or Item 601,
as applicable, of Regulation S-K under the Securities Act to be filed as an
exhibit to any report, schedule, registration statement or definitive proxy
statement filed or required to be filed by the Company with the Commission
under the Exchange Act or any rule or regulation promulgated thereunder, and
any and all amendments, modifications, supplements, renewals or restatements
thereof.
"NASD" means the National Association of Securities
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Dealers, Inc.
"Outstanding Registrable Securities" means, at any
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time, all Registrable Securities that at such time are either issued and
outstanding or issuable upon exercise of the Warrants (without regard to any
limitation on such exercise).
"Pension Plan" means an employee benefit plan (as
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defined in ERISA) maintained by the Company for employees of the Company or
any of its Affiliates.
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"Permitted Liens" means the following:
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(a) encumbrances consisting of easements,
rights-of-way, zoning restrictions or other restrictions on the use
of real Property or imperfections to title that do not
(individually or in the aggregate) materially impair the ability of
the Company or any of the Subsidiaries to use such Property in its
businesses, and none of which is violated in any material respect
by existing or proposed structures or land use;
(b) Liens for taxes, assessments or other
governmental charges that are not delinquent or which are being
contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of
the Property subject to such Liens, and for which adequate reserves
(as determined in accordance with GAAP) have been established; and
(c) Liens of mechanics, materialmen,
warehousemen, carriers, landlords or other similar statutory Liens
securing obligations that are not yet due and are incurred in the
ordinary course of business or which are being contested in good
faith by appropriate proceedings, which proceedings have the effect
of preventing the forfeiture or sale of the Property subject to
such Liens, for which adequate reserves (as determined in
accordance with GAAP) have been established.
"Person" means any individual, corporation,
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trust, association, company, partnership, joint venture, limited liability
company, joint stock company, Governmental Authority or other entity.
"Principal Market" means the principal exchange
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or market on which the Common Stock is listed or traded.
"Property" means property and/or assets of all
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kinds, whether real, personal or mixed, tangible or intangible (including,
without limitation, all rights relating thereto).
"Purchase Price" has the meaning specified in
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Section 1.1 hereof.
"Purchased Securities" has the meaning set forth
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in the preamble to this Agreement.
"Registrable Securities" means the Shares and the
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Warrant Shares, any other shares of Common Stock issuable pursuant to the
terms of the Warrants, and any shares of capital stock issued or issuable
from time to time (with any adjustments) in replacement of, in exchange for
or otherwise in respect of the Shares or the Warrant Shares; provided,
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however, that "Registrable Securities" shall not include any such shares
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that have been sold to the public pursuant to the Registration Statement or
Rule 144.
"Registration Statement" has the meaning set forth
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in the Registration Rights Agreement.
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"Rule 144" means Rule 144 under the Securities
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Act, or any successor provision.
"SEC Documents" has the meaning specified in
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Section 3.4 hereof.
"Securities" has the meaning specified in the
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preamble to this Agreement.
"Share Price" means $3.61.
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"Subsidiary" means, with respect to the Company,
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any corporation or other entity (other than an entity having no material
operations or business during the twelve month period immediately preceding
the Execution Date) of which at least a majority of the outstanding shares
of stock or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors (or Persons
performing similar functions) of such corporation or entity (regardless of
whether, in the case of a corporation, stock of any other class or classes
of such corporation shall or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, owned
or controlled by the Company and/or one or more of its Affiliates.
"Termination Date" means the earlier to occur
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of (i) the date on which all of the Warrants have expired and (ii) the date
on which all of the Warrants have been exercised in full.
"Trading Day" means any day on which the Common
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Stock is purchased and sold on the Principal Market.
"Transaction Documents" means (i) this Agreement,
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(ii) the Series C Warrant, (iii) the Series D Warrant, (iv) the Registration
Rights Agreement, and (v) all other agreements, documents and other
instruments executed and delivered by or on behalf of the Company or any of
its officers at the Closing.
1.3 Other Definitional Provisions. All definitions contained in
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this Agreement are equally applicable to the singular and plural forms of
the terms defined. The words "hereof", "herein" and "hereunder" and words of
similar import referring to this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
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The Investor hereby represents and warrants to the Company and
agrees with the Company that, as of the date of this Agreement and as of the
Closing Date:
2.1 Authorization; Enforceability. The Investor is duly and
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validly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization as set forth below the
Investor's name on the signature page hereof with the requisite corporate
power and
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authority to purchase the Purchased Securities and to execute and deliver
this Agreement and the other Transaction Documents. This Agreement and the
other Transaction Documents to which it is a party have been duly executed
and delivered by the Investor and each constitutes the Investor's valid and
legally binding obligation, enforceable in accordance with its terms,
subject to (i) applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws of general application
relating to or affecting the enforcement of creditors' rights generally and
(ii) general principles of equity.
2.2 Accredited Investor. The Investor (i) is an "accredited
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investor" as that term is defined in Rule 501 of Regulation D; (ii) is
acquiring the Securities solely for its own account ,and not with a present
view to the public resale or distribution of all or any part thereof, except
pursuant to sales that are registered under the Securities Act or are exempt
from the registration requirements of the Securities Act; provided, however,
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that, in making such representation, the Investor does not agree to hold the
Securities for any minimum or specific term and reserves the right to sell,
transfer or otherwise dispose of the Securities at any time in accordance
with the provisions of this Agreement and with Federal and state securities
laws applicable to such sale, transfer or disposition; and (iii) understands
that an investment in the Company is speculative and involves a high degree
of risk of loss.
2.3 Information. The Company has provided the Investor with
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information regarding the business, operations and financial condition of
the Company, and has granted to the Investor the opportunity to ask
questions of and receive satisfactory answers from representatives of the
Company, its officers, directors, employees and agents concerning the
Company and materials relating to the terms and conditions of the purchase
and sale of the Purchased Securities hereunder, and based thereon believes
it can make an informed decision with respect to its investment in the
Securities. Neither such information nor any other investigation conducted
by the Investor or its representatives shall modify, amend or otherwise
affect the Investor's right to rely on the Company's representations and
warranties contained in this Agreement.
2.4 Limitations on Disposition. The Investor acknowledges that,
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except as provided in the Registration Rights Agreement, the Securities have
not been and are not being registered under the Securities Act and may not
be transferred or resold without registration under the Securities Act or
unless pursuant to an exemption therefrom. By executing this Agreement, the
Investor represents that it has no agreement or understanding with any
Person (other than a Person to whom the Investor has granted investment
discretion over its assets) to sell, transfer and/or grant rights in any of
the Securities.
