SECURITIES PURCHASE AGREEMENT
Exhibit
10.1
THIS SECURITIES PURCHASE
AGREEMENT, dated as of December16, 2009, is entered into by
and among Decisionpoint Systems, Inc., (fka Canusa Capital), a Delaware company
(“DS-Del”),
Decisionpoint Systems Group, Inc., a Delaware corporation and a wholly-owned
subsidiary of DS-Del. (“Group”),
Decisionpoint Systems CA, Inc., a California corporation and a wholly-owned
subsidiary of Group (“DS-CA”),
and Decisionpoint Systems CT, Inc., a Connecticut corporation and a wholly-owned
subsidiary of Holdings (“DS-Conn”),
with headquarters located at 19655 Descartes, Xxxxxxxx Xxxxx, Xxxxxxxxxx
00000-0000 (Group), DS-CA and DS-Conn, are jointly and severally referred to
collectively as the “Company”),
and each purchaser set forth on Schedule
A hereto (each a “Purchaser,”
and, collectively, the “Purchasers”).
R
E C I T A L S
W
I T N E S S E T H:
WHEREAS, the Company is a data
collection systems integrator that sells and installs field mobility devices,
software and related bar coding equipment and provides radio frequency
identification solutions as well as professional services and software
customization solutions;
WHEREAS, the Company and the
Purchasers are executing and delivering this Agreement in accordance with and in
reliance upon the exemption from securities registration for offers and sales to
accredited investors afforded, inter alia, by Rule 506 under Regulation D
(“Regulation
D”) as promulgated by the United States Securities and Exchange
Commission (the “SEC”)
under the Securities Act of 1933, as amended (the “Securities
Act”), and/or Section 4(2) of the Securities Act;
WHEREAS, the Company has
requested the Purchasers and the Purchasers have agreed to purchase from the
Company $2,500,000 aggregate principal amount of fifteen (15%) percent Senior
Subordinated Secured Promissory Notes of the Company (each, a “Note,”
and, collectively, the “Notes”),
in the amounts for each Purchaser set forth in Schedule
A hereto, subject to and upon the terms and conditions of this
Agreement and acceptance of this Agreement by the Company, on the terms and
conditions referred to herein;
WHEREAS, as partial
consideration to the Purchasers purchasing the Notes, the Company will issue to
the Purchasers’ in the aggregate (i) warrants (the “Warrants”)
to purchase 2,000,000 shares of common stock, par value $0.001 per share (the
“Warrant
Shares”) of the Company (the “Common
Stock”), of which Warrants to purchase 1,000,000 Warrant Shares and
1,000,000 Warrant Shares will have exercise prices of $.60 per Warrant Share and
$.50 per Warrant Share, respectively, and (ii) 500,000 shares of Common Stock
(the “Shares”),
in the amounts to each Purchaser set forth on Schedule
B hereto;
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WHEREAS, the Company and each
Purchaser shall enter into a registration rights agreement covering the resale
of the Shares and the Warrant Shares (the “Registration
Rights Agreement”).
WHEREAS, among other
conditions to the Purchasers purchasing the Notes (i) the Company,
the Purchasers and the Senior Bank shall enter into a Subordination Agreement
pursuant to which, among other items, the Purchasers will subordinate their
Notes (the “Intercreditor
Agreement”); and (ii)(a) the Company, Xxxxxxxx X. Xxxx and Xxxxxx X.
Xxxxxx shall agree with the Purchasers that the Company will not make and such
persons will not demand and/or accept any payments in excess of
$1,200,000 in the aggregate ($300,000 per quarter commencing with the quarter
ending March 31, 2010) in accordance with and subject to Section
4(g) hereof, for, among other obligations, the $2,000,000 of outstanding
notes, accounts payable, accrued but unpaid salaries, and benefits, accrued but
unpaid interest on any such obligations (collectively, the “Accrued
Payables”), until the Notes and all accrued but unpaid interest thereon
is repaid in full (the “$300,000
Quarterly Payments”), and (b) Messrs. Toms and Xxxxxx shall pay out of
each $300,000 Quarterly Payment received by them, $125,000 and $150,000 to the
holders of $250,000 aggregate principal amount of Company Subordinated
Convertible Notes issued in June 2009 (the “2009
Notes”), and the 2007 Notes, respectively, until all principal and
accrued but unpaid interest thereon is repaid;
WHEREAS, the Company’s
obligations to repay the Notes will be (i) secured by all of the assets of the
Company pursuant to a Security Agreement of even date herewith (the “Security
Agreement”); subordinated only to indebtedness under and pursuant to the
Loan and Security Agreement by and between the Senior Bank, the Company and the
other signatories thereto, as amended pursuant to the Amendment to Loan and
Security Agreement dated March 19, 2009 by and between the Company, the Senior
Bank and the other signatories thereto (collectively, the “Senior
Credit Agreement”), and (ii) guaranteed by each Subsidiary (as defined
below) pursuant to guaranties executed by each Subsidiary in favor of the
Purchasers (the “Guaranties”);
and
NOW THEREFORE, in
consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. AGREEMENT
TO PURCHASE; PURCHASE PRICE.
a. Purchase.
(i) Subject
to the terms and conditions of this Agreement and the other Transaction
Agreements, the Purchasers hereby agrees to purchase the Notes for the sum of
Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000) (the “Purchase
Amount”), in the amounts for each Purchaser as set forth on Schedule
A hereto.
(ii) The
Note(s), the Warrants, the Registration Rights Agreement, the Intercreditor
Agreement, the Security Agreement and the Guaranties referred to herein shall be
in the form of Annex
I, Annex
II, Annex
III, Annex
IV, Annex
V and Annex
VI attached
hereto, respectively.
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(iii) The
purchase of the Note(s) and the other transactions contemplated hereby are
sometimes referred to herein and in the other Transaction Agreements as the
purchase and sale of the Securities (as defined below), and are referred to
collectively as the “Transactions”.
b. Certain Definitions. As
used herein, each of the following terms has the meaning set forth below, unless
the context otherwise requires:
“Affiliate”
means, with respect to a specific Person referred to in the relevant provision,
another Person who or which controls or is controlled by or is under common
control with such specified Person.
“Certificate”
means the original ink-signed Note(s) duly executed by the Company.
“Closing
Date” means the date of the closing of the Transactions, as provided
herein.
“Company
Control Person” means each director, executive officer, promoter, and
such other Persons as may be deemed in control of DS-Del and/or any Subsidiary
pursuant to Rule 405 under the Securities Actor Section 20 of the Exchange
Act.
“Consolidated
EBITDA” means,
for any applicable period, consolidated earnings before consolidated interest,
consolidated taxes, consolidated depreciation and consolidated amortization, as
determined based upon the Company’s financial statements included in the
Company’s SEC Reports for such period. For purposes hereof,
consolidated earnings, consolidated interest, consolidated taxes, consolidated
depreciation and consolidated amortization for any period shall be determined in
accordance with United States Generally Accepted Accounting Principles,
consistently applied (“GAAP”);
provided, however; that
notwithstanding anything to the contrary provided herein or elsewhere,
Consolidated EBITDA shall exclude all amounts relating to gains from
non-recurring events (such as reorganizations) as well as from any and all asset
and/or stock acquisitions and/or sales made by the Company.
