SECURITIES PURCHASE AGREEMENT
Exhibit
10.5
SECURITIES
PURCHASE AGREEMENT (this “Agreement”),
dated
as of June 9, 2005, by and between Applied
Digital Solutions, Inc.,
a
Missouri corporation (the “Company”),
and
each of the entities whose names appear on the signature pages hereof (each,
an
“Investor”
and,
collectively, the “Investors”).
A. The
Company wishes to sell to each Investor, and each Investor wishes to purchase,
on the terms and subject to the conditions set forth in this Agreement, (i)
shares (the “Initial
Preferred Shares”)
of the
Company’s Series D Convertible Preferred Stock (the “Preferred
Stock”)
having
the rights and privileges set forth in the form of Certificate of Designation
attached hereto as Exhibit
A
(the
“Certificate
of Designation”),
(ii)
a Warrant to purchase shares of Common Stock (as defined below) in the form
attached hereto as Exhibit
B
(each, a
“Warrant”
and,
collectively, the “Warrants”),
and
(iii) a Senior Unsecured Note in the form attached hereto as Exhibit
C
(each a
“Note”
and,
collectively, the “Notes”).
At
maturity, the Company may, under certain conditions, exchange the Notes (an
“Exchange”)
for
additional shares of Preferred Stock (the “Subsequent
Preferred Shares”).
The
Initial Preferred Shares and the Subsequent Preferred Shares are collectively
referred to herein as the “Preferred
Shares”.
B. The
Preferred Stock will be convertible into shares (the “Conversion
Shares”)
of the
Company’s Common Stock at the Conversion Price (as defined below). The Warrant
issued to an Investor will entitle such Investor to purchase a number of
shares
of Common Stock (the “Warrant
Shares”)
equal
to thirty-five percent (35%) of the number of Conversion Shares into which
the
Preferred Shares purchased by such Investor at the Closing (as defined below)
would be convertible assuming for such purpose that the Conversion Price
is
equal to the Market Price on the Closing Date (as such terms are defined
below)
(without regard to any limitation on such conversion contained herein or
in the
Certificate of Designation), and will be exercisable at an exercise price
equal
to 110%
of
the Market Price on the Closing Date.
C. As
an
inducement for each Investor to execute and deliver this Agreement, the Company
has agreed to cause VeriChip Corporation (“VeriChip”)
to
issue to such Investor a warrant in the form attached hereto as Exhibit
E
that
will entitle such Investor to purchase one hundred and fifty thousand (150,000)
shares of the common stock of VeriChip at an exercise price equal to eight
dollars ($8.00), subject to adjustment as provided therein, and will expire
on
the one (1) year anniversary of the date on which VeriChip completes an initial
public offering of its common stock or (ii) if VeriChip does not commence
an
initial public offering of its common stock on or before the two (2) year
anniversary of the Closing Date, on such two year anniversary.
D. The
Preferred Shares (including without limitation any Preferred Shares purchased
pursuant to an Exchange), the Notes, the Conversion Shares, the Warrants,
the
Warrant Shares, the VeriChip Warrant and the shares of VeriChip common stock
issuable upon exercise of the VeriChip Warrant (“VeriChip
Warrant Shares”)
are
collectively referred to herein as the “Securities”.
E. The
Company has agreed to effect the registration of the Conversion Shares and
the
Warrant Shares under the Securities Act of 1933, as amended (the “Securities
Act”),
pursuant to a
Registration
Rights Agreement in the form attached hereto as Exhibit
D
(the
“Registration
Rights Agreement”).
The
sale of the Securities by the Company to the Investors will be effected in
reliance upon the exemption from securities registration afforded by the
provisions of Section 4(2) of the Securities Act or Regulation D (“Regulation
D”)
promulgated by the Securities and Exchange Commission (the “Commission”)
thereunder.
In
consideration of the mutual promises made herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the
Company and each Investor hereby agree as follows:
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1.
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PURCHASE
AND SALE OF PREFERRED
SHARES, NOTES AND WARRANTS.
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1.1 Closing
of Purchase and Sale; Purchase Price.
Upon
the terms and subject to the satisfaction or waiver of the conditions set
forth
herein, the Company agrees to sell and each Investor agrees to purchase (i)
the
number of Preferred Shares set forth below such Investor’s name on the signature
pages hereof, (ii) a Note with a face amount equal to such Investor’s Pro Rata
Share (as defined below) of $5,350,455, and (iii) a Warrant. The purchase
price
for the Preferred Shares, Note and Warrant being purchased by each Investor
at
the Closing (collectively, the “Purchased
Securities”)
shall
be equal to the sum of (x) the aggregate Stated Value of such Preferred Shares
plus
(y)
93.45% of the face amount of such Note (the “Purchase
Price”).