2.5 Legend. The Investor understands that the certificates
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representing the Securities may bear at issuance a restrictive legend in
substantially the following form:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or the securities laws of
any state, and may not be offered or sold unless a
registration statement under the Securities Act and
applicable state securities laws shall have become
effective with regard thereto, or an exemption from
registration under the Securities Act and applicable state
securities laws is available in connection with such offer
or sale."
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Notwithstanding the foregoing, it is agreed that, as long
as (A) the resale or transfer (including without limitation a pledge) of any
of the Securities is registered pursuant to an effective registration
statement, (B) such Securities have been sold pursuant to Rule 144, subject
to receipt by the Company of customary documentation in connection
therewith, or (C) such Securities are eligible for resale under Rule 144(k)
or any successor provision and the holder thereof represents in writing to
the Company that it is eligible to use such rule for public resales of such
Securities, the certificates representing such Securities shall be issued
without any legend or other restrictive language and, with respect to
Securities upon which such legend is stamped, the Company shall issue new
certificates without such legend to the holder upon request.
2.6 Reliance on Exemptions. The Investor understands that the
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Securities are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of federal and state
securities laws and that the Company is relying on the truth and accuracy of
the representations and warranties of the Investor set forth in this Section
2 in order to determine the availability of such exemptions and the
eligibility of the Investor to acquire the Securities.
2.7 Non-Affiliate Status; Common Stock Ownership. The Investor is
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not an Affiliate of the Company or of any other Investor and is not acting
in association or concert with any other Person with regard to its purchase
of Purchased Securities or otherwise in respect of the Company. The
Investor's investment in Purchased Securities is not for the purpose of
acquiring, directly or indirectly, control of, and it has no intent to
acquire or exercise control of, the Company or to influence the decisions or
policies of the Company's Board of Directors.
2.8 Fees. The Investor is not obligated to pay any commissions,
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compensation or other fee, cost or related expenditure to any underwriter,
broker, agent or other representative in connection with the transactions
contemplated hereby, other than legal fees to its counsel. The Investor will
indemnify and hold harmless the Company from and against any claim by any
Person alleging that, as a result of any agreement or arrangement between
such Person and the Investor, the Company is obligated to pay any such
commissions, compensations, fee, cost or related expenditure in connection
with the transactions completed hereby.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
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represents and warrants to the Investor and agrees with the Investor that,
as of the date of this Agreement and as of the Closing Date:
3.1 Organization, Good Standing and Qualification. Each of the
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Company and the Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite power and authority to carry on its
business as now conducted. Each of the Company and the Subsidiaries is duly
qualified to transact business and is in good standing in each jurisdiction
in which it conducts business except where the failure so to qualify has not
had or would not reasonably be expected to have a Material Adverse Effect.
3.2 Authorization; Consents. The Company has the requisite
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corporate power and authority to enter into and perform its obligations
under this Agreement and the other Transaction Documents, including without
limitation to issue and sell the Securities to the Investor in accordance
with the terms
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thereof and to issue the Warrant Shares upon exercise of the Warrants. All
corporate action on the part of the Company by its officers, directors and
stockholders necessary for the authorization, execution and delivery of, and
the performance by the Company of its obligations under, this Agreement and
the other Transaction Documents has been taken, and no further consent or
authorization of the Company, its Board of Directors, stockholders, any
Governmental Authority or organization (other than such approval as may be
required under the Securities Act and applicable state securities laws in
respect of the Registration Rights Agreement), or any other person or entity
is required (pursuant to any rule of the NASD or otherwise). The Company's
Board of Directors has determined, at a duly convened meeting or pursuant to
a unanimous written consent, that the issuance and sale of the Securities,
and the consummation of the transactions contemplated hereby and the other
Transaction Documents (including without limitation the issuance of the
Warrant Shares), are in the best interests of the Company.
3.3 Enforcement. Each Transaction Document has been duly executed
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and delivered by the Company and constitutes the valid and legally binding
obligation of the Company, enforceable against it in accordance with its
terms, subject to (i) applicable bankruptcy, insolvency, fraudulent
transfer, moratorium, reorganization or other similar laws of general
application relating to or affecting the enforcement of creditors' rights
generally and (ii) general principles of equity.
3.4 SEC Documents; Agreements; Financial Statements; Other
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Information. The Company has filed with the Commission all reports,
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schedules, registration statements and definitive proxy statements that the
Company was required to file with the Commission on or after December 31,
2002 (collectively, the "SEC Documents"). Except as set forth on Schedule
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3.4, the Company is not aware of any event occurring on or prior to the
Closing Date (other than the transactions effected hereby) that would
require the filing of, or with respect to which the Company intends to file,
a Form 8-K after the Closing. Each SEC Document, as of the date of the
filing thereof with the Commission, complied in all material respects with
the requirements of the Securities Act or Exchange Act, as applicable, and
the rules and regulations promulgated thereunder and, as of the date of such
filing (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing), such SEC Document (including
all exhibits and schedules thereto and documents incorporated by reference
therein) did not contain an untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading. All documents required to be filed as exhibits to the
SEC Documents have been filed as required. Except as set forth in the SEC
Documents or any schedule or exhibit attached thereto or hereto, the Company
has no liabilities, contingent or otherwise, other than liabilities incurred
in the ordinary course of business which, under GAAP, are not required to be
reflected in the financial statements included in the SEC Documents and
which, individually or in the aggregate, are not material to the
consolidated business or financial condition of the Company and the
Subsidiaries taken as a whole. The financial statements included in the SEC
Documents have been prepared in accordance with GAAP consistently applied at
the times and 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
adjustments).
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3.5 Capitalization; Debt Schedule. The capitalization of the
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Company as of the date hereof, including its authorized capital stock, the
number of shares issued and outstanding, the number of shares issuable and
reserved for issuance pursuant to the Company's stock option plans and
agreements, the number of shares issuable and reserved for issuance pursuant
to securities (other than the Securities) exercisable for, or convertible
into or exchangeable for any shares of Common Stock and the number of shares
initially to be reserved for issuance upon exercise of the Warrants is set
forth on Schedule 3.5 hereto. All issued and outstanding shares of capital
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stock of the Company have been validly issued, fully paid and
non-assessable, and all shares of capital stock issued by any wholly-owned
subsidiary of the Company have been validly issued, fully paid and
non-assessable, free and clear of all Liens other than Permitted Liens. No
shares of the capital stock of the Company are subject to preemptive rights
or any other similar rights of security holders of the Company or any Liens
created by or through the Company. Except as set forth or Schedule 3.5,
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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 shares of
capital stock of the Company, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company or
any of its wholly-owned subsidiaries (whether pursuant to anti-dilution,
"reset" or other similar provisions). Except as described on Schedule 3.5
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hereto, neither the Company nor any of its wholly-owned subsidiaries has any
material Debt outstanding as of the date hereof.
