NOTE PURCHASE AGREEMENT
Exhibit 4.6
This Note Purchase Agreement (this “Agreement”) is dated as of March 13, 2006, among
TeleCommunication Systems, Inc., a Maryland corporation (the “Company”), and each purchaser
identified on the signature pages hereto (each, a “Purchaser” and collectively, the “Purchasers”).
WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act (as defined below) and Rule 506 promulgated thereunder, the
Company desires to sell and issue to the Purchasers, and the Purchasers wish to purchase from the
Company (i) an initial aggregate of $10,000,000 in principal amount of the Company’s Secured Notes
due 2009 in the form attached hereto as Exhibit A (the “Notes”; such term to include any
Additional Notes (as defined below)) and (ii) warrants to purchase an aggregate of 1,750,002 shares
of Class A common stock, par value $0.01 per share, of the Company (the “Class A Common Stock”) in
the form attached hereto as Exhibit B (the “Warrants”).
WHEREAS, at Closing (as defined below), the Company and the Purchasers are entering into a
Registration Rights Agreement in the form attached hereto as Exhibit C (the “Registration
Rights Agreement”), and into a Intellectual Property Security Agreement in the form attached hereto
as Exhibit D (the “Intellectual Property Security Agreement”).
NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for
other good and valuable consideration the receipt and adequacy of which are hereby acknowledged,
the Company and the Purchasers agree as follows:
ARTICLE I.
DEFINITIONS
Definitions. In addition to the terms defined elsewhere in this Agreement, for all
purposes of this Agreement, the following terms shall have the meanings indicated in this Article:
“Additional Notes” means notes substantially in the form of Exhibit A that are issued
after the Closing Date in payment of interest as provided herein. The Additional Notes will bear
interest at the rate indicated therein.
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such terms are used in
and construed under Rule 144. With respect to a Purchaser, any investment fund or managed account
that is managed on a discretionary basis by the same investment manager as such Purchaser will be
deemed to be an Affiliate of such Purchaser.
“Business Day” means any day except Saturday, Sunday and any day which shall be a federal
legal holiday or a day on which banking institutions in the State of New York are authorized or
required by law or other governmental action to close.
“Class A Common Stock” shall have the meaning ascribed to such term in the Recitals.
“Class B Common Stock” means the Class B common stock, par value $0.01 per share of the
Company.
“Closing” means the closing of the purchase and sale of the Notes and Warrants pursuant to
Section 2.3.
“Closing Date” means the date of the Closing.
“Commission” means the Securities and Exchange Commission.
“Common Shares” means the shares of Class A Common Stock issued upon exercise of the Warrants.
“Company Counsel” means DLA Xxxxx Xxxxxxx Xxxx Xxxx US LLP.
“Disclosure Materials” shall have the meaning ascribed to such term in Section 3.1(h).
“Disclosure Schedules” means the Disclosure Schedules of the Company delivered concurrently
herewith as referenced in Article III hereof.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
“Expense Allowance” shall have the meaning ascribed to such term in Section 6.1.
“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).
“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(q).
“Intellectual Property Security Agreement” shall have the meaning ascribed to such term in the
Recitals.
“Lien” means any lien, charge, encumbrance, security interest, right of first refusal,
preemptive right or other restriction of any kind; other than (i) restrictions on transfer of
securities arising under federal or state securities laws or regulations, (ii) purchase money
liens, (iii) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlord’s, tax,
and other similar liens imposed by law or agreement,
2
(iv) liens in respect of indebtedness that is subordinate to this Note, and (v) liens securing
debt under Section 4(a) of the Notes.
“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).
“Material Permits” shall have the meaning ascribed to such term in Section 3.1(o).
“Notes” shall have the meaning ascribed to such term in the Recitals.
“Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.
“Proceeding” means an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition).
“Purchase Price” shall have the meaning ascribed to such term in Section 2.2.
“Registration Rights Agreement” shall have the meaning ascribed to such term in the Recitals.
“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).
“Required Holders” means (i) the Note holders who, together with their respective Affiliates,
hold a majority of the Notes outstanding at the time of determination, (ii) SRB Management, L.P. as
long as (A) it and its Affiliates, (B) WS Capital Management, L.P. and its Affiliates and (C) WS
Ventures Management, L.P. and its Affiliates collectively hold at least $2,000,000 in aggregate
principal amount of the Notes outstanding at the time of determination, and (iii) Bonanza Master
Fund Ltd. as long as it, together with its Affiliates, holds at least $3,000,000 in aggregate
principal amount of the Notes outstanding at the time of determination.
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as
such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by
the Commission having substantially the same effect as such rule.
“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).
“Securities Act” means the Securities Act of 1933, as amended.
“Short Sales” shall include all “short sales” as defined in Rule 200 of Regulation SHO under
the Exchange Act.
“Subsidiary” means any subsidiary of the Company that is required to be listed in Schedule
3.1(a).
3
“Trading Day” means (i) a day on which the Class A Common Stock is traded on a Trading Market,
or (ii) if the Class A Common Stock is not listed on a Trading Market, a day on which the Class A
Common Stock is traded in the over-the-counter market is quoted in the over-the-counter market as
reported by Pink Sheets, LLC (or any similar organization or agency succeeding to its functions of
reporting prices); provided, that in the event that the Class A Common Stock is not listed or
quoted as set forth in (i) or (ii) hereof, then Trading Day shall mean a Business Day.
“Trading Market” means whichever of the New York Stock Exchange, the American Stock Exchange,
the NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board on which the Class A
Common Stock is listed or quoted for trading on the date in question.
“Transaction Documents” means this Agreement, the Notes, the Warrants, the Registration Rights
Agreement, the Intellectual Property Security Agreement and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
“Warrants” shall have the meaning ascribed to such term in the Recitals.
ARTICLE II.
PURCHASE AND SALE OF NOTES AND WARRANTS
2.1 Issuance of Notes and Warrants. Upon the following terms and conditions, the
Company shall issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
shall purchase from the Company, the principal amount of Notes and Warrants to purchase the number
of Common Shares indicated next to the Purchaser’s name on Schedule I hereto.
2.2 Purchase Price.
(a) Purchase Price. The purchase price for the Notes and Warrants to be acquired by
each Purchaser (the “Purchase Price”) shall be the Purchase Price set forth opposite such
Purchaser’s name on Schedule I.
(b) Purchase Price Allocation. For U.S. federal income tax purposes, (i) the Company
agrees that the portion of the Purchase Price allocable to the Notes is $9,000,000 and that the
portion of the Purchase Price allocable to the Warrants is $1,000,000 and (ii) each Purchaser of
Notes and Warrants, by accepting this Note, agrees to allocate its purchase price for the Notes and
Warrants in accordance with clause (i).
2.3 The Closing.
(a) Timing. Subject to the fulfillment or waiver of the conditions set forth in
Article V hereof, the purchase and sale of the Notes and Warrants shall take place at a closing
(the “Closing”), on or about the date hereof or such other date as the Purchasers and the Company
may agree upon (the “Closing Date”).