The
closing of the purchase and sale of the Purchased Securities (the “Closing”)
will
be deemed to occur at the offices of Xxxxx & Stachenfeld, LLP, 000 Xxxx
00xx
Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000, when (A) this Agreement and the other Transaction
Documents (as defined below) have been executed and delivered by the Company
and, to the extent applicable, by each Investor, (B) each of the conditions
to
Closing described in Article
5
hereof
has been satisfied or waived by the Company or each Investor, as the case
may be
and (C) each Investor shall have delivered the Purchase Price to the Company
by
wire transfer of immediately available funds against physical delivery of
duly
executed certificates representing the Purchased Securities being purchased
by
such Investor. The date on which the Closing occurs is referred to herein
as the
“Closing
Date”.
1.2 Certain
Definitions.
When
used herein, the following terms shall have the respective meanings
indicated:
“Affiliate”
means,
as to any Person (the “subject
Person”),
any
other Person (a) that directly or indirectly through one or more
intermediaries controls or is controlled by, or is under direct or indirect
common control with, the subject Person, (b) that directly or indirectly
beneficially owns or holds ten percent (10%) or more of any class of voting
equity of the subject Person, or (c) ten percent (10%) or more of
the
voting equity of which is directly or indirectly beneficially owned or held
by
the subject Person. For the purposes of this definition, “control”
when
used with respect to any Person means the power to direct the management
and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, through representation on such Person’s Board of Directors
or other management committee or group, by contract or otherwise.
“Agreement”
has the
meaning specified in the preamble
to this Agreement.
2
“Business
Day”
means
any
day other
than a Saturday, a Sunday or a day on which the New York Stock Exchange or
commercial banks located in New York City are authorized or permitted by
law to
close.
“Certificate
of Designation”
has
the
meaning specified in the preamble
to this Agreement.
“Closing”
and
“Closing
Date”
have
the respective meanings specified in Section
1.1
hereof.
“Commission”
has the
meaning specified in the preamble to this Agreement.
“Common
Stock”
means
the common stock, par value $0.01 per share, of the Company.
“Company”
has the
meaning specified in the preamble
to this Agreement.
“Conversion
Price”
has
the
meaning specified in the Certificate of Designation.
“Conversion
Shares”
has
the
meaning specified in the preamble
to this Agreement.
“Current
Violation”
has the
meaning specified in Section
3.7
hereof.
“Debt”
means,
as to the Company and any Subsidiary that is not a Public Subsidiary at any
time: (a) all indebtedness, liabilities and obligations of the Company or
any
such Subsidiary for borrowed money; (b) all indebtedness, liabilities and
obligations of the Company or any such Subsidiary to pay the deferred purchase
price of Property or services, except trade accounts payable of such Person
arising in the ordinary course of business that are not past due by more
than 90
days; (c) all capital lease obligations of the Company or any such Subsidiary;
(d) all indebtedness, liabilities and obligations of others guaranteed by
the
Company or any such Subsidiary; (e) all indebtedness, liabilities and
obligations secured by a Lien existing on Property owned by the Company or
any
such Subsidiary, whether or not the indebtedness, liabilities or obligations
secured thereby have been assumed by such Person or are non-recourse to such
Person; (f) all reimbursement obligations of the Company or any such Subsidiary
(whether contingent or otherwise) in respect of letters of credit, bankers’
acceptances, surety or other bonds and similar instruments; and (g) all
indebtedness, liabilities and obligations of such Person to redeem or retire
shares of capital stock of the Company or any such Subsidiary.
“Disclosure
Documents”
means
all SEC Documents filed by the Company at least three (3) Business Days prior
to
the Execution Date via the Commission’s Electronic Data Gathering, Analysis and
Retrieval system (XXXXX) in accordance with the requirements of Regulation
S-T
under the Exchange Act.
“DTC”
has the
meaning specified in Section
4.6
hereof.
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“Effective
Date”
has the
meaning specified in the Registration Rights Agreement.
“Embargoed
Person”
has the
meaning specified in Section
3.28
hereof.
“Environmental
Law”
means
any federal, state, provincial, local or foreign law, statute, code or
ordinance, principle of common law, rule or regulation, as well as any Permit,
order, decree, judgment or injunction issued, promulgated, approved or entered
thereunder, relating to pollution or the protection, cleanup or restoration
of
the environment or natural resources, or to the public health or safety,
or
otherwise governing the generation, use, handling, collection, treatment,
storage, transportation, recovery, recycling, discharge or disposal of hazardous
materials.
“ERISA”
means
the Employee Retirement Income Security Act of 1974, as amended, and the
regulations and published interpretations thereunder.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended (or any successor act), and
the
rules and regulations thereunder (or respective successors
thereto).
“Execution
Date”
means
the date on which this Agreement has been executed and delivered by the Company
and the Investors.