3.6 Due Authorization; Valid Issuance. The Shares and the
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Warrants are duly authorized and, when issued, sold and delivered in
accordance with the terms hereof, will be duly and validly issued, fully
paid and non-assessable, free and clear of any Liens imposed by or through
the Company and, assuming the accuracy of the Investor's representations in
this Agreement, will be issued, sold and delivered in compliance with all
applicable Federal and state securities laws. The Warrant Shares are duly
authorized and reserved for issuance and, when issued in accordance with the
terms of the Warrants, will be duly and validly issued, fully paid and
non-assessable, free and clear of any Liens imposed by or through the
Company.
3.7 No Conflict with Other Instruments. Neither the Company nor
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any of the Subsidiaries is in violation of any provisions of its charter,
bylaws or any other governing document or in default (and no event has
occurred which, with notice or lapse of time or both, would constitute a
default) under any provision of any instrument or contract to which it is a
party or by which it or any of its Property is bound, or in violation of any
provision of any Governmental Requirement applicable to it, except for
violations of any provision of a Governmental Requirement that has not had
or would not reasonably be expected to have a Material Adverse Effect (any
such violation or default, a "Current Violation"). Except as set forth on
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Schedule 3.7 hereto, the execution, delivery and performance of this
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Agreement and the other Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby (including without limitation,
the issuance of the Purchased Securities and the reservation and issuance of
the Warrant Shares) will not result in a Current Violation or result in the
creation of any Lien upon any assets of the Company or of any of the
Subsidiaries or the triggering of any preemptive or anti-dilution rights
(including without limitation pursuant to any "reset" or similar provisions)
or rights of first refusal or first offer, or any other rights that would
allow or permit the holders of the Company's securities or other Persons to
purchase shares of Common
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Stock or other securities of the Company (whether pursuant to a shareholder
rights plan provision or otherwise).
3.8 Financial Condition; Taxes; Litigation.
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3.8.1 The Company's financial condition is, in all
material respects, as described in the Disclosure Documents, except for
changes in the ordinary course of business and normal year-end adjustments
that are not, in the aggregate, materially adverse to the consolidated
business or financial condition of the Company and the Subsidiaries taken as
a whole. There has occurred no (i) material adverse change to the Company's
business, operations, properties, financial condition, or results of
operations since the date of the Company's most recent audited financial
statements contained in the Disclosure Documents or (ii) change by the
Company in its accounting principles, policies and methods except as
required by changes in GAAP or applicable law.
3.8.2 Each of the Company and the Subsidiaries (i) has
prepared in good faith and duly and timely filed all tax returns required to
be filed by it and such returns are complete and accurate in all material
respects and (ii) has paid all taxes required to have been paid by it,
except for taxes which it reasonably disputes in good faith or the failure
of which to pay has not had or would not reasonably be expected to have a
Material Adverse Effect, and has no liability with respect to accrued taxes
in excess of the amounts that are described as accrued in the most recent
financial statements included in the Disclosure Documents.
3.8.3 Except as described in Schedule 3.8.3, neither the
--------------
Company nor any of the Subsidiaries is the subject of any pending or, to the
Company's knowledge, threatened inquiry, investigation or administrative or
legal proceeding by the Internal Revenue Service, the taxing authorities of
any state or local jurisdiction (other than with respect to taxes which it
reasonably disputes in good faith or the failure of which to pay has not had
or would not reasonably be expected to have a Material Adverse Effect), the
Commission, the NASD, any state securities commission or other Governmental
Authority.
3.8.4 Except as described in Schedule 3.8.4, there is no
--------------
material claim, litigation or administrative proceeding pending or, to the
Company's knowledge, threatened or contemplated, against the Company or any
of its wholly-owned subsidiaries, or, to the Company's knowledge, against
any officer, director or employee of the Company or any such wholly-owned
subsidiary in connection with such person's employment therewith. Neither
the Company nor any of its wholly-owned subsidiaries is a party to or
subject to the provisions of, any order, writ, injunction, judgment or
decree of any court or Governmental Authority which has had or would
reasonably be expected to have a Material Adverse Effect.
3.9 Form S-3. The Company is eligible to register the Registrable
--------
Securities for resale by the Investor on a registration statement on Form
S-3 under the Securities Act. To the Company's knowledge, there exist no
facts or circumstances (including without limitation any required approvals
or waivers of any circumstances that may delay or prevent the obtaining of
accountant's consents) that could reasonably be expected to prohibit or
delay the preparation, filing or effectiveness of such registration
statement.
11
3.10 Acknowledgement of Dilution. The Company acknowledges that the
---------------------------
issuance of the Warrant Shares upon exercise of the Warrants may result in
dilution of the outstanding shares of Common Stock. The Company further
acknowledges that its obligation to issue Warrant Shares upon exercise of
the Warrants in accordance with the terms thereof is unconditional
regardless of the effect of any such dilution.
3.11 Intellectual Property. The Company and the Subsidiaries each
---------------------
owns or possesses, licenses or can acquire or make use of, without undue
expense, all Intellectual Property that is necessary for the operation of
its businesses as presently conducted and as proposed to be conducted,
without any known conflict with the rights of others. The consummation of
the transactions contemplated by this Agreement and the other Transaction
Documents will not materially alter or impair, individually or in the
aggregate, any of such rights of the Company. To the Company's knowledge,
(i) none of its current products or services infringes upon any Intellectual
Property of any other Person, and no claim or litigation is pending or, to
the knowledge of the Company, threatened against the Company contesting its
right to sell or otherwise use any product or material or service which has
had or would reasonably be expected to have a Material Adverse Effect and
(ii) the use by the Company of any Intellectual Property does not infringe
the rights of any third party to such Intellectual Property. There is no
violation by the Company with respect to any Intellectual Property owned or
used by the Company and the Company's rights to such Intellectual Property
are valid and enforceable and no registration relating thereto has lapsed,
expired or terminated or is the subject of any claim or proceeding that
could result in any such lapse, expiration or termination. The Company and
the Subsidiaries each has complied in all material respects with its
obligations pursuant to any agreement relating to Intellectual Property
rights that are the subject of licenses granted by third parties, except for
any non-compliance that has not had or would not reasonably be expected to
have a Material Adverse Effect.