4
(b) Location. The Closing shall take place at the offices of the Company on the
Closing Date or telephonically or at such other location or time as the parties may agree.
(c) Form of Payment and Closing. On the Closing Date, the Company shall deliver to the
Purchasers all of the Notes and Warrants purchased hereunder, each registered in the name of each
such Purchaser. On the Closing Date, the Purchasers shall deliver by wire transfer in payment of
the aggregate Purchase Price hereunder an aggregate of $10,000,000 to an account designated in
writing by the Company, with each Purchaser responsible for its respective portion of the Purchase
Price as set forth on Schedule I. In addition, each party shall deliver all documents,
instruments and writings required to be delivered by such party pursuant to this Agreement at or
prior to the Closing.
2.4 Closing Deliveries.
(a) Deliveries by the Company. At the Closing, the Company shall deliver or cause to
be delivered to each Purchaser the following:
(i) a Note in the name of each Purchaser in the amount indicated opposite such Purchaser’s
name on Schedule I hereto;
(ii) a Warrant registered in the name of such Purchaser pursuant to which such Purchaser shall
have the right to purchase the number of Common Shares indicated opposite such Purchaser’s name on
Schedule I hereto;
(iii) the Registration Rights Agreement executed by the Company;
(iv) the Intellectual Property Security Agreement executed by the Company; and
(v) the legal opinion of Company Counsel addressed to each Purchaser in the form attached
hereto as Exhibit E.
(b) Deliveries by the Purchaser. At the Closing, each Purchaser shall deliver or cause
to be delivered to the Company the following:
(i) The Purchase Price amount indicated next to the Purchaser’s name on Schedule I
hereto, in United States dollars and in immediately available funds, by wire transfer to an account
designated in writing by the Company for such purpose; and
(ii) the Registration Rights Agreement executed by such Purchaser.
5
2.5 Additional Notes.
(a) On any Interest Payment Date (as defined in the Notes), at its option, the Company, in
lieu of paying any portion (allocated on a pro rata basis to each holder) of the
interest then due on the Notes in cash, may elect to issue to each holder Additional Notes in an
aggregate principal amount equal to the amount of interest due to such holder.
(b) If the Company elects to issue Additional Notes as provided herein and in the Notes, then
the Company shall deliver to the holders to which such Additional Notes are to be issued an opinion
of counsel satisfactory to such holders that: (1) each such Additional Note (A) has been duly
authorized, executed and delivered by the Company, and (B) constitutes a legal, valid and binding
obligation of the Company, enforceable in accordance with its terms subject, as to enforcement of
remedies, to bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting rights
of creditors generally and to the effect of general principles of equity; and (2) the issuance and
delivery of such Additional Notes complies with all requirements of law, including, without
limitation, all federal and state securities laws. The Company also shall deliver to the holders
to which such Additional Notes are to be issued an officers’ certificate indicating that all of the
representations and warranties of the Company contained herein shall be true and correct as of the
date of the issuance of Additional Notes as though made on and as of such date.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth under the
corresponding section of the Disclosure Schedules, which Disclosure Schedules shall be deemed a
part hereof, the Company hereby makes the following representations and warranties to each
Purchaser:
(a) Subsidiaries. The Company has no direct or indirect Subsidiaries other than those listed
in the SEC Reports. Except as disclosed in the SEC Reports and as set forth on Schedule
3.1(a), the Company owns, directly or indirectly, all of the capital stock of each Subsidiary
free and clear of any and all Liens, and all the issued and outstanding shares of capital stock of
each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and
similar rights to subscribe for or purchase securities.
(b) Organization and Qualification. Each of the Company and each Subsidiary is an entity duly
incorporated or otherwise organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business substantially as
described in the SEC Reports. Neither the Company nor any Subsidiary is in violation of any of the
provisions of its respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and each Subsidiary is duly qualified to
conduct business and is in good standing as a foreign corporation or other entity in each
6
jurisdiction in which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good standing, as the
case may be, would not, individually or in the aggregate, reasonably be expected to result in (i)
an adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a
material and adverse effect on the results of operations, assets, business or condition (financial
or otherwise) of the Company and its Subsidiaries, taken as a whole, or (iii) a material and
adverse impairment to the Company’s ability to perform on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has
been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke,
limit or curtail such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite corporate power and authority to
enter into and to consummate the transactions contemplated by each of the Transaction Documents, to
issue the Notes and the Warrants, and, if applicable, the Common Shares, and otherwise to carry out
its obligations thereunder. The execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated thereby, including the issuance
of the Notes and Warrants and, if applicable, the Common Shares, have been duly authorized by all
necessary action on the part of the Company and no further action is required by the Company in
connection therewith, other than in connection with the Required Approvals. Each Transaction
Document has been (or upon delivery will have been) duly executed by the Company and, when
delivered in accordance with the terms thereof, will constitute the valid and binding obligation of
the Company enforceable against the Company in accordance with its terms except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive relief or other
equitable remedies, and (iii) insofar as indemnification and contribution provisions may be limited
by applicable law.
(d) No Conflicts. The execution, delivery and performance of the Transaction Documents by the
Company, the issuance of the Notes, the Warrants, and, if applicable, the Common Shares, and the
consummation by the Company of the other transactions contemplated thereby do not and will not (i)
conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles
of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both would become a default)
under, result in the creation of any Lien upon any of the properties or assets of the Company or
any Subsidiary, or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility,
debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any property or asset
of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the Company or a
Subsidiary is subject
7
(including federal and state securities laws and regulations), or by which any property or
asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses
(ii) and (iii), such as would not reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or registration with, any
court or other federal, state, local or other governmental authority or other Person in connection
with the execution, delivery and performance by the Company of the Transaction Documents, other
than (i) the filing with the Commission of one or more Registration Statements in accordance with
the requirements of the Registration Rights Agreement, (ii) the filings required in accordance with
Section 4.5, (iii) those that have been made or obtained prior to the date of this Agreement, (iv)
application(s) to each applicable Trading Market for the listing of the Common Shares for trading
thereon in the time and manner required thereby, and (v) the filing of a Notice of Sale of
Securities on Form D with the Commission as required under Regulation D of the Securities Act and
such filings as are required to be made under applicable state securities laws (collectively the
“Required Approvals”).
(f) Issuance of Common Shares. Upon issuance, with respect to the Common Shares, in accordance
with the terms of the Warrants, including the receipt by the Company of payment of the exercise
price pursuant to the terms of the Warrants, the Common Shares will be validly issued, fully paid
and nonassessable and free from all United States taxes and Liens created by the Company with
respect to the issue thereof. The issuance of the Common Shares upon exercise of the Warrants is
not subject to any preemptive or similar rights to subscribe for or purchase securities. The
Company has reserved from its duly authorized capital stock all of the issuable Common Shares.