“Excluded
Securities”
means
(A)
securities purchased under this Agreement; (B) securities issued or issuable
pursuant to the terms of the Certificate of Designations or upon exercise
of the
Warrants or the VeriChip Warrant; (C) the 2004 Warrants and securities issued
or
issuable thereunder; (D) shares of Common Stock (or the common stock of any
Subsidiary) issuable or issued to (x) employees or directors of the Company
or
any such Subsidiary from time to time either directly or upon the exercise
of
options, in such case granted or to be granted in the discretion of the
Company’s or such Subsidiary’s Board of Directors (or a duly authorized
committee thereof) as an inducement to join the Company or such Subsidiary
or
pursuant to one or more stock option plans, restricted stock plans or stock
purchase plans in effect as of the Execution Date or adopted after the Execution
Date by the Company’s or such Subsidiary’s Board of Directors (or a duly
authorized committee thereof) or by the Company’s or such Subsidiary’s
shareholders, (y) vendors, service providers or consultants, either directly
or
pursuant to options or warrants to purchase Common Stock that are outstanding
on
the Execution Date or issued thereafter, provided such issuances are approved
by
the Company’s or such Subsidiary’s Board of Directors (or a duly authorized
committee thereof) or by the Company’s or such Subsidiary’s shareholders, or (z)
third parties, either directly or pursuant to options or warrants to purchase
Common Stock, in connection with the settlement of a bona fide litigation
approved by the Company’s or such Subsidiary’s Board of Directors; (E) shares of
Common Stock issued in connection with any stock split, stock dividend or
recapitalization of the Company or any of its Subsidiaries; (F) shares of
Common
Stock issued in connection with the acquisition by the Company or any Subsidiary
of any corporation or other entity occurring after the Effective Date; (G)
shares of Common Stock issued pursuant to the terms of any
convertible securities of the Company that are outstanding on the Execution
Date
and disclosed on Schedule
3.5
hereof;
(H)
shares issued to Persons with whom the Company or any of its Subsidiaries
is
entering into a joint venture, strategic alliance or other commercial
relationship in
4
connection
with the operation of the Company’s or such Subsidiary’s business and not in
connection with a transaction the primary purpose of which is to raise equity
capital; and (I) shares issued to a Subsidiary pursuant to a share
exchange.
“FAST”
has the
meaning specified in Section
4.6
hereof.
“GAAP”
means
generally accepted accounting principles, applied on a consistent basis,
as set
forth in (i) opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants, (ii) statements of the Financial
Accounting Standards Board and (iii) interpretations of the Commission and
the
Staff of the Commission. Accounting principles are applied on a “consistent
basis” when the accounting principles applied in a current period are comparable
in all material respects to those accounting principles applied in a preceding
period.
“Governmental
Authority”
means
any nation or government, any state, provincial or political subdivision
thereof
and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including without
limitation any stock exchange, securities market or self-regulatory
organization.
“Governmental
Requirement”
means
any law, statute, code, ordinance, order, rule, regulation, judgment, decree,
injunction, franchise, license or other directive or requirement of any federal,
state, county, municipal, parish, provincial or other Governmental Authority
or
any department, commission, board, court, agency or any other instrumentality
of
any of them.
“Initial
Preferred Shares”
has the
meaning specified in the preamble
to this Agreement.
“Initial
Filing Deadline”
has the
meaning specified in Registration Rights Agreement.
“Initial
Registration Statement”
has the
meaning specified in Registration Rights Agreement.
“Intellectual
Property”
means
any U.S. or foreign patents, patent rights, patent applications, trademarks,
trade names, service marks, brand names, logos and other trade designations
(including unregistered names and marks), trademark and service xxxx
registrations and applications, copyrights and copyright registrations and
applications, inventions, invention disclosures, protected formulae,
formulations, processes, methods, trade secrets, computer software, computer
programs and source codes, manufacturing research and similar technical
information, engineering know-how, customer and supplier information, assembly
and test data drawings or royalty rights.
“Investment
Certificate”
has the
meaning specified in Section
4.8
hereof.
“Investment
Company Act”
has the
meaning specified in Section
3.25
hereof.
5
“Investor”
and
“Investors”
have
the respective meanings specified in the preamble
to this Agreement.
“Key
Employee”
has the
meaning specified in Section
3.16
hereof.
“Lien”
means,
with respect to any Property, any mortgage or mortgages, pledge, hypothecation,
assignment, deposit arrangement, security interest, tax lien, financing
statement, pledge, charge, or other lien, charge, easement, encumbrance,
preference, priority or other security agreement or preferential arrangement
of
any kind or nature whatsoever on or with respect to such Property (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the
foregoing).
“Market
Price”
means,
as
of a particular date, the
lesser of (i) the average of the daily VWAP for the Common Stock on each
Trading
Day occurring during the ten (10) Trading Day period ending on (and including)
the Trading Day immediately preceding
such
date
and (ii)
the
daily
VWAP for
the
Common Stock on
the
Trading Day immediately preceding such date.