“Disclosure
Annex” means Annex
VII to this Agreement; provided, however, that the
Disclosure Annex shall be arranged in sections corresponding to the identified
Sections of this Agreement, but the disclosure in any such section of the
Disclosure Annex shall qualify other provisions in this Agreement to the extent
that it would be readily apparent to an informed reader from a reading of such
section of the Disclosure Annex that it is also relevant to other provisions of
this Agreement.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended.
“Holder(s)”
means the Person(s) holding the relevant Securities at the relevant
time.
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“Liens”
means a lien, charge, security interest, encumbrance, right of first refusal,
preemptive right or other restriction.
“Material
Adverse Effect” means an event or combination of events, which
individually or in the aggregate, would reasonably be expected to (w) adversely
affect the legality, validity or enforceability of the Securities or any of the
Transaction Agreements, (x) have or result in a material adverse effect on the
results of operations, assets, or condition (financial or otherwise) of the
Company, taken as a whole, (y) adversely impair the Company’s ability to perform
fully on a timely basis its obligations under any of the Transaction Agreements
or the transactions contemplated thereby, or (z) materially and adversely affect
the value of the rights granted to the Purchaser in the Transaction
Agreements.
“Person”
means any living person or any entity, such as, but not necessarily limited to,
a corporation, partnership or trust.
“Purchaser
Control Person” means each director, executive officer, promoter, and
such other persons as may be deemed in control of any Purchaser pursuant to Rule
405 under the Securities Act or Section 20 of the Exchange Act.
“Securities”
means the Note(s), the 500,000 Shares, the Warrants and the Warrant
Shares issuable to the Purchaser(s) in connection with the
Transaction Documents.
“Senior
Bank” means Silicon Valley Bank.
“Subsidiary”
means each of Group, DS-CA, DS-Conn.
“Subsidiaries”
means Group, DS-CA and DS-Conn on a collective basis.
“Transaction
Fees” means legal and due diligence fees incurred by the
Purchaser(s).
“Transaction
Agreements” means this Purchase Agreement, the Notes, the Warrants, the
Intercreditor Agreement, the Guaranties, the Security Agreement, the
Registration Rights Agreement and all ancillary documents referred to in those
agreements.
c. Form of Payment; Delivery of
Certificates.
(i) The
Purchaser shall pay the Purchase Amount by delivering immediately available good
funds in United States Dollars to the Company on the Closing Date.
(ii) On
the Closing Date, the Company shall deliver the Certificate and the Warrant,
duly executed on behalf of the Company, to the Purchaser.
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(iii) By
signing this Agreement, each of the Purchasers and the Company agrees to all of
the terms and conditions of the Transaction Agreements, all of the provisions of
which are incorporated herein by this reference as if set forth in
full.
d. Method of
Payment. Payment of the Purchase Amount shall be made by wire
transfer of immediately available funds to an account of the Company as provided
to the Purchaser.
e. Payments to
Purchasers.
(i) Upon
execution of this Agreement by the Company, the Company shall pay to the
Purchasers, pro-rata, based upon each such Purchasers, principal amount of Note
owned compared to the principal amount of all Notes outstanding, a closing
payment of three percent (3%) of the Purchase Amount. Such payment
shall be deemed fully earned on the Closing Date and shall not be subject to
rebate or proration for any reason.
(ii) If
any principal amount is owing on the date twelve (12) months following the
Closing Date, the Company will pay to the Purchaser, pro-rata, based upon each
such Purchasers principal amount of Note owed compared to the principal amount
of all Notes outstanding, a payment of one and one half (1.5%) percent of the
then outstanding aggregate principal amount of Notes. Such amount
shall be deemed fully earned on such date and not subject to rebate or
pro-ration for any reason.
(iii) If
the Notes are extended one (1) or more times pursuant to and in accordance with
the terms of this Purchase Agreement and the Notes, upon each such extension,
the Company shall pay to the Purchasers at each closing of each extension,
pro-rata, a closing payment equal to one and one half (1.5%) percent of the then
outstanding aggregate principal amount of Notes, which payment shall be in
addition to the payment set forth in Section
(1)(e)(ii) above. Such amount shall be deemed fully earned on
the closing date of such extension and shall not be subject to rebate or
pro-ration for any reason.
(iv) The
Company shall pay the Purchasers’ reasonable legal and due diligence expenses up
to $40,000. The Company has paid to the Purchasers prior to the
Closing Date a $25,000 deposit towards these expenses. Any additional
expenses, subject to the limitations in this subsection, shall be paid to the
Purchasers and will be deducted from the proceeds of the Purchase Amount on the
Closing Date. In this instance, the Purchasers will provide the
Company with an accounting of all such additional expenses. In no
case shall all expenses exceed $40,000 in total without the express written
consent of the Company.
(v) If
the Notes are extended pursuant to and in accordance with the terms of the
Notes, the Company shall pay the Purchasers reasonable legal and due diligence
expenses. The Purchasers will provide the Company with an accounting
of all such additional expenses. In no case shall all due diligence
expenses exceed $35,000 in total without the express written consent of the
Company. All such funds shall be paid at closing of the Note
extension.
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2. PURCHASER
REPRESENTATIONS, WARRANTIES, ETC.
The
Purchasers represent and warrant to, to the best of their knowledge, and
covenant and agree with, the Company as follows:
a. Without
limiting Purchasers’ right to sell the Securities pursuant to an effective
registration statement or otherwise in compliance with the Securities Act, the
Purchasers are purchasing the Securities for their own account for investment
only and not with a view towards the public sale or distribution thereof and not
with a view to or for sale in connection with any distribution
thereof.
b. Each
Purchaser is (i) an “accredited investor” as that term is defined in Rule 501 of
the General Rules and Regulations under the Securities Act by reason of Rule
501(a)(3), (ii) experienced in making investments of the kind described in this
Agreement and the related documents, (iii) able, by reason of the business and
financial experience of its officers (if an entity) and professional advisors
(who are not affiliated with or compensated in any way by the Company or any of
its Affiliates or selling agents), to protect its own interests in connection
with the transactions described in this Agreement, and the related documents,
and to evaluate the merits and risks of an investment in the Securities, and
(iv) able to afford the entire loss of its investment in the
Securities.
c. All
subsequent offers and sales of the Securities by the Purchasers shall be made
pursuant to registration of the relevant Securities under the 1933 Act or
pursuant to an exemption from registration.
d. The
Purchasers understand that the Securities are being offered and sold to them in
reliance on specific exemptions from the registration requirements of the
Securities Act and state securities laws and that the Company is relying upon
the truth and accuracy of, and the Purchasers’ compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Purchasers set forth herein in order to determine the availability of such
exemptions and the eligibility of the Purchasers to acquire the
Securities.
e. The
Purchasers and their advisors, if any, have been furnished with or have been
given access to 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 the Purchasers, including those set forth on in any
annex attached hereto. The Purchasers and their advisors, if any, have been
afforded the opportunity to ask questions of the Company and its management and
have received complete and satisfactory answers to any such
inquiries.
f. The
Purchasers understand that their investment in the Securities involves a high
degree of risk.
g. The
Purchasers understand 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.
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h. This
Purchase Agreement and the other Transaction Agreements to which the Purchasers
are a party, and the transactions contemplated thereby, have been duly and
validly authorized, executed and delivered on behalf of the Purchasers and are
valid and binding agreements of the Purchasers enforceable in accordance with
their respective terms, subject as to enforceability to general principles of
equity and to bankruptcy, insolvency, moratorium and other similar laws
affecting the enforcement of creditors’ rights generally.