3.12 Registration Rights. Except as described on Schedule 3.12
------------------- -------------
hereto, the Company has not granted or agreed to grant to any person or
entity any rights (including "piggy-back" registration rights) to have any
securities of the Company registered with the Commission or any other
governmental authority which has not been satisfied in full prior to the
date hereof.
3.13 Solicitation; Other Issuances of Securities. Neither the
-------------------------------------------
Company nor any of its Subsidiaries or Affiliates, nor any person acting on
its or their behalf, (i) 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, or (ii) has, directly or indirectly,
made any offers or sales of any security or the right to purchase any
security, or solicited any offers to buy any security or any such right,
under circumstances that would require registration of the Securities under
the Securities Act or that would be integrated with the sale of the
Securities for purposes of the Securities Act or the listing criteria of the
Nasdaq Stock Market.
3.14 Fees. The Company is not obligated to pay any compensation or
----
other fee, cost or related expenditure to any underwriter, broker, agent or
other representative in connection with the transactions contemplated
hereby. The Company will indemnify and hold harmless the Investor from and
against any claim by any person or entity alleging that, as a result of any
agreement or arrangement
12
between such Person and the Company, the Investor is obligated to pay any
such compensation, fee, cost or related expenditure in connection with the
transactions contemplated hereby.
3.15 Foreign Corrupt Practices. Neither the Company, nor to the
-------------------------
Company's knowledge any of the Subsidiaries nor to the Company's knowledge
any director, officer, agent, employee or other person acting on behalf of
the Company or any Subsidiary, has (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
(including without limitation any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment), or (iii) violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended.
3.16 Key Employees. Each of the Company's executive officers (as
-------------
defined in Rule 501(f) of the Securities Act) (each, a "Key Employee") is
------------
currently serving in the capacity indicated in Schedule 3.16 hereto. The
-------------
Company has no knowledge of any fact or circumstance (including without
limitation (i) the terms of any agreement to which such person is a party or
any litigation in which such person is or may become involved and (ii) any
illness or medical condition that could reasonably be expected to result in
the disability or incapacity of such person) that would limit or prevent any
such person from serving in such capacity on a full-time basis in the
foreseeable future, or of any intention on the part of any such person to
limit or terminate his or her employment with the Company. Except as set
forth on Schedule 3.16, no Key Employee has borrowed money pursuant to a
-------------
currently outstanding loan that is secured by Common Stock or any right or
option to receive Common Stock.
3.17 Employee Matters. There is no strike, labor dispute or union
----------------
organization activities pending or, to the knowledge of the Company,
threatened between it and its employees (or between any of the Subsidiaries
and such Subsidiary's employees). No employees of the Company belong to any
union or collective bargaining unit. The Company has complied in all
material respects with all applicable federal and state equal opportunity
and other laws related to employment.
3.18 Environment. To the Company's knowledge, neither the Company
-----------
nor any of the Subsidiaries has any current liability under any
Environmental Law, nor, to the knowledge of the Company, do any factors
exist that are reasonably likely to give rise to any such liability that,
individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect. To the Company's knowledge, neither the
Company nor any of the Subsidiaries has violated any Environmental Law
applicable to it now or previously in effect, other than such violations or
infringements that, individually or in the aggregate, have not had and would
not reasonably be expected to have a Material Adverse Effect.
3.19 ERISA. Except as described on Schedule 3.19, neither the
----- -------------
Company nor any of the Subsidiaries maintains or contributes to, or has any
obligation under, any Pension Plan. The Company and each of the Subsidiaries
is in compliance in all material respects with the presently applicable
provisions of ERISA and the United States Internal Revenue Code of 1986, as
amended, except for matters that, individually or in the aggregate, have not
had, and would not reasonably be expected to have, a Material Adverse
Effect.
13
3.20 Disclosure. No written statement, information, report,
----------
representation or warranty made by the Company in this Agreement or any
other Transaction Document or furnished to the Investor by or on behalf of
the Company or any of the Subsidiaries in connection with the Transaction
Documents or the Investor's due diligence investigation of the Company
contains any untrue statement of a material fact or omits to state any
material fact necessary to make the statements herein or therein, in light
of the circumstances in which made, not misleading. Following the issuance
of the press release and Form 8-K in accordance with Section 4.1(c) hereof,
and based upon the Company's view that any non-public information provided
to the Investor is not material, the Investor will not, to the Company's
knowledge, possess any material non-public information concerning the
Company. The Company acknowledges that the Investor is relying on the
representations, acknowledgements and agreements made by the Company in this
Section 3.20 and elsewhere in this Agreement in making trading and other
decisions concerning the Company's securities.
3.21 Insurance. The Company maintains insurance for itself and the
---------
Subsidiaries in such amounts and covering such losses and risks as the
Company believes to be reasonably prudent in relation to the businesses in
which the Company and the Subsidiaries are engaged. No notice of
cancellation has been received for any of such policies and the Company
reasonably believes that is in compliance with all of the terms and
conditions thereof. The Company has no reason to believe that it will not be
able to renew any existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue doing business as currently conducted without a
significant increase in cost. Without limiting the generality of the
foregoing, the Company maintains Director's and Officer's insurance in an
amount not less than $10 million for each covered occurrence and in the
aggregate.
3.22 Property. Except as set forth in Schedule 3.22, the Company
-------- -------------
and the Subsidiaries have good and marketable title to all personal Property
and good and marketable title in fee simple to all of its real property
owned by them which, individually or in the aggregate, is material to the
business of the Company and the Subsidiaries, in each such case free and
clear of all Liens except for Permitted Liens. Any Property held under lease
by the Company and the Subsidiaries is held by them under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the use made or proposed to be made of such Property by the
Company and the Subsidiaries.
3.23 Regulatory Permits. The Company and the Subsidiaries possess
------------------
all material certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses other than where the failure to possess
such certificates, authorizations or permits, individually or in the
aggregate, has not had and would not reasonably be expected to have a
Material Adverse Effect. Neither the Company nor any such Subsidiary has
received any notice or otherwise become aware of any proceedings, inquiries
or investigations relating to the revocation or modification of any such
certificate, authorization or permit.