(g) Capitalization. The number of shares and type of all authorized, issued and outstanding
capital stock of the Company, and all shares of Class A Common Stock and Class B Common Stock,
reserved for issuance under the Company’s various option and incentive plans, was as set forth in
the SEC Reports as of the respective dates set forth in such SEC Reports. No securities of the
Company are entitled to preemptive or similar rights, and no Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the sale and issuance of the
Notes, the Warrants and the Common Shares, other than as described in the SEC Reports and
Schedule 3.1(g) there are no outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Class A Common Stock or Class B Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Class A Common Stock or Class B Common Stock, or securities or rights
convertible or exchangeable into shares of Class A Common Stock or Class B Common Stock. The issue
and sale of the Notes, the Warrants and the Common Shares will not, immediately or with the passage
of time, obligate the Company to issue shares of Class A Common
8
Stock, Class B Common Stock or other securities to any Person (other than the Purchasers) and
will not result in a right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities, other than those Warrants to Purchase Common Stock,
each dated January 13, 2004, issued by the Company to each of 033 Growth Partners I, L.P., 033
Growth Partners II, L.P., 033 Growth International Fund LTD., Oyster Pond Partners, L.P. and The
Riverview Group LLC. All of the outstanding shares of capital stock of the Company are validly
issued, fully paid and nonassessable, have been issued in compliance with all federal and state
securities laws, and none of such outstanding shares was issued in violation of any preemptive
rights or similar rights to subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board of Directors of the Company or other Person is required
for the issuance and sale of the Notes, the Warrants and the Common Shares. Except as disclosed in
the Disclosure Materials, there are no stockholders agreements, voting agreements or other similar
agreements with respect to the Company’s capital stock to which the Company is a party or, to the
knowledge of the Company, between or among any of the Company’s stockholders, except as would not
reasonably be expected to result in a Material Adverse Effect.
(h) SEC Reports; Financial Statements. The Company has filed all reports and proxy statements
required to be filed by it under the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, since January 1, 2005 (the foregoing materials filed with the
Commission prior to the date hereof being collectively referred to herein as the “SEC Reports” and,
together with the Disclosure Schedules, the “Disclosure Materials”) on a timely basis or has timely
filed a valid extension of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange Act, and none of the
SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading. The financial statements
of the Company included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with respect thereto as in
effect at the time of filing and such financial statements have been prepared in accordance with
United States generally accepted accounting principles (“GAAP”) applied on a consistent basis
during the periods involved (except as may be otherwise specified in such financial statements or
the notes thereto, or in the case of unaudited financial statements, to the extent they may exclude
footnotes or may be condensed or summary footnotes or statements), and fairly present in all
material respects the financial position of the Company and its consolidated Subsidiaries as of and
for 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. The Company
maintains a standard system of accounting established and administered in accordance with GAAP and
the applicable requirements of the Exchange Act.
(i) Accountant. The firm of Ernst & Young LLP, has expressed its opinion with respect to the
annual consolidated financial statements for the Company’s
9
fiscal year ended December 31, 2004 to be included or incorporated by reference in the
Registration Statement (as defined in the Registration Rights Agreement) and the prospectus which
forms a part thereof (the “Prospectus”), and is an independent accountant as required by the
Securities Act.
(j) Taxes. Each of the Company and its Subsidiaries has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon
except for taxes being contested in good faith by the Company for which adequate reserves have been
established, and neither the Company nor any of its Subsidiaries has knowledge of a tax deficiency
which has been asserted in writing against it which would reasonably be expected to have a Material
Adverse Effect.
(k) Material Changes. Except as set forth in press releases issued by the Company, since the
date of the latest audited financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports or in the Disclosure Materials, (i) there has been no
event, occurrence or development known to the Company that, individually or in the aggregate, has
had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company
has not incurred any liabilities (contingent or otherwise) other than (A) trade payables, accrued
expenses and other liabilities incurred in the ordinary course of business consistent with past
practice, (B) liabilities not required to be reflected in the Company’s financial statements
pursuant to GAAP or required to be disclosed in filings made with the Commission, and (C) other
liabilities that would not, individually or in the aggregate, have a Material Adverse Effect, (iii)
the Company has not altered its critical accounting policies, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) the
Company has not issued any equity securities to any officer, director or Affiliate of the Company,
except pursuant to existing Company stock incentive or purchase plans. The Company does not have
pending before the Commission any request for confidential treatment of information or documents.
(l) Litigation. There is no Proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of their respective
properties before or by any court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the Common Shares, or
(ii) except as set forth in the SEC Reports, would, if there were an unfavorable decision,
individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
Except as set forth in the SEC Reports, neither the Company nor any Subsidiary, nor any director or
officer thereof, is or has been the subject of any Proceeding involving a claim of violation of or
liability under federal or state securities laws or a claim of breach of fiduciary duty. There is
not pending, and to the knowledge of the Company, there is not contemplated, any investigation by
the Commission of the Company or any current or former director or officer of the Company.
10
(m) 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.
(n) Compliance. Neither the Company nor any Subsidiary (i) is in default under or in violation
of (and no event has occurred that has not been waived that, with notice or lapse of time or both,
would result in a default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is in violation of,
any indenture, loan or credit agreement or any other agreement or instrument to which it is a party
or by which it or any of its properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws applicable to its business,
except as to each of the foregoing clauses (i), (ii) and (iii) as would not have a Material Adverse
Effect.
(o) Regulatory Permits. The Company 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 as described in the SEC Reports,
except where the failure to possess such permits would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the
Company nor any Subsidiary has received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(p) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee
simple to all real property owned by them that is material to their respective businesses and good
and marketable title in all personal property owned by them that is material to their respective
businesses, in each case free and clear of all Liens, except for Liens that do not materially
affect the value of such property and do not materially interfere with the use made and proposed to
be made of such property by the Company and the Subsidiaries. Any real property and facilities held
under lease by the Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases of which the Company and the Subsidiaries are in compliance, except for such
compliance as would not, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
(q) Patents and Trademarks. The Company 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 that are necessary or material for use in connection
with their respective businesses as described in the SEC Reports and which the failure to so have
would, individually or in the aggregate, reasonably be expected to result in a Material Adverse
Effect (collectively, the “Intellectual Property Rights”). Neither the Company nor any Subsidiary
has received a written notice that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person other than matters
11
previously resolved or as would not, individually or in the aggregate, have a Material Adverse
Effect. Except as set forth in the SEC Reports, all such Intellectual Property Rights are
enforceable and, to the Company’s knowledge, do not violate or infringe the Intellectual Property
Rights of others in any respect that would reasonably be expected to result in a Material Adverse
Effect and, to the knowledge of the Company, there is no material existing infringement by another
Person of any of the Intellectual Property Rights.
(r) Insurance. The Company and the Subsidiaries are insured against such losses and risks and
in such amounts as are believed by the Company to be prudent in the businesses in which the Company
and the Subsidiaries are engaged. The Company has no 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, other than general insurance price increases.
(s) Transactions With Affiliates and Employees. Except as disclosed in the SEC Reports, 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 the Company or any
Subsidiary required to be disclosed in the SEC Reports (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.