3. COMPANY REPRESENTATIONS,
ETC. The Company represents and warrants, to the best of
its knowledge, to the Purchasers as of the date hereof and as of the Closing
Date that, except as otherwise provided in the Disclosure Annex:
a. Rights of Others Affecting the
Transactions. There are no preemptive rights and/or
anti-dilution rights of any person holding securities of the Company. No person
has a right of first refusal.
b. Status. DS-Del,
Group, DS-CA and DS-Conn are each corporations duly organized, validly existing
and in good standing under the laws of Delaware, Delaware, California and
Connecticut, respectfully, and each has the power to own its respective
properties and to carry on its business as now being conducted. Each
of such entities is duly qualified as a foreign entity to do business and is in
good standing in each jurisdiction where the nature of the business conducted or
property owned by each makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have or result in a
Material Adverse Effect.
c. Transaction
Agreements. This Purchase Agreement and each of the other
Transaction Agreements, and the transactions contemplated thereby, have been
duly and validly authorized by the Company, this Agreement has been duly
executed and delivered by the Company and this Agreement is, and the Note and
each of the other Transaction Agreements, when executed and delivered by the
Company, will be, valid and binding agreements of the Company enforceable in
accordance with their respective terms, subject as to enforceability to general
principles of equity and to bankruptcy, insolvency, moratorium, and other
similar laws affecting the enforcement of creditors’ rights
generally.
d. Non-contravention. The
execution and delivery of this Purchase Agreement and each of the other
Transaction Agreements by the Company, the issuance of the Securities
(including, but not limited to the Warrant Shares), and the consummation by the
Company of the other transactions contemplated by this Purchase Agreement and
the other Transaction Agreements, do not and will not conflict with or result in
a breach by the Company of any of the terms or provisions of, or constitute a
default under (i) the Certificate of Incorporation and /or By-laws of the
Company, each as currently in effect (the “Internal
Documents”), (ii) the Senior Credit Agreement and all documents executed
in connection therewith, (iii) any indenture, mortgage, deed of trust, or other
material agreement or instrument to which the Company is a party or by which it
or any of its properties or assets are bound, except as herein set forth, or
(iv) to its knowledge, any existing applicable law, rule, or regulation or any
applicable decree, judgment, or order of any court, United States federal or
state regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company or any of its properties or assets, except such
conflict, breach or default which would not have or result in a Material Adverse
Effect.
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e. Approvals. No
authorization, approval or consent of any court, governmental body, regulatory
agency, self-regulatory organization, or stock exchange or market or the
membership interest holders of the Company is required to be obtained by the
Company for the issuance and sale of the Securities to the Purchasers as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. Capitalization. As of November 30, 2009, the
authorized capital stock of the
Company consists solely of (i) 100,000,000 shares of Common Stock of which
28,000,000 shares are and will be issued and outstanding as of the Closing Date,
and immediately prior to the issuance of any Securities, and (ii) 10,000,000
shares of preferred stock, par value $0.001 per share (the “Preferred
Stock”), of which 10,000 such shares are designated “Series A Preferred
Stock” (the “A
Shares”) of which 975 A Shares are and will be issued and outstanding on
the Closing Date with a stated value of $1,000 per A Share. The Company has no
other shares of Preferred Stock and /or Common Stock issued and
outstanding. The Company has reserved for issuance 11,650,000 shares
of Common Stock issuable upon exercise exchange and/or conversion of issued and
outstanding warrants, options, the A Shares, and other
securities. Other than such 11,650,000 shares of Common Stock
reserved, the Company has no other securities and/or obligations to issue other
securities that are exchangeable, exercisable, convertible, and/or require the
issuance of Common Stock. The Company has furnished or made available
to the Purchasers true and correct copies of the Company’s Internal Documents,
in effect on the date. All of the outstanding shares of the Common
Stock and Preferred Stock have been duly and validly authorized and are fully
paid and nonassessable. Except as described in the Disclosure Annex,
no shares of Common Stock and/or other securities are entitled to registration
rights. Except as described in the Disclosure Annex, there are no
outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company. The
Company is not a party to, and it has no knowledge of, any agreement restricting
the voting of any shares of the capital stock of the Company, or restricting the
transfer of the Securities. The offer and sale of all capital stock,
convertible securities, rights, warrants, or options of the Company issued prior
to the Closing Date complied with all applicable Federal and state securities
laws, and no stockholder has a right of rescission or claim for damages with
respect thereto. DS-Del. owns all of the issued and outstanding
capital stock of each Subsidiary. Other than Group, DS-Conn. and
DS-CA., the Company has no other subsidiaries and on the Closing Day will not
have any.
h. Issuance of
Securities. The Notes, 500,000 Shares and Warrants to be
issued to the Purchasers at the Closing and the
Warrant Shares have been duly and validly authorized by all necessary
corporate action. When the Warrant Shares are issued in accordance
with the terms of the Warrants, such Warrant Shares will be validly issued and
outstanding, fully paid and nonassessable, without
any further action of the Company or its stockholders and the holders
shall be entitled to all rights accorded to a holder of Common
Stock. Until such time as all of the Warrants are fully exercised or
expire, the Company shall have an amount of authorized Common Stock at least
sufficient for the full issuance of all Warrant Shares to be issued full
exercise of all Warrants.
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i. SEC Reports. The
Current Report on Form 8-K (the “8-K”),
to be filed with the SEC describing the transactions set forth in this Agreement
and the other Transaction Agreements will comply in all material respects with
the requirements of the Exchange Act, and the rules and regulations promulgated
thereunder. The Form 8-K does not 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 light of the circumstances
under which they were made, not misleading. The Company has delivered
to the Purchasers or made available through the SEC’s XXXXX filing system true
and complete copies of the reports (the “SEC
Reports”), filed by the Company under the Securities Act, and/or the
Exchange Act, which includes the audited financial statements of the Company for
the fiscal years ended December 31, 2008 and 2007 (the “Audited
Financial Statements Date”) and unaudited financial statements for the
Company for the quarter ended September 30, 2009 ((the “Quarterly
Financial Statements Date”). Such audited and unaudited
financial statements, are referred to collectively as the “Financial
Statements.” The Financial Statements complied in all material
respects with the requirements of the Exchange Act, and the rules and
regulations of the Commission promulgated thereunder. Such Financial Statements
have been prepared in accordance with accounting principles generally accepted
in the United States (“GAAP”)
applied on a consistent basis 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 not include
footnotes or may be condensed or summary statements), and fairly present in all
material respects the financial position of the Company and its Subsidiaries as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
j. No Material Adverse
Change. Since
the Quarterly Financial Statements Date, the Company has not experienced or
suffered any Material Adverse Effect or any event that is reasonably likely,
through the passage of time or otherwise, to result in a Material Adverse
Effect. For the purposes of this Agreement, “Material
Adverse Effect” means any material adverse effect on the business,
properties, assets, operations, results of operations or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby.
k. No Undisclosed Events or
Circumstances. No event or circumstance has occurred or exists
with respect to the Company or its business, properties, prospects, operations
or financial condition, 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.
l.