3.24 Exchange Act Registration; Listing. The Company's Common Stock
----------------------------------
is registered pursuant to Section 12(g) of the Exchange Act and is listed on
the Nasdaq SmallCap Market or the Nasdaq National Market (collectively, the
"Nasdaq Stock Market"). The Company currently meets the continuing
-------------------
eligibility requirements for listing on the Nasdaq Stock Market and has not
received
14
any notice from the Nasdaq Stock Market that it may not currently satisfy
such requirements or that such continued listing is in any way threatened.
The Company has taken no action designed to, or which, to the knowledge of
the Company, may have the effect of, terminating the registration of the
Common Stock under the Exchange Act or delisting the Common Stock from the
Nasdaq Stock Market.
3.25 Investment Company Status. The Company is not, and immediately
-------------------------
after receipt of the Purchase Price for the Purchased Securities issued
under this Agreement will not be, an "investment company" or an entity
------------------
"controlled" by an "investment company" within the meaning of the Investment
---------- ------------------
Company Act of 1940, as amended (the "Investment Company Act"), and shall
----------------------
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
3.26 Transfer Taxes. No stock transfer or other taxes (other than
--------------
income taxes) are required to be paid in connection with the issuance and
sale of any of the Securities, other than such taxes for which the Company
has established appropriate reserves and intends to pay in full on or before
the Closing.
3.27 Internal Controls and Procedures. The Company maintains
--------------------------------
internal accounting controls, policies and procedures as certified by the
Company's Chief Executive Officer and Chief Financial Officer in the SEC
Documents.
3.28 Embargoed Person. None of the funds or other assets of the
----------------
Company shall constitute property of, or shall be beneficially owned,
directly or indirectly, by any person subject to trade restrictions under
United States law, including, but not limited to, the International
Emergency Economic Powers Act, 50 U.S.C. Section 1701 et seq., The Trading
with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or
regulations promulgated under any such United States laws (each, an
"Embargoed Person"), with the result that the investments evidenced by the
----------------
Purchased Securities are or would be in violation of law. No Embargoed
Person shall have any interest of any nature whatsoever in the Company with
the result that the investments evidenced by the Purchased Securities are or
would be in violation of law. None of the funds or other assets of the
Company shall be derived from any unlawful activity with the result that the
investments evidenced by the Purchased Securities are or would be in
violation of law.
4. COVENANTS OF THE COMPANY AND THE INVESTOR.
-----------------------------------------
4.1 The Company agrees with the Investor that it will:
(a) file a Form D with respect to the Securities
issued at the Closing as and when required under Regulation D and to provide
a copy thereof to the Investor promptly after such filing;
(b) take such action as the Company reasonably
determines upon the advice of counsel is necessary to qualify the Securities
for sale under applicable state or "blue-sky" laws or obtain an exemption
therefrom, and shall provide evidence of any such action to the Investor at
the Closing; and
15
(c) (i) on or prior to 8:30 a.m. (eastern time)
on the Business Day immediately following the Execution Date, issue a press
release disclosing the material terms of this Agreement and the other
Transaction Documents and the transactions contemplated hereby and thereby
and (ii) on the Business Day immediately following the Execution Date, file
with the Commission a Current Report on Form 8-K disclosing the material
terms of this Agreement and the other Transaction Documents and the
transactions contemplated hereby and thereby and including as exhibits this
Agreement and the other Transaction Documents; provided, however, that the
-------- -------
Investor shall have a reasonable opportunity to review and comment on any
such press release or Form 8-K prior to the issuance or filing thereof.
Thereafter, the Company shall timely file any filings and notices required
by the Commission or applicable law with respect to the transactions
contemplated hereby.
4.2 The Company agrees that it will, during the period beginning
on the Execution Date and ending on the Termination Date:
(a) maintain its corporate existence in good
standing;
(b) maintain, keep and preserve all of its
Properties necessary in the proper conduct of its businesses in good repair,
working order and condition (ordinary wear and tear excepted) and make all
necessary repairs, renewals and replacements and improvements thereto,
except where the failure to do so would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(c) pay or discharge before becoming delinquent
(a) all taxes, levies, assessments and governmental charges imposed on it or
its income or profits or any of its Property and (b) all lawful claims for
labor, material and supplies, which, if unpaid, might become a Lien upon any
of its Property, except where the failure to do so would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect; provided, however, that the Company shall not be required to pay or
-------- -------
discharge any tax, levy, assessment or governmental charge, or claim for
labor, material or supplies, whose amount, applicability or validity is
being contested in good faith by appropriate proceedings being diligently
pursued and for which adequate reserves have been established under GAAP;
(d) comply with all Governmental Requirements
applicable to the operation of its business, except for instances of
noncompliance that would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect; provided, however, that the
Company shall not be required to comply with any Governmental Requirements,
the applicability or validity of which is being contested in good faith by
appropriate proceedings being diligently pursued and for which adequate
reserves have been established under GAAP.
(e) comply with all agreements, documents and
instruments binding on it or affecting its Properties or business,
including, without limitation, all Material Contracts, except for instances
of noncompliance that would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect;
(f) provide the Investor with copies of all
materials sent to its stockholders,
16
in each such case at the same time as delivered to such stockholders;
(g) timely file with the Commission all reports
required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file
reports thereunder even if the Exchange Act or the rules or regulations
thereunder would permit such termination;
(h) until the Effective Date of the Registration
Statement, restrict Key Employees from selling in excess of five thousand
(5,000) shares of Common Stock each, other than in connection with any
10b-5(1) trading plans in effect on the Execution Date; and
(i) maintain adequate insurance coverage
(including D&O insurance) for the Company and each Subsidiary.
4.3 Reservation of Common Stock. The Company shall authorize and
---------------------------
reserve for issuance to the Investor, free from any preemptive rights, a
number of shares of Common Stock (the "Reserved Amount") that, on the
---------------
Closing Date, is not less than four million six hundred sixty-six thousand
six hundred sixty-seven (4,666,667) shares of Common Stock. If, on any date
following the Closing Date, the Reserved Amount is less than (i) one hundred
percent (100%) of the Warrant Shares issuable upon exercise of the Series C
Warrant plus (ii) one hundred percent (100%) of the Warrant Shares issuable
upon exercise of the Series D Warrant (without regard to any limitation or
restriction on such exercise that may be set forth in the Series D Warrant),
the Company shall take action (including without limitation seeking
stockholder approval for the authorization or reservation of additional
shares of Common Stock) as soon as practicable (but in no event later than
the tenth (10th) Business Day or, in the event that stockholder approval is
required, the sixtieth (60th) day following such date) to increase the
Reserved Amount to not less than (i) one hundred percent (100%) of the
Warrant Shares issuable upon exercise of the Series C Warrant plus (ii) one
hundred and twenty five percent (125%) of the number of Warrant Shares
issuable upon exercise of the Series D Warrant (without giving effect to any
limitation on such exercise that may be set forth in the Series D Warrant).