(t) Certain Registration Matters. Assuming the accuracy of the Purchasers’ representations and
warranties set forth in Section 3.2(c)-(g), no registration under the Securities Act is required
for the offer and issuance of the Notes, the Warrants and the Common Shares by the Company to the
Purchasers under the Transaction Documents. Neither the Company nor any Person acting on behalf of
the Company has offered or sold any of the Notes, the Warrants or the Common Shares by any form of
general solicitation or general advertising. The Company has offered the Notes, the Warrants and
the Common Shares for sale only to the Purchasers and certain other “accredited investors” within
the meaning of Rule 501 under the Securities Act.
(u) Listing and Maintenance Requirements. The Company’s Class A Common Stock is registered
pursuant to Section 12(g) of the Exchange Act, and the Company has taken no action designed to, or
which to its knowledge is likely to have the effect of, terminating the registration of the Class A
Common Stock under the Exchange Act nor has the Company received any written notification that the
Commission is contemplating terminating such registration. The Company has not, in the two years
preceding the date hereof, received written notice from any Trading Market to the effect that the
Company is not in compliance with the listing or maintenance requirements thereof. The Company is
in compliance with the listing and maintenance requirements for continued listing of the Common
Stock on the Trading Market. The issuance and sale of
12
the Notes and the Warrants under the Transaction Documents does not contravene the rules and
regulations of the Trading Market on which the Class A Common Stock is currently listed or quoted,
and no approval of the stockholders of the Company thereunder is required for the Company to issue
and deliver to the Purchasers the Notes and the Warrants contemplated by Transaction Documents.
(v) Investment Company. The Company is not, and is not an Affiliate of, and immediately after
receipt of payment of the Purchase Price, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.
(w) Disclosure. The Company confirms that neither it nor, to its knowledge, any Person acting
on its behalf, has provided any of the Purchasers or their agents or counsel with any information
that the Company believes constitutes material, non-public information other than information given
on a confidential basis other than the fact that discussions or negotiations are taking place
concerning the transaction contemplated by this Agreement and any of the terms, conditions or other
facts with respect thereto (including the status thereof).
(x) 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 this offering of
the Notes and the Warrants, and the Common Shares to be integrated with prior offerings by the
Company for purposes of the Securities Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of the Trading Market on which the
Class A Common Stock is currently listed or quoted.
(y) Acknowledgment Regarding Purchasers’ Purchase of Notes, Warrants, and Common Shares. The
Company acknowledges that each of the Purchasers is acting solely in the capacity of an arm’s
length purchaser with respect to the Transaction Documents and the transactions contemplated
hereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the
transactions contemplated hereby and any advice given by any Purchaser or any of their respective
representatives or agents in connection with this Agreement and the transactions contemplated
hereby is merely incidental to the Purchasers’ purchase of the Notes, the Warrants and the Common
Shares. The Company further represents to each Purchaser that the Company’s decision to enter into
this Agreement has been based solely on the independent evaluation of the transactions contemplated
hereby by the Company and its representatives.
(z) Seniority. As of the Closing Date, except for Indebtedness (as defined in the Notes) (i)
pursuant to the SVB Facility (as defined in the Notes), (ii) pursuant to the Receivables Facility
(as defined in the Notes), (iii) pursuant to the capital leases described on Schedule 3.1(aa) to
this Agreement and any extensions, renewals or replacements thereof, (iv) pursuant to conditional
sale or other title retention agreements
13
entered into by the Company or any Subsidiary in the ordinary course of business and (v)
secured by Permitted Liens (as defined in the Notes) (collectively, such Indebtedness, “Senior
Debt”), no Indebtedness or equity of the Company is senior to the Notes in right of payment,
whether with respect to interest or upon liquidation or dissolution, or otherwise. The Company has
not granted any Liens on any of its assets or the assets of its Subsidiaries to secure any
Indebtedness other than Liens granted to secure Senior Debt and Indebtedness under the capital
leases described on Schedule 3.1(aa).
(aa) 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 proceeds from the sale of the Notes hereunder,
(i) the fair saleable value of the Company’s 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) the Company’s assets do not constitute unreasonably
small capital to carry on its business 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 liabilities when such amounts are required to
be paid. Schedule 3.1(aa) sets forth as of the dates thereof all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary
has commitments. For the purposes of this Agreement, “Indebtedness” shall mean (a) any
liabilities for borrowed money or amounts owed in excess of $50,000 (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 in excess of $50,000
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.
(bb) Xxxxxxxx-Xxxxx Act. The Company is, and at the Closing Date will be, in compliance in
all material respects with all provisions of the Xxxxxxxx-Xxxxx Act of 2002 which are applicable to
it. The Company is an “accelerated filer” as defined in Rule 12b-2 under the Exchange Act and,
accordingly, is in compliance in all material respects with Section 404 of the Xxxxxxxx-Xxxxx Act
of 2002. The Company maintains a system of internal accounting controls that the Company
reasonably believes are sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets; (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 existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
14
3.2 Representations and Warranties of the Purchasers. Each Purchaser hereby, for
itself and for no other Purchaser, represents and warrants to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization with the requisite
corporate or partnership power and authority to enter into and to consummate the transactions
contemplated by the applicable Transaction Documents and otherwise to carry out its obligations
thereunder. The execution, delivery and performance by such Purchaser of the transactions
contemplated by this Agreement has been duly authorized by all necessary corporate or, if such
Purchaser is not a corporation, such partnership, limited liability company or other applicable
like action, on the part of such Purchaser. Each of this Agreement and other Transaction Documents
signed by Purchaser have been duly executed by such Purchaser, and constitute or, when delivered by
such Purchaser in accordance with the terms hereof, will constitute, the valid and binding
obligation of such Purchaser, enforceable against it in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions
may be limited by applicable law.
(b) No Conflicts. The execution, delivery and performance of this Agreement and other
Transaction Documents by the Purchaser and the consummation by such Purchaser of the transactions
contemplated hereby and thereby will not (i) result in a violation of the certificate of
incorporation, by-laws or other documents of organization of such Purchaser, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both would become a
default) under, or give others any rights of termination, amendment, acceleration or cancellation
of, any agreement, indenture or instrument to which such Purchaser is bound, or (iii) result in a
violation of any law, rule, regulation or decree applicable to such Purchaser.
(c) Investment Intent. Such Purchaser is purchasing the Notes, the Warrants and the Common
Shares for its own account and not with a view to distribution. Such Purchaser has been advised and
understands that neither the Notes, the Warrants nor the Common Shares issuable upon exercise of
the Warrants by the Company pursuant to the terms of the Notes have been registered under the
Securities Act or under the “blue sky” laws of any jurisdiction and may be resold only if
registered pursuant to the provisions of the Securities Act or if an exemption from registration is
available. Such Purchaser has been advised and understands that the Company, in issuing the Notes,
the Warrants, and, if applicable, the Common Shares, is relying upon, among other things, the
representations and warranties of such Purchaser contained in this Section 3.2 in concluding that
such issuance is exempt from the registration provisions of the Securities Act. Such Purchaser is
acquiring the Notes, the Warrants and the Common Shares hereunder in the ordinary course of its
business. Such Purchaser (i) does not have any agreement or understanding, directly or indirectly,
with any Person to distribute any of the Notes, the Warrants or the Common Shares, and (ii) has no
present plan, intention or
15
understanding and has made no arrangement to sell any Notes, Warrants or Common Shares at any
predetermined time or for any predetermined price, without prejudice, however, to such Investor’s
right at all times to sell or otherwise dispose of all or any part of such Notes, Warrants and
Common Shares in compliance with applicable federal and state securities laws.