Title to
Assets. Except for liens representing debt owed to the Senior
Bank pursuant to the Senior Credit Agreement, each of DS-Del and the
Subsidiaries have good and marketable title to all of its respective owned real
and personal property whether tangible or intangible (collectively, the “Assets”),
free and clear of any mortgages, pledges, charges, liens, security interests,
claim, community property interest, condition, equitable interest or other
encumbrances, license, option, right of first refusal or restriction of any
kind, including any restriction on use, voting, transfer, receipt of income or
exercise of any other attribute of ownership (“Liens”). All
leases of DS-Del and each Subsidiary are valid and subsisting and in full force
and effect and neither this Agreement nor the transactions contemplated hereby
will give any party to such leases any right to terminate or modify the
leases.
m. Taxes. DS-Del and
each Subsidiary has accurately prepared and filed all material foreign, federal,
state income and all other tax returns, reports and declarations required by law
to be paid or filed by it by any jurisdiction to which DS-Del and each
Subsidiary is subject, has paid or made provisions for the payment of all taxes
shown to be due and all additional assessments, and adequate provisions have
been and are reflected in the Financial Statements for all current taxes and
other charges to which DS-Del and each Subsidiary is subject and which are not
currently due and payable. None of the federal income tax returns of
DS-Del and its Subsidiaries or any Subsidiary have been audited by the Internal
Revenue Service. The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
of any nature whatsoever, whether pending or threatened against DS-Del or any
Subsidiary for any period, nor of any basis for any such assessment, adjustment
or contingency. DS-De; and its Subsidiaries have complied in all
material respects with all applicable legal requirements relating to the payment
and withholding of taxes and, within the time and in the manner prescribed by
law, has withheld from wages, fees and other payments, and paid over to the
proper governments or regulatory authorities, all amounts required.
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n. Books and Records Internal Accounting
Controls. The books and records of DS-Del and its Subsidiaries
accurately reflect in all material respects the information relating to the
business of DS-Del and its Subsidiaries, the location and collection of their
assets, and the nature of all transactions giving rise to the obligations or
accounts receivable of DS-Del or any Subsidiary to the extent required to be
contained therein. The Company and each of its Subsidiaries maintain
a system of internal accounting controls sufficient, in the judgment of the
Company, 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 GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
actions is taken with respect to any differences.
o. No Integrated
Offering. Neither the Company, nor any of its affiliates, nor
any person acting on its or 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 cause the offering of the Securities pursuant to
this Agreement to be integrated with prior offerings by the Company for purposes
of the Securities Act which would prevent the Company from selling the
Securities pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will the Company or any of
its affiliates or Subsidiaries take any action or steps that would cause the
offering of the Securities to be integrated with other offerings.
p. No Commission or FINRA
Inquiries. To the best of the Company’s knowledge, the Company
is not, and has never been, the subject of any formal or informal inquiry or
investigation by the SEC or Financial Industry Regulatory Authority,
Inc.
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q. Anti-takeover
Device. The Company does not have any outstanding shareholder
rights plan or “poison pill” or any similar arrangement. There are no
provisions of any anti-takeover or business combination statute applicable to
the Company or its Internal Documents which would preclude the issuance and sale
of the Notes, Warrants and/or the Warrant Shares, and the consummation of the
other transactions contemplated by this Agreement and the other Transaction
Documents.
r. Absence of Certain
Changes. Since the Quarterly Financial Statement Date, neither
DS-Del nor any Subsidiary has: (i) incurred or become subject to any material
liabilities (absolute or contingent) except liabilities incurred in the ordinary
course of business consistent with past practices; (ii) discharged or satisfied
any material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to shareholders with respect
to its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other tangible assets, or canceled any debts owed to the Company
by any third party or claims of the Company against any third party,
except in the ordinary course of business consistent with past practices; (v)
suffered the loss of any material amount of existing business; (vi) made any
increases in employee compensation, except in the ordinary course of business
consistent with past practices; or (vii) experienced any material problems with
labor or management in connection with the terms and conditions of their
employment.
s. Absence of
Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the
knowledge of the Company, threatened against or affecting the Company before or
by any governmental authority or nongovernmental department, commission, board,
bureau, agency or instrumentality or any other person, wherein an unfavorable
decision, ruling or finding would have a Material Adverse Effect or which would
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, any of the Transaction
Agreements. The Company is not aware of any valid basis for any such
claim that (either individually or in the aggregate with all other such events
and circumstances) could reasonably be expected to have a Material Adverse
Effect. There are no outstanding or unsatisfied judgments, orders, decrees,
writs, injunctions or stipulations to which the Company is a party or by which
it or any of its properties is bound, that involve the transaction contemplated
herein or that, alone or in the aggregate, could reasonably be expect to have a
Material Adverse Effect.
t. Absence of Events of
Default. (i) Neither DS-Del nor any of its Subsidiaries is in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any material indenture, mortgage, deed of
trust or other material agreement to which it is a party or by which its
property is bound, and (ii) no Event of Default (or its equivalent term), as
defined in the respective agreement to which the DS-Del or any Subsidiary is a
party, and no event which, with the giving of notice or the passage of time or
both, would become an Event of Default (or its equivalent term) (as so defined
in such agreement), has occurred and is continuing, which would have a Material
Adverse Effect.
11
u. Absence of Certain Company Control
Person Actions or Events. To the Company’s knowledge, none of
the following has occurred during the past three (3) years with respect to a
Company Control Person:
(1) A
petition under the federal bankruptcy laws or any state insolvency law was filed
by or against, or a receiver, fiscal agent or similar officer was appointed by a
court for the business or property of such Company Control Person, or any
partnership in which he was a general partner at or within two (2) years before
the time of such filing, or any corporation or business association of which he
was an executive officer at or within two years before the time of such
filing;
(2) Such
Company Control Person was convicted in a criminal proceeding or is a named
subject of a pending criminal proceeding (excluding traffic violations and other
minor offenses);
(3) Such
Company Control Person was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from, or otherwise
limiting, the following activities:
(i)
acting, as an investment advisor, underwriter, broker or dealer in securities,
or as an affiliated person, director or employee of any investment company,
bank, savings and loan association or insurance company, as a futures commission
merchant, introducing broker, commodity trading advisor, commodity pool
operator, floor broker, any other Person regulated by the Commodity Futures
Trading Commission (“CFTC”)
or engaging in or continuing any conduct or practice in connection with such
activity;
(ii) engaging
in any type of business practice; or
(iii)
engaging in any activity in connection with the purchase or sale of any security
or commodity or in connection with any violation of federal or state securities
laws or federal commodities laws;
(4) Such
Company Control Person was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any federal or state authority
barring, suspending or otherwise limiting for more than sixty (60) days the
right of such Company Control Person to engage in any activity described in
paragraph (3) of this item, or to be associated with Persons engaged in any such
activity; or
(5) Such
Company Control Person was found by a court of competent jurisdiction in a civil
action or by the CFTC or SEC to have violated any federal or state securities
law, and the judgment in such civil action or finding by the CFTC or SEC has not
been subsequently reversed, suspended, or vacated.
12
v.