While the Warrants or any portion thereof are outstanding, the Company shall
not reduce the Reserved Amount without the prior written consent of the
Investor. In the event that the Investor shall sell or otherwise transfer
all or any portion of the Investor's Warrants, each transferee shall be
allocated a pro rata portion of the Investor's Reserved Amount.
4.4 Use of Proceeds. The Company shall use the proceeds from the
---------------
sale of the Purchased Securities for the expansions and development of the
Company's businesses, including, without limitation, acquisitions, the
formation of strategic alliances and/or marketing efforts, in the ordinary
course of its business and consistent with past practice; provided, however,
-------- -------
that the Company shall not use such proceeds (i) to pay down, repurchase or
redeem any notes or securities issued by the Company or any Subsidiary, (ii)
to pay any dividend or make any distribution on any such securities, or
(iii) to repay any loan made to or incurred by any Key Employee or Affiliate
of the Company.
4.5 Use of Investor Name. Except as may be required by applicable
--------------------
law and/or this Agreement, the Company shall not use, directly or
indirectly, the Investor's name or the name of any of
17
its affiliates in any advertisement, announcement, press release or other
similar communication unless it has received the prior written consent of
the Investor for the specific use contemplated or as otherwise required by
applicable law or regulation.
4.6 No Adverse Action. The Company and the Subsidiaries shall
-----------------
refrain, during the period beginning on the Execution Date and ending on the
Termination Date, from taking any action or entering into any arrangement
which in any way materially and adversely violates the terms of this
Agreement or any other Transaction Document.
4.7 Limitations on Disposition. The Investor shall not sell,
--------------------------
transfer, assign or dispose of any Securities, unless:
(a) there is then in effect an effective registration
statement under the Securities Act covering such proposed disposition and
such disposition is made in accordance with such registration statement; or
(b) the Investor has notified the Company in writing of
any such disposition, received the Company's written consent to such
disposition and furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require
registration of such Securities under the Securities Act; provided, however,
-------- -------
that no such consent or opinion of counsel will be required (A) if the sale,
transfer or assignment complies with federal and state securities laws and
is made to an Affiliate of the Investor which is also an "accredited
investor" as that term is defined in Rule 501 of Regulation D, and such
Affiliate delivers to the Company a duly executed Investment Representation
Certificate in the form attached hereto as Exhibit D (an "Investment
--------- ----------
Certificate"), (B) if the sale, transfer or assignment is made pursuant to
-----------
Rule 144 and the Investor provides the Company with evidence reasonably
satisfactory to the Company that the proposed transaction satisfies the
requirements of Rule 144 or (C) in connection with a bona fide pledge or
hypothecation of any Securities under a margin arrangement with a
broker-dealer or other financial institution.
4.8 Disclosure of Information. The Company agrees that it will
-------------------------
not at any time following the Execution Date disclose material non-public
information to the Investor without first receiving the Investor's written
consent to such disclosure.
4.9 Quotation on Nasdaq. The Company shall (i) promptly following
-------------------
the Closing, use its commercially reasonable efforts to include all of the
Shares and all of the Warrant Shares issuable upon exercise of the Warrants
(without regard to any limitation on such exercise) for designation and
quotation on the Nasdaq Stock Market, and (ii) use its commercially
reasonable efforts to maintain the designation and quotation, or listing, of
the Common Stock on the Nasdaq SmallCap Market, the Nasdaq National Market
or the New York Stock Exchange for a minimum of five (5) years following the
Closing Date.
4.10 Restrictions on Issuances of Securities. The Company shall
---------------------------------------
not, during the period beginning on the date of this Agreement and ending on
the third Business Day following the Closing Date, issue any securities,
effect any recapitalization, reorganization, stock split, stock
18
dividend, repurchase or similar transaction, establish a record date for any
such transaction, or take any other action that would reasonably be expected
to affect the market price of the Common Stock. During the period beginning
on the date hereof and ending on the six-month anniversary of the Effective
Date, the Company will not issue Common Stock or securities exercisable or
convertible into or exchangeable for Common Stock (other than securities
issued in accordance with the Company's stock option plan or employee stock
purchase plan) at a price or exercise or conversion price lower than the
lesser of the Market Price and the Closing Price (each as defined in the
Series D Warrant) in effect on the date of such issuance, or that have a
fluctuating conversion or exercise or exchange ratio, or that are subject to
"reset" or similar provisions requiring the issuance of additional shares of
Common Stock; provided, however, that the Company shall not be prohibited
-------- -------
from issuing Excluded Securities (as defined in the Series D Warrant).
5. CONDITIONS TO CLOSING.
---------------------
5.1 Conditions to Investors' Obligations at the Closing. The
---------------------------------------------------
Investor's obligations to effect the Closing, including without limitation
its obligation to purchase the Purchased Securities at the Closing, are
conditioned upon the fulfillment (or waiver by the Investor in its sole and
absolute discretion) of each of the following events as of the Closing Date:
5.1.1 the representations and warranties of
the Company set forth in this Agreement
and in the other Transaction Documents
shall be true and correct in all
material respects as of such date as if
made on such date (except that to the
extent that any such representation or
warranty relates to a particular date,
in which case such representation or
warranty shall be true and correct in
all respects as of that particular
date);
5.1.2 the Company shall have complied with or
performed in all material respects all
of the agreements, obligations and
conditions set forth in this Agreement
and in the other Transaction Documents
that are required to be complied with or
performed by the Company on or before
the Closing;
5.1.3 the Closing Date shall occur on a date
that is not later than October 21, 2004;
5.1.4 the Company shall have delivered to the
Investor a certificate, signed by the
Chief Executive Officer and Chief
Financial Officer of the Company,
certifying that the conditions specified
in this paragraph 5.1 have been
fulfilled as of the Closing, it being
understood that the Investor may rely on
such certificate as though it were a
representation and warranty of the
Company made herein;
5.1.5 the Company shall have delivered to the
Investor one or more opinions of counsel
for the Company, dated as of the Closing
Date, in substantially the form set
forth on Exhibit 5.1.5 hereto;
19
5.1.6 the Company shall have delivered to the
Investor duly executed certificates
representing the Shares, the Series C
Warrant and the Series D Warrant being
purchased by the Investor;
5.1.7 the Company shall have executed and
delivered to the Investor the Registration
Rights Agreement;
5.1.8 there shall have occurred no material
adverse change in the Company's
consolidated business or financial
condition since the date of the
Company's most recent financial
statements contained in the Disclosure
Documents;
5.1.9 the Common Stock shall be quoted and
actively traded on the Nasdaq Stock
Market; and
5.1.10 there shall be no injunction,
restraining order or decree of any
nature of any court or Government
Authority of competent jurisdiction that
is in effect that restrains or prohibits
the consummation of the transactions
contemplated hereby or by the other
Transaction Documents.