(d) Accredited Investor Status. At the time such Purchaser was offered the Notes and the
Warrants, it was, and at the date hereof it is, and on each date on which any Common Shares are
issued, it will be, an “accredited investor” as defined in Rule 501(a) under the Securities Act.
Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange
Act.
(e) Experience of Such Purchaser. Such Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the purchase of the Notes, the
Warrants, and, if applicable, the Common Shares, and has so evaluated the merits and risks of such
purchase. Such Purchaser is able to bear the economic risk of the purchase of the Notes, the
Warrants, and, if applicable, the Common Shares, and, at the present time, is able to afford a
complete loss of such investment.
(f) General Solicitation. Such Purchaser is not purchasing the Notes, the Warrants, or, if
applicable, the Common Shares, as a result of any advertisement, article, notice or other
communication regarding the Notes, the Warrants, or, if applicable, the Common Shares, published in
any newspaper, magazine or similar media or broadcast over television or radio or presented at any
seminar or any other general solicitation or general advertisement.
(g) Access to Information. Such Purchaser acknowledges that it has reviewed the Disclosure
Materials and has been afforded the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning the terms and conditions
of the offer and sale of the Notes, the Warrants and the Common Shares. Such Purchaser is
sophisticated and has prior experience with purchases comparable to the Notes, the Warrants and the
Common Shares. Neither such inquiries nor any other investigation conducted by or on behalf of such
Purchaser or its representatives or counsel shall modify, amend or affect such Purchaser’s right to
rely on the truth, accuracy and completeness of the Disclosure Materials and the Company’s
representations and warranties contained in the Transaction Documents.
(h) Independent Investment Decision. Such Purchaser has independently evaluated the merits of
its decision to purchase the Notes, the Warrants, and/or the Common Shares pursuant to this
Agreement, such decision has been independently made by such Purchaser and such Purchaser confirms
that it has only relied on the advice of its own business and/or legal counsel and not on the
advice of any other Purchaser’s business and/or legal counsel in making such decision.
16
The Company acknowledges and agrees that each Purchaser does not make or has not made any
representations or warranties with respect to the transactions contemplated hereby other than those
specifically set forth in this Agreement.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Legends.
(a) The Notes and Warrants (and any shares of the Company’s capital stock issued upon exercise
of the Warrants or pursuant to the Notes) may only be disposed of in compliance with state and
federal securities laws, and in connection with any transfer thereof (other than pursuant to an
effective registration statement, to the Company, to an Affiliate of an Investor who qualifies as
an accredited investor under Regulation D under the Securities Act, the Company may require the
transferor thereof to provide to the Company an opinion of counsel (the form and substance of
which, and the counsel providing such opinion, shall be reasonably satisfactory to the Company) to
the effect that such transfer does not require registration under the Securities Act and any
applicable state securities laws.
(b) The Notes and Warrants (and certificates representing shares of the Company’s capital
stock issued upon exercise of the Warrants or pursuant to the Notes) will contain a legend in
substantially the following form, until such time as they are not required under Section 4.1(c):
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT SECURED BY SUCH SECURITIES.
(c) Certificates evidencing the Common Shares shall not contain any legend (including the
legend set forth in Section 4.1(b) hereof): (i) while a registration statement (including the
Registration Statement) covering the resale of such security is effective under the Securities Act,
or (ii) following any sale of such Common Shares pursuant to Rule 144, or (iii) if such Common
Shares are eligible for sale under Rule 144(k), or (iv) if such legend is not required under
applicable requirements of the
17
Securities Act (including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company shall deliver the instructions in the form attached hereto as
Exhibit F to the Company’s transfer agent, and the Company shall cause its counsel to issue
a legal opinion to the Company’s transfer agent promptly upon the occurrence of any of the events
in clauses (i), (ii), (iii) or (iv) above to effect the removal of the legend on certificates
evidencing the Common Shares and shall also cause its counsel to issue a “blanket” legal opinion to
the Company’s transfer agent promptly after the effective date of any registration statement
covering the resale of the Common Shares to allow sales without restriction pursuant to an
effective registration statement. If all or any portion of a Warrant is exercised at a time when
there is an effective registration statement to cover the resale of the Common Shares, or if such
Common Shares may be sold under Rule 144(k) or if such legend is not otherwise required under
applicable requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission) then such Common Shares shall be issued free
of all legends. The Company agrees that following the Effective Date or at such time as such
legend is no longer required under this Section 4.1(c), it will, no later than three Trading Days
following the delivery by a Purchaser to the Company or, if delivered to the Company’s transfer
agent, no later than three Trading Days after receipt by the Company from the transfer agent, of a
certificate representing such shares containing a restrictive legend, and if such restrictive
legend is to be removed pursuant to Rule 144 or Rule 144(k), an opinion of counsel regarding the
same, the Company’s transfer agent of a certificate representing Common Shares issued with a
restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to
be delivered to such Purchaser a certificate representing such shares that is free from all
restrictive and other legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions on transfer set
forth in this Section. Certificates for Common Shares subject to legend removal hereunder shall be
transmitted by the transfer agent of the Company to the Purchasers by crediting the account of the
Purchaser’s prime broker with the Depository Trust Company System.
In addition to such Purchaser’s other available remedies, the Company shall pay to a
Purchaser, in cash, as liquidated damages and not as a penalty, for each $1,000 of Common Shares
(based on the volume weighted average price of the Common Stock on the date such Securities are
submitted to the Company’s transfer agent) delivered for removal of the restrictive legend and
subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day 10 Trading Days
after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until
such certificate is delivered without a legend. Nothing herein shall limit such Purchaser’s right
to pursue actual damages for the Company’s failure to deliver certificates representing any Common
Shares as required by the Transaction Documents, and such Purchaser shall have the right to pursue
all remedies available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.
Each Purchaser, severally and not jointly with the other Purchasers, agrees that the removal
of the restrictive legend from certificates representing Common Shares as set forth in this Section
4.1 is predicated upon the Company’s reliance that the Purchaser will sell any Common Shares
pursuant to either the registration requirements of the Securities
18
Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and
that if Common Shares are sold pursuant to a Registration Statement, they will be sold in
compliance with the plan of distribution set forth therein.
4.2 Listing of Common Stock. The Company hereby agrees to use commercially reasonable
efforts to maintain the listing of its Class A Common Stock on the Trading Market on which the
Class A Common Stock is currently listed or quoted, and as soon as reasonably practicable following
the Closing (with respect to the Common Shares) to list all of the Common Shares on such Trading
Market. The Company further agrees, if the Company applies to have the Class A Common Stock traded
on any other Trading Market, it will include in such application the Common Shares, and will take
such other action as is necessary or desirable in the opinion of the Purchasers to cause all of the
Common Shares to be listed on such other Trading Market as promptly as possible. The Company will
take all action reasonably necessary to comply in all respects with the Company’s reporting, filing
and other obligations under the bylaws or rules of such Trading Market. This Section 4.2 shall not
apply after five years or if the Company ceases to have a publicly traded class of securities as a
result of an acquisition.