No Undisclosed
Liabilities or Events. Except as provided in the Disclosure
Annex, the Company has no undisclosed liabilities or obligations. No event or
circumstances has occurred or exists with respect to the Company or its
properties, business, operations, condition (financial or otherwise), or results
of operations, which, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed. There are no proposals
currently under consideration or currently anticipated to be under consideration
by the Board of Directors or the executive officers of the Company which
proposal would (x) change the Internal Documents, as each as currently in
effect, or (y) materially or substantially change the business, assets or
capital of the Company, including its interests in Subsidiaries.
w. Dilution. Any
equity interests issued in connection with the Transaction Agreements may have a
dilutive effect on the ownership interests of the other shareholders (and
Persons having the right to become shareholders) of the Company. The
Company’s executive officers and directors have studied and fully understand the
nature of the Securities being sold hereby and recognize that they have such a
potential dilutive effect.
x. Fees to Brokers, Finders and
Others. Other than with respect to Affiliates of one or more
of the Purchasers, the Company has taken no action which would give rise to any
claim by any Person for brokerage commission, finder’s fees or similar payments
by Purchasers relating to this Agreement or the transactions contemplated
hereby. Purchasers shall have no obligation with respect to such fees
or with respect to any claims made by or on behalf of other Persons for fees of
a type contemplated in this paragraph that may be due in connection with the
transactions contemplated hereby. The Company shall indemnify and
hold harmless each Purchaser, its employees, officers, directors, agents, and
partners, and their respective Affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and reasonable attorneys’
fees) and expenses suffered in respect of any such claimed or existing fees, as
and when incurred.
y. Confirmation. The
Company confirms that all statements of the Company contained herein shall
survive acceptance of this Agreement by the Purchasers but shall terminate when
all obligations under all of the Securities have been fully
satisfied. The Company agrees that, if any events occur or
circumstances exist prior to the Closing Date or the release of the Purchase
Amount to the Company which would make any of the Company’s representations,
warranties, agreements or other information set forth herein materially untrue
or materially inaccurate as of such date, the Company shall immediately notify
the Purchasers (directly or through its counsel, if any) in writing prior to
such date of such fact, specifying which representation, warranty or covenant is
affected and the reasons therefor.
z.
Labor Relations. No material labor dispute
exists or, to the knowledge of the Company, is imminent with respect to any of
the employees of the Company which could reasonably be expected to result in a
Material Adverse Effect.
aa.
Regulatory Permits. DS-Del and
the Subsidiaries possess all certificates, authorizations and permits issued by
the appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses, except where the failure to
possess such permits could not have or reasonably be expected to result in a
Material Adverse Effect (“Material
Permits”), and neither DS-Del nor any Subsidiary has received any notice
of proceedings relating to the revocation or modification of any Material
Permit.
13
bb. Patents and
Trademarks. DS-Del and the Subsidiaries have, or have rights
to use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and other similar rights
necessary or material for use in connection with their respective businesses and
which the failure to so have could have a Material Adverse Effect (collectively,
the “Intellectual
Property Rights”). To the best knowledge of the Company, all
of its Intellectual Property Rights are enforceable. Neither DS-Del
nor any Subsidiary has received a written notice that the Intellectual Property
Rights used by DS-Del or any Subsidiary violates or infringes upon the rights of
any Person other than a letter dated November 5, 2009 from PetSmart, Inc. with
accompanying materials, notifying DS-DEL of PetSmart’s receipt of a letter and
accompanying materials from U.S. Ethernet Innovations, LLC alleging purported
claims of patent infringement by PetSmart, which according to the letter, appear
to involve the use of Pet Smart of products that PetSmart purchased from
DS-DEL. DS-DEL acted solely as a distributor of the products, and has
notified Motorola, Inc., the manufacturer of the
allegations. Motorola is presently addressing the
matter. The Company does not believe such matters will have a
Material Adverse Effect.
cc. Insurance. DS-Del
and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which DS-Del and the Subsidiaries are engaged
in, and in an amount at least equal to the Purchase Amount. To the
best of Company’s knowledge, such insurance contracts and policies are accurate
and complete. Neither the Company nor any Subsidiary has 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 without a significant increase in
cost. The Company is current on all of its premiums for all of its
insurance policies. Set forth in the Disclosure Annex is a detailed
summary of the Company’s Directors and Officers liability insurance policy
including, but not limited to, the coverage amount on a per incident basis
and in the aggregate.
dd. Transactions
with Affiliates and Employees. Except as disclosed in the
Disclosure Annex, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with DS-Del or any Subsidiary (other than for services
as employees, officers and 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 officer, director or such employee or, to the knowledge
of the Company, any entity in which any officer, director, or any such employee
has a substantial interest or is an officer, director, trustee or partner, in
each case in excess of $20,000 in the aggregate.
14
ee. Solvency. Based
on the financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the net proceeds from the sale of the
Securities hereunder: (i) the Company’s fair saleable value of its assets
exceeds the amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) after giving effect to the transactions
contemplated by the Transaction Agreements, the Company’s assets do not
constitute unreasonably small capital to carry on its business for the current
fiscal year as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate all
of its assets, after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its debt when such amounts
are required to be paid. The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its
debt). The Company has no knowledge of any facts or circumstances
which lead it to believe that it will file for reorganization or liquidation
under the bankruptcy or reorganization laws of any jurisdiction within one year
from the Closing Date. The Financial Statements set forth as of the
dates thereof all outstanding secured and unsecured Indebtedness of the Company
and/or any Subsidiary, or for which the Company and/or any Subsidiary has
commitments. For the purposes of this Agreement, “Indebtedness”
shall mean (a) any liabilities for borrowed money or amounts owed (other than
trade accounts payable incurred in the ordinary course of business), (b) all
guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments due under leases required to be capitalized in accordance
with GAAP. Neither the Company nor any Subsidiary is in default with respect to
any Indebtedness.
ff. Tax
Status. Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, DS-Del and each Subsidiary has filed all necessary federal, state and
foreign income and franchise tax returns and has paid or accrued all taxes shown
as due thereon, and the Company has no knowledge of a tax deficiency which has
been asserted or threatened against the Company or any Subsidiary.
gg. Full
Disclosure. No statement in writing furnished by the Company
to the Purchasers in connection with the transactions contemplated herein
contains any untrue statement of material fact or omits to state a material fact
necessary to make the statement made not misleading in any material
respects.
hh. Use of Rule
144. Holders of Common Stock will be eligible to sell such
securities under Rule 144 commencing on June 18, 2010, which is the date twelve
(12) months from the date that the Company filed its Current Report on Form 8-K
reporting the Company’s acquisition of Holdings in a reverse
merger.
15
4. CERTAIN
COVENANTS AND ACKNOWLEDGMENTS.
Each of
the Company and the Purchasers (as applicable), hereby covenants and
acknowledges as follows, which covenants and acknowledgements by the Company to
the Purchasersshall survive until
all of the Company’s obligations under the Securities (including, but not
limited to, the full repayment of all principal and accrued but unpaid interest
on the Notes) and the other Transaction Agreements have been fully
satisfied:
a. Transfer
Restrictions. The Purchasers acknowledge that: (1) the
Securities have not been and are not being registered under the provisions of
the Securities Act or otherwise included in an effective registration statement,
the Shares have not been and are not being registered under
the Securities Act, and may not be transferred unless (A)
subsequently registered thereunder or (B) the Purchasers shall have delivered to
the Company an opinion of counsel, reasonably satisfactory in form, scope and
substance to the Company, to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; (2) any sale of the Securities made in reliance on Rule 144
promulgated under the Act (“Rule
144") may be made only in accordance with the terms of said Rule 144 and
further, if said Rule 144 is not applicable, any resale of such Securities under
circumstances in which the seller, or the Person through whom the sale is made,
may be deemed to be an underwriter, as that term is used in
the Securities Act, may require compliance with some other exemption
under the Securities Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other Person is under any
obligation to register the Securities under the Securities Act or to
comply with the terms and conditions of any exemption thereunder.