5.2 Conditions to Company's Obligations at the Closing. The
--------------------------------------------------
Company's obligations to effect the Closing with the Investor are
conditioned upon the fulfillment (or waiver by the Company in its sole and
absolute discretion) of each of the following events as of the Closing Date:
5.2.1 the representations and warranties of
the Investor set forth in this Agreement
and in the other Transaction Documents
shall be true and correct in all
material respects as of such date as if
made on such date (except that to the
extent that any such representation or
warranty relates to a particular date,
in which case such representation or
warranty shall be true and correct in
all respects as of that particular
date);
5.2.2 the Investor shall have complied with or
performed all of the agreements,
obligations and conditions set forth in
this Agreement and in the other
Transaction Documents that are required
to be complied with or performed by the
Investor on or before the Closing;
5.2.3 there shall be no injunction,
restraining order or decree of any
nature of any court or Government
Authority of competent jurisdiction that
is in effect that restrains or prohibits
the consummation of the transactions
contemplated hereby or by the other
Transaction Documents;
5.2.4 the Investor shall have executed each Transaction
Document to which it
20
is a party and delivered the same to the Company;
and
5.2.5 the Investor shall have delivered to the Company
the Purchase Price for the Purchased Securities
being purchased by it at the Closing by
wire transfer of immediately available funds.
6. MISCELLANEOUS.
-------------
6.1 Survival; Severability. The representations,
----------------------
warranties, covenants and indemnities made by the parties herein and in the
other Transaction Documents shall survive the Closing notwithstanding any
due diligence investigation made by or on behalf of the party seeking to
rely thereon; provided, however, that the representations and warranties
-------- -------
made by the parties herein and in the other Transaction Documents shall
survive only until the Termination Date. In the event that any provision of
this Agreement becomes or is declared by a court of competent jurisdiction
to be illegal, unenforceable or void, this Agreement shall continue in full
force and effect without said provision; provided that in such case the
parties shall negotiate in good faith to replace such provision with a new
provision which is not illegal, unenforceable or void, as long as such new
provision does not materially change the economic benefits of this Agreement
to the parties.
6.2 Successors and Assigns. The terms and conditions of
----------------------
this Agreement shall inure to the benefit of and be binding upon the
respective successors and permitted assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and permitted assigns
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement. The Investor may
assign its rights and obligations hereunder, in connection with any private
sale or transfer of the Purchased Securities in accordance with the terms
hereof, as long as, as a condition precedent to such transfer, the
transferee executes an acknowledgment agreeing to be bound by the applicable
provisions of this Agreement, in which case the term "Investor" shall be
deemed to refer to such transferee as though such transferee were an
original signatory hereto. The Company may not assign its rights or
obligations under this Agreement.
6.3 No Reliance. Each party acknowledges that (i) it has
-----------
such knowledge in business and financial matters as to be fully capable of
evaluating this Agreement, the other Transaction Documents, and the
transactions contemplated hereby and thereby, (ii) it is not relying on any
advice or representation of any other party in connection with entering into
this Agreement, the other Transaction Documents, or such transactions (other
than the representations made in this Agreement or the other Transaction
Documents), (iii) it has not received from such party any assurance or
guarantee as to the merits (whether legal, regulatory, tax, financial or
otherwise) of entering into this Agreement or the other Transaction
Documents or the performance of its obligations hereunder and thereunder,
and (iv) it has consulted with its own legal, regulatory, tax, business,
investment, financial and accounting advisors to the extent that it has
deemed necessary, and has entered into this Agreement and the other
Transaction Documents based on its own independent judgment and on the
advice of its advisors as it has deemed necessary, and not on any view
(whether written or oral) expressed by such other party.
21
6.4 Injunctive Relief. The parties hereto acknowledge
-----------------
and agree that a breach by either of their obligations hereunder will cause
irreparable harm the other party and that the remedy or remedies at law for
any such breach will be inadequate and agrees, in the event of any such
breach, in addition to all other available remedies, the non-breaching party
shall be entitled to an injunction restraining any breach and requiring
immediate and specific performance of such obligations without the necessity
of showing economic loss.
6.5 Governing Law; Jurisdiction. This Agreement shall be
---------------------------
governed by and construed under the laws of the State of Delaware applicable
to contracts made and to be performed entirely within the State of Delaware.
Each party hereby irrevocably submits to the non-exclusive jurisdiction of
the state and federal courts sitting in the City of New York in the borough
of Manhattan (for any claims initiated by the Investor) or in Miami-Dade
County (for any claims initiated by the Company), for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby, and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding involving the Investor or permitted
assignee of the Investor, 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
in effect for 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.
6.6 Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be deemed an original, and all
of which together shall constitute one and the same instrument. This
Agreement may be executed and delivered by facsimile transmission.
6.7 Headings. The headings used in this Agreement are
--------
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
6.8 Notices. Any notice, demand or request required or
-------
permitted to be given by the Company or the Investor pursuant to the terms
of this Agreement shall be in writing and shall be deemed delivered (i) when
delivered personally or by verifiable facsimile transmission, unless such
delivery is made on a day that is not a Business Day, in which case such
delivery will be deemed to be made on the next succeeding Business Day, (ii)
on the next Business Day after timely delivery to an overnight courier and
(iii) on the Business Day actually received if deposited in the U.S. mail
(certified or registered mail, return receipt requested, postage prepaid),
addressed as follows:
If to the Company:
Applied Digital Solutions, Inc.