4.3 Use of Proceeds. The Company shall use the net proceeds from the sale of the Notes
and the Warrants hereunder and payment of the exercise price of the Warrants for working capital or
other general corporate purposes (which may include, without limitation, mergers and/or
acquisitions).
4.4 Reservation of Common Stock. As of the date hereof, the Company has reserved and
the Company shall continue to reserve and keep available at all times, for the purpose of effecting
the exercise of the Warrants, a sufficient number of shares of Common Stock, free of preemptive
rights or similar rights, to effect the exercise of all of the Warrants.
4.5 Securities Laws Disclosure; Publicity. By 8:30 a.m. (New York time) on the Trading
Day following the Closing Date, the Company shall issue a press release disclosing the transactions
contemplated hereby and file a Current Report on Form 8-K within three Trading Days thereafter
disclosing the material terms of the transactions contemplated hereby. In addition, the Company
will make such other filings and notices in the manner and time required by the Commission and the
Trading Market on which the Common Stock is listed or quoted.
4.6 Certain Trading Activities. Such Purchaser has not directly or indirectly, nor has
any Person acting on behalf of or pursuant to any understanding with such Purchaser, engaged in any
transactions in the securities of the Company (including, without limitations, any Short Sales
involving the Company’s securities) since the time that such Purchaser was first contacted by the
Company, Xxxxxxx Xxxxx & Associates, Inc. or any other Person regarding an investment in the
Company. Such Purchaser covenants that neither it nor any Person acting on its behalf or pursuant
to any understanding with it will engage in any transactions in the securities of the Company
(including Short Sales) prior to the date that is six months from the Closing Date. Such Purchaser
has maintained, and covenants that until such time as the transactions
19
contemplated by this Agreement are publicly disclosed by the Company pursuant to Section 4.5
such Purchaser will maintain, the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction) and any information other
than the terms of this transaction that the Company provided to Purchaser on a confidential basis.
Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and
the portfolio managers have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser’s assets, the covenant set forth above shall
only apply with respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Notes, the Warrants and/or the Common Shares covered by this
Agreement.
4.7 Certain Repayment Requirements. In the event the Company’s EBITDA from continuing
operations is negative for any two quarters in 2006, then the Company shall use its best efforts to
monetize assets in an amount sufficient to repay at least 50% of the Notes. The Purchasers agree
to waive any and all prepayment penalties upon such occurrence.
ARTICLE V.
CONDITIONS PRECEDENT
5.1 Conditions Precedent to the Obligations of the Purchaser to Purchase. The
obligation of each Purchaser to acquire and pay for the Notes and the Warrants at the Closing is
subject to the satisfaction or waiver by such Purchaser, at or before the Closing, of each of the
conditions set forth below. These conditions are for the Purchaser’s benefit and may be waived by
the Purchaser at any time in its sole discretion.
(a) Representations and Warranties. The representations and warranties of the Company
contained herein shall be true and correct as of the date when made and as of the Closing as though
made on and as of such date.
(b) Performance. The Company shall have performed, satisfied and complied with all covenants,
agreements and conditions required by the Transaction Documents to be performed, satisfied or
complied with by it at or prior to the Closing and shall have delivered or cause to be delivered
the items set forth in Section 2.4(a).
(c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction that prohibits the consummation of any of the transactions contemplated by
the Transaction Documents. The Trading Market shall not have objected or indicated that it may
object to the consummation of any of the transactions contemplated by this Agreement.
20
(d) Adverse Changes. Since the date of execution of this Agreement, no event or series of
events shall have occurred that reasonably would be expected to have or result in:
(i) an adverse effect on the legality, validity or enforceability of any Transaction Document,
or
(ii) a Material Adverse Effect.
(e) No Suspensions of Trading in Common Stock; Listing. Trading in the Class A Common Stock
shall not have been suspended by the Commission or any Trading Market (except for any suspensions
of trading of not more than one Trading Day solely to permit dissemination of material information
regarding the Company).
(f) Timing. The Closing shall have occurred no later than March 15, 2006.
5.2 Conditions Precedent to the Obligation of the Company to Sell. The obligation of
the Company to issue and/or sell the Notes and the Warrants to the Purchasers at the Closing is
subject to the satisfaction or waiver by the Company, at or before the Closing, of each of the
conditions set forth below. These conditions are for the Company’s sole benefit and may be waived
by the Company at any time in its sole discretion.
(a) Representations and Warranties. The representations and warranties of each Purchaser
contained herein shall be true and correct as of the date when made and as of the Closing Date as
though made on and as of such date.
(b) Performance. Each Purchaser shall have performed, satisfied and complied with all
covenants, agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by such Purchaser at or prior to the Closing and shall have delivered or
cause to be delivered the items set forth in Section 2.4(b), including payment of the Purchase
Price set forth on Schedule I to the Company as provided herein.
(c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction that prohibits the consummation of any of the transactions contemplated by
the Transaction Documents.
(d) Timing. The Closing shall have occurred no later than March 15, 2006.
21
ARTICLE VI.
MISCELLANEOUS
6.1 Fees and Expenses. At the Closing, the Company shall pay a total expense allowance
of $20,000 to the Purchasers (the “Expense Allowance”). Each Purchaser shall withhold its pro rata
share of the Expense Allowance from its Purchase Price. Each Purchaser and the Company shall pay
its own respective fees and expenses of its advisers, counsel, accountants and other experts, if
any, and all other expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of the Transaction Documents. The Company shall pay all UCC-1
filing fees and, with respect to United States Patent and Trademark Office filings, such fees only
if a blanket lien is filed in connection with the perfection of the security interests granted by
the Intellectual Property Security Agreement.
6.2 Entire Agreement. The Transaction Documents, together with the Exhibits and
Schedules thereto, contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such documents, exhibits and
schedules; notwithstanding the foregoing, those certain Confidentiality Agreements, dated as of
February 21, 2006, by and between the Company and each Purchaser, or its Affiliates, shall survive
the execution and delivery of this Agreement and the provisions thereof shall survive for the terms
set forth therein.