“Material
Adverse Effect”
means
an effect that is material and adverse to
(i)
the consolidated business, operations, properties, financial condition or
results of operations of the Company and its Subsidiaries taken as a whole,
or
(ii) the transactions contemplated by the Certificate of Designation, this
Agreement or the other Transaction Documents, or (iii) the Company’s ability to
perform its obligations under the Certificate of Designation, this Agreement
and
the other Transaction Documents.
“Material
Contracts”
means,
as to the Company, any agreement
required pursuant to Item 601 of Regulation S-B or Item 601, as applicable,
of
Regulation S-K under the Securities Act to be filed as an exhibit to any
report,
schedule, registration statement or definitive proxy statement filed or required
to be filed by the Company with the Commission under
the
Exchange Act or any rule or regulation promulgated thereunder,
and any
and all amendments, modifications, supplements, renewals or restatements
thereof.
“NASD”
means
the National Association of Securities Dealers, Inc.
“Nasdaq
Stock Market”
has the
meaning specified in Section
3.24
hereof.
“Note”
and
“Notes”
have
the meanings specified in the preamble
to this Agreement.
“Outstanding
Registrable Securities”
means,
at any time, all Registrable Securities that at such time are either issued
and
outstanding or issuable.
“Pension
Plan”
means
an employee benefit plan (as defined in ERISA) maintained by the Company
for
employees of the Company or any of its Affiliates.
“Permitted
Debt”
means
the following:
6
(a) Debt
that
is outstanding on the Execution Date and disclosed on Schedule
3.5
hereto,
and any replacement of such Debt consisting of revolving working capital
credit
facilities or lines of credit obtained from commercial lending institutions
on
commercially reasonable terms and secured only by the Company’s and/or its
Subsidiaries’ accounts receivable and/or inventory; provided,
however,
that in
no event shall the amount of Debt outstanding at any time exceed the sum
of (i)
the amount of Debt outstanding on the Execution Date and disclosed on
Schedule
3.5
hereto
plus
(ii)
$10,000,000;
(b) Debt
consisting of capitalized lease obligations and purchase money indebtedness
incurred in connection with acquisition of capital assets and obligations
under
sale-leaseback or similar arrangements provided in each case that such
obligations are not secured by Liens on any assets of the Company or its
Subsidiaries other than the assets so leased;
(c) Debt
assumed or incurred in connection with the acquisition by the Company or
its
Subsidiaries of all or substantially all of the capital stock or other equity
interests in, or all or substantially all of the assets (constituting a business
unit) of, any Person; provided, that the total amount of Debt assumed or
incurred in connection with any such acquisition shall not exceed the product
of
(i) two (2) times
(ii) the
amount of the acquired entity’s or business unit’s total earnings before
interest, taxes, depreciation and amortization (as determined in accordance
with
GAAP) for the twelve (12) full calendar months immediately prior to such
acquisition;
(d) Debt
incurred between the Company and a Subsidiary that is not a Public Subsidiary
or
between Subsidiaries that are not Public Subsidiaries; and
(e)
Debt
incurred by the Company that is used to redeem all outstanding Preferred
Stock
and Notes and to pay in full any then existing monetary obligations
thereunder.
“Permitted
Liens”
means
the following:
(a) encumbrances
consisting of easements, rights-of-way, zoning restrictions or other
restrictions on the use of real Property or imperfections to title that do
not
(individually or in the aggregate) materially impair the ability of the Company
or any of its Subsidiaries to use such Property in its businesses, and none
of
which is violated in any material respect by existing or proposed structures
or
land use;
(b) Liens
for
taxes, assessments or other governmental charges that are not delinquent
or
which are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the Property
subject to such Liens,
and for which adequate reserves (as determined in accordance with GAAP) have
been established;
(c) Liens
of
mechanics, materialmen, warehousemen, carriers, landlords or other similar
statutory Liens securing obligations that are not yet due and are incurred
in
the ordinary course of business or which are being contested in good faith
by
appropriate proceedings, which proceedings have the effect of preventing
the
forfeiture or sale of the Property subject to such
7
Liens,
for which adequate reserves (as determined in accordance with GAAP) have
been
established;
(d) any
interest or title of a lessor under any capitalized lease obligation provided
that such Liens do not extend to any property or assets which is not leased
property subject to such capitalized lease obligation; and
(e) purchase
money Liens to finance property or assets of the Company or any Subsidiary
of
the Company acquired in the ordinary course of business; provided,
however,
that
(A) the related purchase money Debt shall not exceed the cost of such property
or assets (including the cost of design, development, improvement, production,
acquisition, construction, installation and integration) and shall not be
secured by any property or assets of the Company or any Subsidiary of the
Company other than the property and assets so acquired or constructed (and
any
improvements) and (B) the Lien securing such purchase money Debt shall be
created within ten (10) days of such acquisition, construction or improvement;
(f) mortgages
on real Property in existence on the Execution Date and disclosed on
Schedule
3.22
hereto,
and any replacements thereof, securing amounts not greater than the amounts
secured thereby on the Execution Date; and
(g) Liens
in
existence on the Execution Date and listed on Schedule
3.5
and
Schedule
3.5.1
hereto.