b. Restrictive
Legend. The Purchasers acknowledge and agree that, until such
time as the relevant Securities have been registered under the Securities Act
and sold in accordance with an effective registration statement or otherwise in
accordance with another effective registration statement, the certificates and
other instruments representing any of the Securities shall bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of any such Securities):
THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
c. Filings. The
Company undertakes and agrees to make all necessary filings if necessary in
connection with the sale of the Securities to the Purchasers under any United
States laws and regulations applicable to the Company, or by any domestic
securities exchange or trading market, and to provide a copy thereof to the
Purchasers promptly after such filing.
d. Publicity, Filings, Releases,
Etc. Each of the parties agrees that it will not disseminate
any information relating to the Transaction Agreements or the transactions
contemplated thereby, including issuing any press releases, holding any press
conferences or other forums, or filing any reports (collectively, “Publicity”),
without giving the other party reasonable advance notice and an opportunity to
comment on the contents thereof. Neither party will include in any
such Publicity any statement or statements or other material to which the other
party reasonably objects, unless in the reasonable opinion of counsel to the
party proposing such statement, such statement is legally required to be
included.
16
e. Financial Statements and Other
Reports. The Company shall maintain a system of accounting and
keep such books, records and accounts (which shall be true and complete in all
material respects), as may be required or as may be necessary to permit the
performance of an annual audit and the preparation of financial statements in
accordance with GAAP, consistently applied. The Company will deliver
to the Purchasers the financial statements and other reports described below
until payment and performance in full of all obligations under the
Notes. All financial statements to be delivered hereunder may be
delivered by facsimile, regular or express mail or by hand, but shall also be
delivered in electronic form using the Microsoft Excel.xls format.
(i) Monthly
Financials. As soon as available and in any event within
thirty (30) days after the end of each month, commencing with December 2009, the
Company will deliver (1) the consolidated and consolidating balance sheet of the
Company as at the end of such month and the related consolidated and
consolidating statements of income, stockholder’s or member’s (as applicable)
equity and cash flow for such month and for the period from the beginning of the
then current fiscal year to the end of such month, and (2) a schedule of the
outstanding indebtedness for borrowed money of the Company and its subsidiaries
describing in reasonable detail each such debt issue or loan outstanding and the
principal amount and amount of accrued and unpaid interest with respect to each
such debt issue or loan.
(ii) Quarterly
Financials. In addition to the relevant monthly financial
statements referred to in the above, as soon as available and in any event
within fifty (50) days after the end of each quarter of each fiscal year, the
Company will deliver the consolidated and consolidating balance sheet of the
Company, as adjusted in conformity with GAAP, as at the end of such period and
the related consolidated and consolidating statements of income, stockholder’s or member’s
(as applicable) equity and cash flow for such quarter of such fiscal
year and for the period from the beginning of the then current fiscal year to
the end of such quarter of such Fiscal Year.
(iii) Year-End
Financials. In addition to the relevant monthly and quarterly
financial statements referred to the above, as soon as available and in any
event within one hundred five (105) days after the end of each
fiscal year, the Company will deliver to the Purchaser: (1) the
audited consolidated and consolidating balance sheet of the Company as at the
end of such year and the related consolidated and consolidating statements of
income, stockholder’s or member’s (as
applicable) equity and cash flow for such fiscal year; (2) a schedule of the
outstanding indebtedness of the Company describing in reasonable detail each
such debt issue or loan outstanding and the principal amount and amount of
accrued and unpaid interest with respect to each such debt issue or loan; (3) a
report with respect to the financial statements from the Company’s independent
certified public accountants selected by the Company and registered with the
Public Company Accounting Oversight Board, which report shall be unqualified as
to going concern and scope of audit of the Company and its Subsidiaries and
shall state (a) that such financial statements present fairly the financial
position of the Company as at the dates indicated and the results of their
operations and cash flow for the periods indicated in conformity with GAAP
applied on a basis consistent with prior years and (b) that the
examination by such accountants in connection with such financial statements has
been made in accordance with generally accepted auditing standards and (c) such
accountants acknowledge that the Purchasers are relying on such
statements.
17
(iv) Accountants’ Certification and
Reports. Promptly upon receipt thereof, the Company will
deliver (A) copies of all reports submitted to the Company by their independent
public accountants in connection with each annual, interim or special audit or
review of the financial statements or financial controls of the Company made by
such accountants, including the comment letter submitted by such accountants to
management or any member or committee of the Company in connection with their
annual, interim or special audit or review, and (B) a certificate of the
independent public accountants who performed such annual, interim or special
audits or review, to the effect that, in making the examination necessary for
the audits or review, they have obtained no knowledge of any condition or event
which constitutes a default or Event of Default, or if such accountants shall
have obtained knowledge of any such condition or event, specifying in such
certificate each such condition or event of which they have knowledge and the
nature and status thereof.
(f) Board Seat;
Observer. The Company shall take any and all actions necessary
and/or requested by the Purchasers owning at least $1,000,000 of the then
outstanding principal amount of Notes (the “Required
Holders”) to (i) appoint one (1) person selected by the Required Holders
to be a director on the Company’s Board of Directors (the “Note
Director”), and (ii) ensure the Note Director remains a director until
such time as all unpaid principal outstanding on the Notes is in the aggregate
below $1,000,000 and all accrued but unpaid interest then owed is
paid. The Note Director shall be covered by the Company’s director
and officer liability insurance policy and shall be entitled to all compensation
other directors receive, as well as reimbursement for expenses (travel, lodging,
etc.) to attend Board meetings. In lieu of appointing the Note
Director, the Required Holders may as long as the note is outstanding, appoint
an observer to the Company’s Board of Directors, which observer shall have the
right to attend in person or by phone all Board meetings and be reimbursed for
all expenses in connection therewith.