0000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxx Xxxxx, Xxxxxxx 00000
Attn: Xxxxx X. Xxxxxxxxx
22
Tel: 000-000-0000
Fax: 000-000-0000
with a copy to:
Holland & Knight LLP
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxx, Xxxxxxx 00000
Mailing Address: X.X. Xxx 000000, Xxxxxxx, 00000
Attn: Xxxxxx X. Xxxxxxx, Esq.
Tel: 000-000-0000
Fax: 000-000-0000
and if to the Investor, to such address for the Investor as shall appear on
the signature page hereof executed by the Investor, or as shall be
designated by the Investor in writing to the Company in accordance with this
Section 6.8.
6.9 Expenses. The Company and the Investor shall pay all
--------
costs and expenses that it incurs in connection with the negotiation,
execution, delivery and performance of this Agreement or the other
Transaction Documents, provided, however, that that the Company shall, at
-------- -------
the Closing, pay up to $5,000 in immediately available funds for all actual
and reasonable out-of-pocket expenses (including without limitation the
reasonable legal fees and expenses of Xxxxx & Stachenfeld LLP) incurred by
the Investor in connection its due diligence investigation of the Company
and the negotiation, preparation, execution, delivery and performance of
this Agreement and the other Transaction Documents. At the Closing, the
amount due for such fees and expenses (which may include fees and expenses
estimated to be incurred for completion of the transaction and post-closing
matters) may be netted out of the Purchase Price payable by the Investor. In
the event the amount paid by the Company for such fees and expenses is less
than the amount of fees and expenses actually incurred by the Investor, the
Company shall promptly pay such deficiency (up to $5,000 in the aggregate)
within thirty (30) days following receipt of an invoice therefor.
Notwithstanding anything herein to the contrary, if the Closing does not
occur otherwise than as a result of a breach of this Agreement by the
Investor or the failure of the Investor to satisfy any closing conditions,
the Company shall remain obligated to pay the expenses of the Investor up to
$5,000 in the aggregate.
6.10 Entire Agreement; Amendments. This Agreement and the
----------------------------
other Transaction Documents constitute the entire agreement between the
parties with regard to the subject matter hereof and thereof, superseding
all prior agreements or understandings, whether written or oral, between or
among the parties. Except as expressly provided herein, neither this
Agreement nor any term hereof may be amended except pursuant to a written
instrument executed by the Company and the holders of at least two-thirds
(2/3) of the number of Outstanding Registrable Securities, and no provision
hereof may be waived other than by a written instrument signed by the party
against whom enforcement of any such waiver is sought. Any waver or consent
shall be effective only in the specific instance and for the specific
purpose for which given.
23
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first-above written.
APPLIED DIGITAL SOLUTIONS, INC.
By: /s/ Xxxxx Xxxxxxxxx
----------------------------
Name: Xxxxx Xxxxxxxxx
Title: CEO
SATELLITE STRATEGIC FINANCE ASSOCIATES, LLC
By: Satellite Asset Management, L.P., its Manager
By: /s/ Xxxxx Xxxxxxx
----------------------------
Xxxxx Xxxxxxx
General Counsel
ADDRESS:
c/o Satellite Advisors, L.L.C.
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Tel: 000-000-0000
Fax: 000-000-0000
With a copy to:
Xxxxx & Stachenfeld LLP
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxxx, Esq.
Tel: 000-000-0000
Fax: 000-000-0000
Number of Shares to be Purchased: 2,500,000
---------
24
EXHIBIT D
INVESTMENT REPRESENTATION CERTIFICATE
Purchaser:
-----------
Company: Applied Digital Solutions, Inc. (the "Company")
Security:
-----------
Amount:
-----------
Date:
-----------
In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company
as follows:
The Purchaser is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the
Securities. The Purchaser is purchasing the Securities for its own account
for investment purposes only and not with a view to, or for the resale in
connection with, any "distribution" thereof for purposes of the Securities
Act of 1933, as amended (the "Securities Act").
The Purchaser understands that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefor, which exemption depends upon, among other things, the bona fide
nature of the Purchaser's investment intent as expressed herein. In this
connection, the Purchaser understands that, in the view of the Securities
and Exchange Commission ("SEC"), the statutory basis for such exemption may
be unavailable if the Purchaser's representation was predicated solely upon
a present intention to hold these Securities for the minimum capital gains
period specified under tax statutes, for a deferred sale, for or until an
increase or decrease in the market price of the Securities, or for a period
of one year or any other fixed period in the future. The Purchaser is an
"accredited investor" as that term is defined under Regulation D promulgated
by the Securities and Exchange Commission under the Securities Act.
The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or
unless an exemption from registration is otherwise available. In addition,
the Purchaser understands that the certificate evidencing the Securities
will be imprinted with the legend referred to in this Warrant under which
the Securities are being purchased.
The Purchaser is aware of the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permit limited public resale
of "restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering
subject to the satisfaction of certain conditions, if applicable, including,
among other things: (i) the availability of certain public information about
the Company; (ii) the resale occurring not less than one (1) year after the
party has purchased and paid for the securities to be sold (subject to
certain "tacking" provisions); (iii) the resale being made through a broker
in an unsolicited "broker's transaction" or in transactions directly with a
market maker (as said term is defined under the Securities Exchange Act of
1934, as amended) and the amount of securities being sold during any
three-month period not exceeding the specified limitations stated therein.
The Purchaser further understands that at the time it wishes to
sell the Securities there may be no
25
public market upon which to make such a sale, and that, even if such a
public market upon which to make such a sale then exists, notwithstanding
the Company's best efforts obligation to do so set forth in the Warrant, the
Company may not be satisfying the current public information requirements of
Rule 144, and that, in such event, the Purchaser may be precluded from
selling the Securities under Rule 144 even if the one-year minimum holding
period had been satisfied.
The Purchaser further understands that in the event all of the
requirements of Rule 144 are not satisfied, registration under the
Securities Act or an exemption from registration will be required; and that,
notwithstanding the fact that Rule 144 is not exclusive, the staff of the
SEC has expressed its opinion that persons proposing to sell private
placement securities other than in a registered offering and otherwise than
pursuant to Rule 144 will have a substantial burden of proof in establishing
that an exemption from registration is available for such offers or sales,
and that such persons and their respective brokers who participate in such
transactions do so at their own risk.
Date:
----------------------
[PURCHASER]
-------------
26