“Person”
means
any individual, corporation, trust, association, company, partnership, joint
venture, limited liability company, joint stock company, Governmental Authority
or other entity.
“Preferred
Shares”
and
“Preferred
Stock”
have
the respective meanings specified in the preamble
to this Agreement.
“Property”
means
property and/or assets of all kinds, whether real, personal or mixed, tangible
or intangible (including, without limitation, all rights relating
thereto).
“Pro
Rata Share”
means,
with respect to an Investor, the ratio determined by dividing (i) the number
of
Preferred Shares purchased by such Investor on the Closing Date by (ii) the
aggregate number of Preferred Shares purchased by all of the Investors on
the
Closing Date.
“Public
Subsidiary”
means
any Subsidiary that has a class of equity securities registered pursuant
to
Section 12 of the Exchange Act.
“Purchase
Price”
has the
meaning specified in Section
1.1
hereof.
“Purchased
Securities”
has the
meaning specified in Section
1.1
hereof.
“Registrable
Securities”
means
the
Conversion Shares and the Warrant Shares, any other shares of Common Stock
issuable pursuant to the terms of the Certificate of
8
Designations
or the Warrants, and any shares of capital stock issued or issuable from
time to
time (with any adjustments) in replacement of, in exchange for or otherwise
in
respect of the Conversion Shares or the Warrant Shares or such other shares
of
Common Stock; provided,
however,
that
“Registrable
Securities”
shall
not include any such shares that have been sold to the public pursuant to
a
Registration Statement or Rule 144.
“Registration
Rights Agreement”
has the
meaning specified in the preamble to this Agreement.
“Registration
Statement”
has the
meaning specified in the Registration Rights Agreement.
“Regulation
D”
has the
meaning specified in the preamble to this Agreement.
“Reserved
Amount”
has the
meaning specified in Section
4.3
hereof.
“Restricted
Period”
means
each of (i) the period beginning on the Initial Filing Deadline and ending
on
the date on which the Initial Registration Statement is declared effective
by
the Commission and (ii) the period beginning on Subsequent Filing Deadline
and
ending on the date on which the Subsequent Registration Statement is declared
effective by the Commission; provided, however, that each Restricted Period
shall be deemed to end on the first Business Day on which the Registrable
Securities covered by the related Restricted Period may be sold pursuant
to Rule
144(k).
“Rule
144”
means
Rule 144 under the Securities Act, or any successor provision.
“Satellite”
has the
meaning specified in Section
6.10
hereof.
“SEC
Documents”
has the
meaning specified in Section
3.4
hereof.
“Securities”
has the
meaning specified in the preamble to this Agreement.
“Securities
Act”
has the
meaning specified in the preamble to this Agreement.
“Stated
Value”
means
$1,000, subject to proportionate adjustment in the event of a stock split
or
similar event.
“Shareholder
Approval”
has the
meaning specified in the Certificate of Designation.
“Subsequent
Issuance”
means
the issuance, sale, exchange, or agreement or obligation to issue, sell or
exchange or reserve, or agreement to or set aside for issuance, sale or
exchange, (1) shares of Common Stock, (2) any other equity security of the
Company or any Subsidiary that is not a Public Subsidiary, including without
limitation shares of preferred stock, (3) any other security of the Company
or
any such Subsidiary which by its terms is convertible into or
9
exchangeable
or exercisable for any equity security of the Company or any such Subsidiary,
or
(4) any option, warrant or other right to subscribe for, purchase or otherwise
acquire any such security described in the foregoing clauses (1) through
(3);
provided,
however,
that
the issuance or sale, or agreement to issue or sell, Excluded Securities
shall
not constitute a Subsequent Issuance.
“Subsequent
Filing Deadline”
has the
meaning specified in Registration Rights Agreement.
“Subsequent
Preferred Shares”
has the
meaning specified in the preamble
to this Agreement.
“Subsidiary”
means
any corporation or other entity (other than an entity having no material
operations or business during the twelve month period immediately preceding
the
Execution Date) of which at least a majority of the outstanding shares of
stock
or other ownership interests having by the terms thereof ordinary voting
power
to elect a majority of the board of directors (or Persons performing similar
functions) of such corporation or entity (regardless of whether, in the case
of
a corporation, stock of any other class or classes of such corporation shall
or
might have voting power by reason of the happening of any contingency) is
at the
time, directly or indirectly, owned or controlled by the Company and/or one
or
more of its Affiliates.