(g) Certain
Restrictions. Notwithstanding anything to the contrary
provided herein or elsewhere, the Company and Messrs. Toms and Xxxxxx hereby
expressly and irrevocably agree with each Purchaser that until all the Notes are
repaid in full (including interest and principal thereon), the Company shall not
pay and neither Messrs. Toms nor Xxxxxx shall demand and/or accept (i) an annual
salary greater than $250,000; provided, however, that in the
event (A) the Company’s Consolidated EBITDA for the year ended December 31, 2010
is $3,000,000 or greater, based upon the Company’s consolidated audited
financial statements included in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2010, and (B) the Required Holders consent in
writing to the following salary increases, then Messrs. Toms’ and Xxxxxx’x
salaries shall increase retroactively to January 1, 2011, to $350,000 each; and
(ii) any Accrued Payables Messrs. Toms and Xxxxxx shall be entitled to receive
collectively $1,200,000 of Accrued Payables, payable in four (4)
equal consecutive quarterly payments of $300,000 in the aggregate as determined
by the Company and Messrs. Toms and Xxxxxx), with the first $300,000
aggregate quarterly payment being paid for the quarter ended March 31, 2010
($150,000 and $125,000 of which shall be used to reduce outstanding principal on
the 2007 Bridge Notes and 2009 Notes, respectively), and, thereafter, for each
quarter ending on June 30, 2010 ($150,000 and $125,000 of which shall be used to
repay the remaining outstanding principal on the 2007 Bridge Notes and 2009
Notes, respectively), September 30, 2010 and December 31, 2010 (each a “Permitted
Payment,” and, collectively, the “Permitted
Payments”); provided, however, that notwithstanding anything to the
contrary provided herein or elsewhere (a) if for a quarter no Permitted Payment
is paid, the obligation of Messrs. Xxxxxx and Toms to make payments on the 2007
Bridge Notes and 2009 Notes shall be carried over until the next quarter when a
Permitted Payment is paid to them, and (b) no Permitted Payments shall be paid
and/or demanded for any quarter if on the last day of the quarter in which such
Permitted Payment would otherwise be paid, or at any time prior to the payment
of such Permitted Payment (i) there exists any default, any default would exist
upon passage of time and/or after the Permitted Payment is paid, there is or
would be a default under the Senior Credit Agreement, Transaction Documents
and/or any other agreement, contract or other obligation of the Company; (ii)
the Company prior to paying such Permitted Payment, has paid all payments to the
Senior Bank and each Purchaser then due, including, but not limited to, all
scheduled amortization, principal and interest payments, and/or (iii) the
Consolidated EBITDA for the following applicable quarter is less than the
following amounts:
18
|
Quarter
Ended
|
EBITDA
Target for Such Quarter
|
|
March
31, 2010
|
$500,000
|
|
June
30, 2010
|
$700,000
|
|
September
30, 2010
|
$850,000
|
|
December
31,2010
|
$950,000
|
|
March
31, 2011
|
As
mutually agreed to by the parties thereto in writing when such payments
are due
|
|
June
31, 2011
|
As
mutually agreed to by the parties thereto in writing when such payments
are due
|
Other
then such Permitted Payments, Messrs. Toms and Xxxxxx shall not be entitled to
receive any other payments for Accrued Payables. If a Permitted
Payment is not paid by the Company as a result of the Company’s failure to meet
one or more conditions in this Section
4(g), such Permitted Payment shall not be paid (unless consented to in
writing by the Required Holders, in their sole discretion, if the conditions to
payment are subsequently met including, but not limited to, the aggregate
Consolidated EBITDA), at any time until all of the Notes are repaid in full
(including all accrued but unpaid interest thereon). Prior to any
Permitted Payment being paid, the Company shall provide a certificate (a “Certificate”)
to each Purchaser signed by Messrs. Toms and Xxxxxx showing in detail how each
condition to the Company paying the Permitted Payment for such quarter has been
met and how the proceeds will be used, which Certificate the Required Holders
must consent to in writing.
(h) Certain Securities Restrictions.
The Company agrees with each Purchaser that it shall not (i) increase,
declare and/or pay dividends on the A Shares, and/or (ii) redeem and/or make any
payments to the holders of the A Shares and/or any other class of Preferred
Stock, Common Stock and/or other securities of the Company until all principal
and accrued but unpaid interest on the Notes are repaid in full.
19
5. CLOSING
DATE.
a. The
Closing Date shall occur on the date which is the first Business Day after each
of the conditions contemplated by Section
6 and Section
7 hereof shall have either been satisfied or been waived by the party in
whose favor such conditions run.
b. The
closing of the Transactions shall occur on the Closing Date at the offices of
the Purchaser or by electronic means and shall take place no later than 3:00
P.M., New York time, on such day or such other time as is mutually agreed upon
by the Company and the Purchaser.
6. CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL.
The
Purchasers understand that the Company’s obligation to sell the Notes, and to
issue any other Securities to the Purchasers in connection with any of the
Transaction Agreements, to the Purchasers pursuant to this Agreement on the
Closing Date is conditioned upon:
a. The
execution and delivery of this Agreement by the Purchasers;
b. Delivery
by the Purchasers to the Company of good funds as payment in full of an amount
equal to the Purchase Amount in accordance with this Agreement;
c. The
accuracy on the Closing Date of the representations and warranties of the
Purchasers contained in this Agreement, each as if made on such date, and the
performance by the Purchasers on or before such date of all covenants and
agreements of the Purchasers required to be performed on or before such
date;
d. There
shall not be in effect any law, rule or regulation prohibiting or restricting
the transactions contemplated hereby, or requiring any consent or approval which
shall not have been obtained; and
7. CONDITIONS
TO THE PURCHASERS’ OBLIGATION TO PURCHASE.
The
Company understands that the Purchasers’ obligation to purchase the Notes and
issue the Securities to the Purchasers in connection with the Transaction
Agreements on the Closing Date is conditioned upon:
a. The
execution and delivery of this Agreement and the other Transaction Agreements by
the Company and by Messrs. Xxxxxx and Toms as to Section 4(g)
hereof;
20
b. Delivery
by the Company to the Purchasers of the Notes, the 500,000 Shares and Warrants
in accordance with this Agreement or any other agreements between the
parties;
c. All
matters relating to this Agreement and the other Transaction Agreements have
been approved by the Board of Directors of the Company (and shareholders of the
Company to the extent required by law) of the Company.
d. The
execution and delivery of the Security Agreement, and the filing within five (5)
business days after the closing date of a UCC-1 Financing Statement on all of
the Company’s assets;
e. The
Notes contemplated by this Agreement shall be senior to all other debt of the
Company other than obligations under the Senior Credit Agreement;
f. The
accuracy in all material respects on the Closing Date of the representations and
warranties of the Company contained in this Agreement, each as if made on such
date, and the performance by the Company on or before such date of all covenants
and agreements of the Company required to be performed on or before such
date;
g. There
shall not be in effect any law, rule or regulation prohibiting or restricting
the transactions contemplated hereby, or in the other Transaction Agreements, or
requiring any consent or approval which shall not have been obtained;
and
h. The
delivery of such other documents as requested by the Purchasers and/or its legal
counsel including, but not limited to, 10b-5 letters from Messrs. Toms and
Xxxxxx (qualified to the best of each such person’s knowledge as to information
about the Company) and limited 10b-5 letters from all other officers and/or
directors of the Company as to such officers and directors ownership of
securities in the Company and their lack of certain bankruptcy events, SEC, CFTC
and other civil and criminal violations, a legal opinion from Company counsel
(which shall include a 10b-5 opinion) and Certificates of Good Standing of each
of DS-Del and the Subsidiaries.
8. INDEMNIFICATION
AND REIMBURSEMENT.
a. The
Company agrees to indemnify and hold harmless each Purchaser and each of their
respective officers, directors, employees, and agents, and each Purchaser
Control Person from and against any losses, claims, damages, liabilities or
expenses incurred (collectively, “Damages”),
joint or several, and any action in respect thereof to which the Purchaser, its
partners, Affiliates, officers, directors, employees, and duly authorized
agents, and any such Purchaser Control Person becomes subject to, resulting
from, arising out of or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part of
Company contained in this Agreement, as such Damages are incurred, except to the
extent such Damages result primarily from any Purchaser’s failure to perform any
covenant or agreement contained in this Agreement or any Purchaser’s or its
officer’s, director’s, employee’s, agent’s or Purchaser Control Person’s gross
negligence, or bad faith in performing its obligations under this
Agreement.