6.3 Notices. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given and effective on
the earliest of (a) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time)
on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in this Section on a day
that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (c) the
Trading Day following the date of mailing, if sent and delivered by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom such notice is required
to be given. The address for such notices and communications shall be as follows:
If to the Company:
|
TeleCommunication Systems, Inc. | |
| 000 Xxxx Xxxxxx | ||
| Xxxxxxxxx, Xxxxxxxx 00000 | ||
| Attn: Chief Financial Officer | ||
| Facsimile: (000) 000-0000 | ||
With a copy to:
|
DLA Xxxxx Xxxxxxx Xxxx Xxxx US LLP | |
| 0000 Xxxxx Xxxxxx | ||
| Xxxxxxxxx, Xxxxxxxx 00000-0000 | ||
| Attn: Wm. Xxxxx Xxxxx, Esq. | ||
| Facsimile: (000) 000-0000 |
22
If to a Purchaser:
|
To the address set forth under such Purchaser’s name on the signature pages hereof; or such other address as may be designated in writing hereafter, in the same manner, by such Person. |
6.4 Amendments; Waivers. Any provision of this Agreement may be waived or amended by a
written instrument signed by the Company and all of the Purchasers, except that in the event that
any Purchaser no longer holds any portion of the Notes purchased pursuant to this Agreement, then
the written instrument shall be signed by the Company and the Required Holders; provided that such
waiver or amendment shall apply with the same force and effect to all Purchasers and Note holders.
Notwithstanding the foregoing, following the Closing, any provision of this Agreement, a Note, or a
Warrant may be amended or waived with the consent of any single Purchaser, Note holder, or Warrant
holder (as the case may be), provided that such amendment or waiver shall not affect any other
Purchaser, Note holder, or Warrant holder. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future
or a waiver of any subsequent default or a waiver of any other provision, condition or requirement
hereof, nor shall any delay or omission of a party hereto to exercise any right hereunder in any
manner impair the exercise of any such right.
6.5 Construction. The headings herein are for convenience only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The
language used in this Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against any party. This
Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions
of this Agreement or any of the Transaction Documents.
6.6 Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written consent of each of the
Purchasers. Any Purchaser may assign any or all of its rights under this Agreement to any assignee
of the Purchaser’s Notes or Warrants; provided that such transferee or assignee agrees in writing
to be bound, with respect to the transferred or assigned Notes, Warrants, or Common Shares by the
provisions hereof that apply to the “Purchasers” and makes the representations set forth in Section
3.2 hereof.
6.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person.
23
6.8 Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the principles of conflicts of
law thereof. Each party agrees that all Proceedings to resolve any dispute among the parties
concerning the interpretations, enforcement and defense of the transactions contemplated by this
Agreement and any other Transaction Documents (whether brought against a party hereto or its
respective Affiliates, employees or agents having rights hereunder) shall be commenced exclusively
in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New
York Courts”), although depositions may be taken in other locations. Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of
any dispute hereunder or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of the any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim
that it is not personally subject to the jurisdiction of any such New York Court, or that such
Proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) 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. Each party hereto hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out
of or relating to this Agreement or the transactions contemplated hereby. If a party hereto shall
commence a Proceeding to enforce any provisions of a Transaction Document, then the prevailing
party in such Proceeding shall be reimbursed by the other party for its attorney’s fees and other
costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.
6.9 Execution. This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other party, it being
understood that both parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and binding obligation of
the party executing (or on whose behalf such signature is executed) with the same force and effect
as if such facsimile signature page were an original thereof.
6.10 Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt
to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon
so agreeing, shall incorporate such substitute provision in this Agreement.
24
6.11 Replacement of Notes, the Warrants and the Common Shares. If any certificate or
instrument evidencing any of the Notes, the Warrants or the Common Shares is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for
and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Notes, Warrants or Common Shares. If a replacement
certificate or instrument evidencing any Notes, Warrants or Common Shares is requested due to a
mutilation thereof, the Company may require delivery of such mutilated certificate or instrument as
a condition precedent to any issuance of a replacement.
6.12 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each
Purchaser under any Transaction Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the performance of the
obligations of any other Purchaser under any Transaction Document. The decision of each Purchaser
to purchase Notes, Warrants or Common Shares pursuant to the Transaction Documents has been made by
such Purchaser independently of any other Purchaser. Nothing contained herein or in any Transaction
Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create
a presumption that the Purchasers are in any way acting in concert or as a group with respect to
such obligations or the transactions contemplated by the Transaction Document. Each Purchaser
acknowledges that no other Purchaser has acted as agent for such Purchaser in connection with
making its investment hereunder and that no Purchaser will be acting as agent of such Purchaser in
connection with monitoring its investment in the Notes, Warrants, or Common Shares, or enforcing
its rights under the Transaction Documents. Each Purchaser shall be entitled to independently
protect and enforce its rights, including without limitation the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser is
represented by its own counsel and is not relying on counsel of any other Purchaser or of any
broker or placement agent in connection with this matter.
6.13 Equal Treatment of Purchasers. No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration is also offered to all of the parties to the Transaction
Documents. Further, the Company shall not make any payment of principal or interest on the Notes in
amounts which are disproportionate to the respective principal amounts outstanding on the Notes at
any applicable time. For clarification purposes, this provision constitutes a separate right
granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is
intended for the Company to treat the Purchasers as a class and shall not in any way be construed
as the Purchasers acting in concert or as a group with respect to the purchase, disposition or
voting of the Notes, Warrants, Common Shares or otherwise.
25
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]
SIGNATURE PAGES FOLLOW]
26
IN WITNESS WHEREOF, the parties hereto have caused this Note Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first indicated above.
| TELECOMMUNICATION SYSTEMS, INC. | ||||||
| By: | /s/ Xxxxxx X. Xxxxxx, Xx.
|
|||||
| Title: Senior Vice President and Chief | ||||||
| Financial Officer | ||||||
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
IN WITNESS WHEREOF, the parties have caused this Note Purchase Agreement to be duly executed by
their respective authorized signatories as of the date first written above.
| PURCHASER | ||||||
| Bonanza Master Fund, Ltd. | ||||||
| By: | /s/ Xxxxx Xxxxx | |||||
| Name: Xxxxx Xxxxx | ||||||
| Title: Partner | ||||||
| Address for Notice and Residence: | ||||
| Bonanza Capital | ||||
| 000 Xxxxxxxx Xxxxx | ||||
| Xxxxx 000 | ||||
| Xxxxxx, XX 00000 | ||||
| Tel: | ||||
| Fax: E-mail: |
||||
| Securities to be purchased: | ||||
| Notes: | $6,000,000 | |||
| Warrants: | 1,050,000 | |||
IN WITNESS WHEREOF, the parties have caused this Note Purchase Agreement to be duly executed by
their respective authorized signatories as of the date first written above.
| PURCHASER | ||||||||||
| HHMI Investments, L.P. | ||||||||||
| By: | WS Capital Management, L.P., | |||||||||
| Investment Manager | ||||||||||
| By: | WS Capital, L.L.C., General Partner | |||||||||
| By: | /s/ Xxxx X. Xxxxxx | |||||||||
| Name: Xxxx X. Xxxxxx | ||||||||||
| Title: Member | ||||||||||
| Address for Notice and Residence: | ||||||||||
| 000 Xxxxxxxx Xxxxx | ||||||||||
| Xxxxx 0000 | ||||||||||
| Xxxxxx, XX 00000 | ||||||||||
| Tel: | ||||||||||
| Fax: | ||||||||||
| E-mail: | ||||||||||
| Securities to be purchased: | ||||||||||
| Notes: | $346,500 | |||||||||
| Warrants: | 60,638 | |||||||||
IN WITNESS WHEREOF, the parties have caused this Note Purchase Agreement to be duly executed by
their respective authorized signatories as of the date first written above.