“Termination
Date”
means
the first date on which the Notes have been paid in full and there are no
Preferred Shares outstanding.
“Transaction
Documents”
means
(i)
this
Agreement, (ii) the Notes, (iii) the Warrants, (v) the Registration Rights
Agreement, (iv) the VeriChip Warrants and (v) all other agreements, documents
and other instruments executed and delivered by or on behalf of the Company
or
any of its officers at the Closing.
“Transfer
Agent”
has the
meaning specified in Section
4.6
hereof.
“2004
Warrants”
means,
collectively, the Series B Warrants and Series D Warrants issued by the Company
pursuant to the Securities Purchase Agreement, dated as of April 13, 2004,
and
the Securities Purchase Agreement, dated as of October 21, 2004, respectively.
“VeriChip”,
“VeriChip
Warrant”
and
(“VeriChip
Warrant Shares”)
have
the
respective meanings specified in the preamble to this Agreement.
“VWAP”
on a
Trading Day means the volume weighted average price of the Common Stock for
such
Trading Day on the Principal Market as reported by Bloomberg Financial Markets
or, if Bloomberg Financial Markets is not then reporting such prices, by
a
comparable reporting service of national reputation selected by the Investors
and reasonably satisfactory to the Company. If VWAP cannot be calculated
for the
Common Stock on such Trading Day on any of the foregoing bases, then the
Company
shall submit such calculation to an independent investment banking firm of
national reputation reasonably acceptable to the Investors, and shall cause
such
investment banking firm to perform such determination and notify the Company
and
the Investors of the results of determination no later than two (2) Business
Days from the time such calculation
10
was
submitted to it by the Company. All such determinations shall be appropriately
adjusted for any stock dividend, stock split or other similar transaction
during
such period.
“Warrants”
has
the
meaning specified in the preamble
to this Agreement.
“Warrant
Shares”
has
the
meaning specified in the preamble
to this Agreement.
“Wholly-Owned
Subsidiary”
means
any Subsidiary of which all of the outstanding shares of stock or other
ownership interests having by the terms thereof ordinary voting power to
elect a
majority of the board of directors (or Persons performing similar functions)
of
such corporation or entity (regardless of whether, in the case of a corporation,
stock of any other class or classes of such corporation shall or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned by the Company.
1.3 Other
Definitional Provisions.
All
definitions contained in this Agreement are equally applicable to the singular
and plural forms of the terms defined. The words “hereof”, “herein” and
“hereunder” and words of similar import referring to this Agreement refer to
this Agreement as a whole and not to any particular provision of this
Agreement.
2. REPRESENTATIONS
AND WARRANTIES OF THE INVESTORS.
Each
Investor (with respect to itself only) hereby represents and warrants to
the
Company and agrees with the Company that, as of the Execution Date:
2.1 Authorization;
Enforceability.
Such
Investor is duly and validly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization with
the
requisite corporate power and authority to purchase the Purchased Securities
and
to execute and deliver this Agreement and the other Transaction Documents
to
which it is a party. This Agreement and the other Transaction Documents to
which
such Investor is a party have been duly executed and delivered by such Investor
and each constitutes such Investor’s valid and legally binding obligation,
enforceable in accordance with its terms, subject to (i) applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or other similar
laws of general application relating to or affecting the enforcement of
creditors’ rights generally and (ii) general principles of equity.
2.2 Accredited
Investor.
Such
Investor (i) is an “accredited investor” as that term is defined in Rule 501 of
Regulation D; (ii) is acquiring the Securities solely for its own account
and
not with a present view to the public resale or distribution of all or any
part
thereof, except pursuant to sales that are registered under the Securities
Act
or are exempt from the registration requirements of the Securities Act;
provided,
however,
that,
in making such representation, such Investor does not agree to hold the
Securities for any minimum or specific term and reserves the right to sell,
transfer or otherwise dispose of the Securities at any time in accordance
with
the provisions of this Agreement and with Federal and state securities laws
applicable to such sale, transfer or disposition; and (iii) understands that
an
investment in the Company is speculative and involves a high degree of risk
of
loss.
11
2.3 Information.
The
Company has, prior to the Execution Date, provided such Investor with
information regarding the business, operations and financial condition of
the
Company, and has, prior to the Execution Date, granted to such Investor the
opportunity to ask questions of and receive satisfactory answers from
representatives of the Company, its officers, directors, employees and agents
concerning the Company and materials relating to the terms and conditions
of the
purchase and sale of the Purchased Securities hereunder, and based thereon
believes it can make an informed decision with respect to its investment
in the
Securities. Neither such information nor any other investigation conducted
by
such Investor or its representatives shall modify, amend or otherwise affect
such Investor’s right to rely on the Company’s representations and warranties
contained in this Agreement.