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b. The
Company hereby agrees that, if any Purchaser, other than by reason of its gross
negligence, illegal or willful misconduct (in each case, as determined by a
non-appealable judgment to such effect), (x) becomes involved in any capacity in
any action, proceeding or investigation brought by any shareholder or membership
interest holder of the Company, in connection with or as a result of the
consummation of the transactions contemplated by this Agreement or the other
Transaction Agreements, or if any Purchaser is impleaded in any such action,
proceeding or investigation by any Person, or (y) becomes involved in any
capacity in any action, proceeding or investigation brought by the SEC, any
self-regulatory organization or other body having jurisdiction, against or
involving the Company or in connection with or as a result of the consummation
of the transactions contemplated by this Agreement or the other Transaction
Agreements, or (z) is impleaded in any such action, proceeding or investigation
by any Person, then in any such case, the Company shall indemnify, defend and
hold harmless any Purchaser from and against and in respect of all losses,
claims, liabilities, damages or expenses resulting from, imposed upon or
incurred by any Purchaser, directly or indirectly, and reimburse such Purchaser
for its reasonable legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith, as such
expenses are incurred. The indemnification and reimbursement
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same terms
and conditions to any Affiliates of any Purchaser who is actually named in such
action, proceeding or investigation, and partners, directors, agents, employees
and Purchaser Control Persons (if any), as the case may be, of any Purchaser and
any such Affiliate, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, the
Purchasers, any such Affiliate and any such Person. The Company also
agrees that neither the Purchasers nor any such Affiliate, partner, director,
agent, employee or Purchaser Control Person shall have any liability to the
Company or any Person asserting claims on behalf of or in right of the Company
in connection with or as a result of the consummation of this Agreement or the
other Transaction Agreements, except as may be expressly and specifically
provided in or contemplated by this Agreement.
c. The
indemnity agreements contained herein shall be in addition to (i) any cause of
action or similar rights of the indemnified party against the indemnifying party
or others, and (ii) any liabilities the indemnifying party may be subject
to.
9. JURY TRIAL
WAIVER. The Company and the Purchaser hereby waive a
trial by jury in any action, proceeding or counterclaim brought by either of the
Parties hereto against the other in respect of any matter arising out or in
connection with the Transaction Agreements.
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10. GOVERNING
LAW: MISCELLANEOUS.
a. (i) This
Agreement shall be governed by and construed solely and exclusively in
accordance with the internal laws of the State of New York without regard to the
conflicts of laws principles thereof. The parties hereto hereby expressly and
irrevocably agree that any suit or proceeding arising directly and/or indirectly
pursuant to or under this Agreement shall be brought solely in a federal or
state court located in the City, County and State of New York. By its execution
hereof, the parties hereby covenant and irrevocably submit to the in personam
jurisdiction of the federal and state courts located in the City, County and
State of New York and agree that any process in any such action may be served
upon any of them personally, or by certified mail or registered mail upon them
or their agent, return receipt requested, with the same full force and effect as
if personally served upon them in New York City. The parties hereto expressly
and irrevocably waive any claim that any such jurisdiction is not a convenient
forum for any such suit or proceeding and any defense or lack of in personam
jurisdiction with respect thereto. In the event of any such action or
proceeding, the party prevailing therein shall be entitled to payment from the
other party hereto of all of its reasonable counsel fees and
disbursements.
(ii) The
Company and the Purchasers acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement or the other
Transaction Agreements were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or cure breaches of
the provisions of this Agreement and the other Transaction Agreements and to
enforce specifically the terms and provisions hereof and thereof, this being in
addition to any other remedy to which any of them may be entitled by law or
equity.
b. Failure
of any party to exercise any right or remedy under this Agreement or otherwise,
or delay by a party in exercising such right or remedy, shall not operate as a
waiver thereof.
c. This
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
d. All
pronouns and any variations thereof refer to the masculine, feminine or neuter,
singular or plural, as the context may require.
e. A
facsimile or pdf transmission of this signed Agreement shall be legal and
binding on all parties hereto.
f. This
Agreement may be signed in one or more counterparts, each of which shall be
deemed an original.
g. The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.
h. 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 or the validity or
enforceability of this Agreement in any other jurisdiction.
23
i. This
Agreement may be amended only by an instrument in writing signed by the party to
be charged with enforcement thereof.
j. This
Agreement supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof.
11. USE OF PROCEEDS. Subject to
the limitations set forth in Section 7
hereof, the net proceeds from the sale of the Notes shall be used
exclusively for working capital purposes.
12. NOTICES. All
notices required or permitted hereunder shall be in writing and shall be deemed
effectively given: (a) upon personal delivery to the party to be notified;
(b) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (c) the next business day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All
communications shall be sent to the Company or the Holder at the address below
or at such address as either party hereto may designate by ten (10) days’
advance written notice to the other party hereto.
If to the
Company:
19655
Descortes
Xxxxxxxx
Xxxxx, Xxxxxxxxxx 00000-0000
Attention:
Xxxxxxxx X. Xxxx
With a
copy, which will not constitute notice to:
Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP
00
Xxxxxxxx
Xxx Xxxx,
Xxx Xxxx 00000
Attention:
Xxxx Xxxxxxxxx
If to the
Purchasers:
Genesis
Merchant Partners, LP
00 Xxxxxx
Xxxxx
Xxxxxxxxx,
Xxxxxxxxxxx 00000
Attention:
Xxxxxxx X. Xxxxx
With a
copy which will not constitute notice to:
Gusrae,
Xxxxxx, Xxxxx & Xxxxxxx PLLC
000 Xxxx
Xxxxxx – 00xx
Xxxxx
Xxx Xxxx,
Xxx Xxxx 00000
Attention: Xxxxxxxx
X. Xxxxxxx, Esq.
24
13. SURVIVAL OF REPRESENTATIONS AND
WARRANTIES. The Company’s and the Purchaser’s representations and
warranties herein shall survive the execution and delivery of this Agreement and
the delivery of the Certificates and shall inure to the benefit of the Purchaser
and the Company and their respective successors and assigns, but shall terminate
when all obligations of the Company under the Securities have been fully
satisfied.
14. CROSS DEFAULT. The
Company’s obligations under the terms of this Agreement, the Note, the other
Transaction Agreements and all documents executed in connection herewith and/or
therewith shall be cross-defaulted with all other financing and other
obligations of the Company, as well as any future financing accommodations
extended or to be extended by the Purchasers to the Company so that a default
under any financing accommodations extended by any lender, including as well as
financing accommodations extended by the Purchasers to the Company shall be an
Event of Default (as defined in the Note) hereunder and under all of the other
loans extended by the Purchasers to the Company.
[SIGNATURE
PAGES TO FOLLOW]
25
SIGNATURE
PAGE FOR SECURITIES PURCHASE AGREEMENT
IN
WITNESS WHEREOF, this Agreement has been duly executed by the Purchaser and the
Company as of the date set first above written.
GENESIS MERCHANT PARTNERS
L.P.
By:
_________________________________
Name:
Title:
GENESIS MERCHANT PARTNERS II,
LP
By:_________________________________
Name:
Title:
SB
OPPORTUNITY TECHNOLOGY MANAGEMENT ASSOCIATES INSTITUTION LLC
By:_________________________________
Name:
Title:
SANDS
BROTHERS VENTURE CAPITAL
III
LLC
By:_________________________________
Name:
Xxxxx X. Xxxxx
Title: Portfolio
Manager
By:_________________________________
Name:
Title:
_________________________________
(as to Section
4(g))
XXXXXXXX X. XXXX
(Individually)
_________________________________
(as to Section 4(g))
XXXXXX X. XXXXXX
(Individually)