| PURCHASER | ||||||||||
| Xxxxxx Xxxxx International Fund, Ltd. | ||||||||||
| By: | WS Capital Management, L.P., | |||||||||
| Attorney-in-fact | ||||||||||
| By: | WS Capital, L.L.C., General Partner | |||||||||
| By: | /s/ Xxxx X. Xxxxxx | |||||||||
| Name: Xxxx X. Xxxxxx | ||||||||||
| Title: Member | ||||||||||
| Address for Notice and Residence: | ||||||||||
| 000 Xxxxxxxx Xxxxx | ||||||||||
| Xxxxx 0000 | ||||||||||
| Xxxxxx, XX 00000 | ||||||||||
| Tel: | ||||||||||
| Fax: | ||||||||||
| E-mail: | ||||||||||
| Securities to be purchased: | ||||||||||
| Notes: | $929,200 | |||||||||
| Warrants: | 162,610 | |||||||||
IN WITNESS WHEREOF, the parties have caused this Note Purchase Agreement to be duly executed by
their respective authorized signatories as of the date first written above.
| PURCHASER | ||||||||||
| Xxxxxx Xxxxx Capital, L.P. | ||||||||||
| By: | WS Capital Management, L.P., General Partner | |||||||||
| By: | WS Capital, L.L.C., General Partner | |||||||||
| By: | /s/ Xxxx X. Xxxxxx | |||||||||
| Name: Xxxx X. Xxxxxx | ||||||||||
| Title: Member | ||||||||||
| Address for Notice and Residence: | ||||||||||
| 000 Xxxxxxxx Xxxxx | ||||||||||
| Xxxxx 0000 | ||||||||||
| Xxxxxx, XX 00000 | ||||||||||
| Tel: | ||||||||||
| Fax: | ||||||||||
| E-mail: | ||||||||||
| Securities to be purchased: | ||||||||||
| Notes: | $107,900 | |||||||||
| Warrants: | 18,883 | |||||||||
IN WITNESS WHEREOF, the parties have caused this Note Purchase Agreement to be duly executed by
their respective authorized signatories as of the date first written above.
| PURCHASER | ||||||||||
| Xxxxxx Xxxxx Capital (Q.P.), L.P. | ||||||||||
| By: | WS Capital Management, L.P., General Partner | |||||||||
| By: | WS Capital, L.L.C., General Partner | |||||||||
| By: | /s/ Xxxx X. Xxxxxx | |||||||||
| Name: Xxxx X. Xxxxxx | ||||||||||
| Title: Member | ||||||||||
| Address for Notice and Residence: | ||||||||||
| 000 Xxxxxxxx Xxxxx | ||||||||||
| Xxxxx 0000 | ||||||||||
| Xxxxxx, XX 00000 | ||||||||||
| Tel: | ||||||||||
| Fax: | ||||||||||
| E-mail: | ||||||||||
| Securities to be purchased: | ||||||||||
| Notes: | $616,400 | |||||||||
| Warrants: | 107,870 | |||||||||
IN WITNESS WHEREOF, the parties have caused this Note Purchase Agreement to be duly executed by
their respective authorized signatories as of the date first written above.
| PURCHASER | ||||||||||
| SRB Greenway Capital, L.P. | ||||||||||
| By: | SRB Management, L.P., General Partner | |||||||||
| By: | BC Advisors, L.L.C., General Partner | |||||||||
| By: | /s/ Xxxxxx X. Xxxxxx | |||||||||
| Title: Member | ||||||||||
| Address for Notice and Residence: | ||||||||||
| 000 Xxxxxxxx Xxxxx | ||||||||||
| Xxxxx 0000 | ||||||||||
| Xxxxxx, XX 00000 | ||||||||||
| Tel: | ||||||||||
| Fax: | ||||||||||
| E-mail: | ||||||||||
| Securities to be purchased: | ||||||||||
| Notes: | $214,500 | |||||||||
| Warrants: | 37,538 | |||||||||
IN WITNESS WHEREOF, the parties have caused this Note Purchase Agreement to be duly executed by
their respective authorized signatories as of the date first written above.
| PURCHASER | ||||||||||
| SRB Greenway Capital QP, L.P. | ||||||||||
| By: | SRB Management, L.P., General Partner | |||||||||
| By: | BC Advisors, L.L.C., General Partner | |||||||||
| By: | /s/ Xxxxxx X. Xxxxxx | |||||||||
| Title: Member | ||||||||||
| Address for Notice and Residence: | ||||||||||
| 000 Xxxxxxxx Xxxxx | ||||||||||
| Xxxxx 0000 | ||||||||||
| Xxxxxx, XX 00000 | ||||||||||
| Tel: | ||||||||||
| Fax: | ||||||||||
| E-mail: | ||||||||||
| Securities to be purchased: | ||||||||||
| Notes: | $1,683,000 | |||||||||
| Warrants: | 294,525 | |||||||||
IN WITNESS WHEREOF, the parties have caused this Note Purchase Agreement to be duly executed by
their respective authorized signatories as of the date first written above.
| PURCHASER | ||||||||||
| SRB Greenway Offshore Operating Fund, L.P. | ||||||||||
| By: | SRB Management, L.P., General Partner | |||||||||
| By: | BC Advisors, L.L.C., General Partner | |||||||||
| By: | /s/ Xxxxxx X. Xxxxxx | |||||||||
| Title: Member | ||||||||||
| Address for Notice and Residence: | ||||||||||
| 000 Xxxxxxxx Xxxxx | ||||||||||
| Xxxxx 0000 | ||||||||||
| Xxxxxx, XX 00000 | ||||||||||
| Tel: | ||||||||||
| Fax: | ||||||||||
| E-mail: | ||||||||||
| Securities to be purchased: | ||||||||||
| Notes: | $102,500 | |||||||||
| Warrants: | 17,938 | |||||||||
SCHEDULE I
| Purchase Price and | ||||||||
| Principal Amount of | Number of | |||||||
| Purchaser Name | Notes | Warrants | ||||||
Bonanza Master Fund Ltd. |
$ | 6,000,000 | 1,050,000 | |||||
HHMI Investments, L.P. |
$ | 346,500 | 60,638 | |||||
SRB Greenway Capital L.P. |
$ | 214,500 | 37,538 | |||||
SRB Greenway Capital (QP) L.P. |
$ | 1,683,000 | 294,525 | |||||
SRB Greenway Offshore Operating Fund, L.P. |
$ | 102,500 | 17,938 | |||||
Xxxxxx Xxxxx Capital (QP), L.P. |
$ | 616,400 | 107,870 | |||||
Xxxxxx Xxxxx Capital, L.P. |
$ | 107,900 | 18,883 | |||||
Xxxxxx Xxxxx International Fund, Ltd. |
$ | 929,200 | 162,610 | |||||
Total |
$ | 10,000,000 | 1,750,002 | |||||
Schedule 3.1 (aa)-1