2.4 Limitations
on Disposition.
Such
Investor acknowledges that, except as provided in the Registration Rights
Agreement, the Securities have not been and are not being registered under
the
Securities Act and may not be transferred or resold without registration
under
the Securities Act or unless pursuant to an exemption therefrom. By executing
this Agreement, such Investor represents that it has no agreement or
understanding with any Person (other than a Person to whom such Investor
has
granted investment discretion over its assets) to sell, transfer and/or grant
rights in any of the Securities.
2.5 Legend.
Such
Investor understands that the certificates representing the Securities may
bear
at issuance a restrictive legend in substantially the following
form:
|
“The
securities represented by this certificate have not been registered
under
the Securities Act of 1933, as amended (the “Securities Act”), or the
securities laws of any state, and may not be offered or sold unless
a
registration statement under the Securities Act and applicable
state
securities laws shall have become effective with regard thereto,
or an
exemption from registration under the Securities Act and applicable
state
securities laws is available in connection with such offer or
sale.”
|
Notwithstanding
the
foregoing, it is agreed that, as long as (A) the resale or transfer (including
without limitation a pledge) of any of the Securities is registered pursuant
to
an effective registration statement, (B) such Securities have been sold pursuant
to Rule 144, subject to receipt by the Company of customary documentation
in
connection therewith, or (C) such Securities are eligible for resale under
Rule
144(k) or any successor provision and the holder thereof represents in writing
to the Company that it is eligible to use such rule for public resales of
such
Securities, the certificates representing such Securities shall be issued
without any legend or other restrictive language and, with respect to Securities
upon which such legend is stamped, the Company shall issue new certificates
without such legend to the holder upon request.
2.6 Reliance
on Exemptions.
Such
Investor understands that the Securities are being offered and sold to it
in
reliance upon specific exemptions from the registration requirements of federal
and state securities laws and that the Company is relying on the truth and
accuracy of the representations and warranties of such
Investor
set
forth in this Article
2
in order
to determine the availability of such exemptions and the eligibility of
such
Investor
to
acquire the Securities.
2.7 Non-Affiliate
Status; Common Stock Ownership.
Such
Investor is not an Affiliate of the Company. Such Investor’s investment in
Purchased Securities is not for the purpose of acquiring, directly or
indirectly, control of, and it has no intent to acquire or exercise control
of,
the Company or to influence the decisions or policies of the Company’s Board of
Directors.
12
2.8
Fees.
Such
Investor is not obligated to pay any commissions, compensation or other fee,
cost or related expenditure to any underwriter, broker, agent or other
representative in connection with the transactions contemplated hereby, other
than legal fees to its counsel. Such Investor will indemnify and hold harmless
the Company from and against any claim by any Person alleging that, as a
result
of any agreement or arrangement between such Person and such Investor, the
Company is obligated to pay any such commissions, compensations, fee, cost
or
related expenditure in connection with the transactions completed
hereby.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to each Investor as of the Execution
Date
(except that, to the extent that any representation or warranty relates to
a
particular date, the Company hereby makes such representation or warranty
as of
that particular date), and agrees with such Investor, as follows:
3.1 Organization,
Good Standing and Qualification.
Each of
the Company and the Subsidiaries is duly organized, validly existing and
in good
standing under the laws of the jurisdiction of its incorporation or organization
and has all requisite power and authority to carry on its business as now
conducted. Each of the Company and the Subsidiaries is duly qualified to
transact business and is in good standing in each jurisdiction in which it
conducts business except where the failure so to qualify has not had or would
not reasonably be expected to have a Material Adverse Effect.
3.2 Authorization;
Consents.
The
Company has the requisite corporate power and authority to adopt and file
the
Certificate of Designation and perform its obligations thereunder and to
enter
into and perform its obligations under this Agreement, the Notes and the
other
Transaction Documents, including without limitation its obligation to issue
and
sell the Securities to such Investor in accordance with the terms hereof
and
thereof and to issue the Conversion Shares and Warrant Shares upon conversion
of
the Preferred Shares or exercise of the Warrants, as the case may be. All
corporate action on the part of the Company by its officers, directors and
shareholders necessary for the authorization, execution and delivery of,
and the
performance by the Company of its obligations under, the Certificate of
Designation, this Agreement, the Notes and the other Transaction Documents
has
been taken, and no further consent or authorization of the Company, its Board
of
Directors, shareholders, any Governmental Authority or organization (other
than
such approval as may be required under the Securities Act and applicable
state
securities laws in respect of the Registration Rights Agreement), or any
other
person or entity is required (pursuant to any rule of the NASD or
otherwise).
The
Company’s Board of Directors has determined, at a duly convened meeting or
pursuant to a unanimous written consent, that the issuance and sale of the
Securities, and the consummation of the transactions contemplated by the
Certificate of Designation, this Agreement,
the
Notes
and the
other Transaction Documents (including without limitation the issuance of
the
Conversion Shares and the Warrant Shares), are in the best interests of the
Company.
3.3 Enforcement.
This
Agreement has been duly executed and delivered by the Company, and each other
Transaction Document, upon the execution and delivery thereof at or prior
to the
Closing, will be duly executed and delivered by the Company. This Agreement
constitutes, and upon the execution and delivery thereof, each other Transaction
Document will constitute, the valid and legally binding obligation of the
Company, enforceable against it in accordance with its terms, subject to
(i)
applicable bankruptcy, insolvency, fraudulent transfer, moratorium,
reorganization or other
13
similar
laws of general application relating to or affecting the enforcement of
creditors’ rights generally and (ii) general principles of equity.
3.4 SEC
Documents; Agreements; Financial Statements; Other Information.
The
Company is subject to the reporting requirements of the Exchange Act and
has
filed with the Commission all reports, schedules, registration statements
and
definitive proxy statements that the Company was required to file with the
Commission on or after December 31, 2003 (collectively, the “SEC
Documents”).
The
Company is not aware of any event occurring on or prior to the Closing Date
(other than the transactions effected hereby) that would require the filing
of,
or with respect to which the Company intends to file, a Current Report on
Form
8-K after the Closing. Each SEC Document, as of the date of the filing thereof
with the Commission, complied in all material respects with the requirements
of
the Securities Act or Exchange Act, as applicable, and the rules and regulations
promulgated thereunder and, as of the date of such filing (or if amended
or
superseded by a filing prior to the Execution Date, then on the date of such
filing), such SEC Document (including all exhibits and schedules thereto
and
documents incorporated by reference therein) did not contain an untrue statement
of material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under
which they were made, not misleading. All documents required to be filed
as
exhibits to the SEC Documents have been filed as required. Except as set
forth
in the SEC Documents or any schedule or exhibit attached hereto, the Company
has
no liabilities, contingent or otherwise, other than liabilities incurred
in the
ordinary course of business which, under GAAP, are not required to be reflected
in the financial statements included in the SEC Documents and which,
individually or in the aggregate, are not material to the consolidated business
or financial condition of the Company and the Subsidiaries taken as a whole.
The
financial statements included in the SEC Documents have been prepared in
accordance with GAAP consistently applied at the times and during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements,
to
the extent they may exclude footnotes or may be condensed or summary statements)
and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash
flows
for the periods then ended (subject, in the case of unaudited statements,
to
normal year-end adjustments).
3.5 Capitalization;
Debt
Schedule.
The
capitalization of the Company as of the date hereof, including its authorized
capital stock, the number of shares issued and outstanding, the number of
shares
issuable and reserved for issuance pursuant to the Company’s stock option plans
and agreements, the number of shares issuable and reserved for issuance pursuant
to securities (other than the Preferred Shares and Warrants) exercisable
for, or
convertible into or exchangeable for any shares of Common Stock and the number
of shares initially to be reserved for issuance upon conversion of the Preferred
Shares and exercise of the Warrants is set forth on Schedule
3.5
hereto.
All issued and outstanding shares of capital stock of the Company have been
validly issued and are fully paid and non-assessable, and all shares of capital
stock issued by any Subsidiary and held by the Company have been validly
issued
and are fully paid and non-assessable, free and clear of all Liens other
than
Permitted Liens. All outstanding shares of capital stock of the Company were
issued, sold and delivered in full compliance with all applicable Federal
and
state securities laws. No shares of the capital stock of the Company are
subject
to preemptive rights or any other similar rights of security holders of the
Company or any Liens created by or through the Company. Except as set forth
or
Schedule
3.7,
there
are no outstanding options, warrants, scrip, rights to subscribe to, calls
or
commitments of any character
14
whatsoever
relating to, or securities or rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company, or arrangements
by
which the Company is or may become bound to issue additional shares of capital
stock of the Company or any of the Subsidiaries (whether
pursuant to anti-dilution, “reset” or other similar provisions).
Except
as described on Schedule
3.5
hereto,
the Company or a Wholly-Owned Subsidiary owns all of the capital stock of
each
Wholly-Owned Subsidiary. Except as described on Schedule
3.5
hereto,
neither the
Company nor any of the Subsidiaries has any material Debt outstanding as
of the
date hereof.
3.6 Due
Authorization; Valid Issuance.
The
Preferred Shares are duly authorized and, when issued, sold and delivered
in
accordance with the terms of the Certificate of Designation and the terms
hereof
or the terms of the Notes, as the case may be, (i) will be duly and validly
issued, fully paid and nonassessable, free and clear of any Liens imposed
by or
through the Company, (ii) assuming the accuracy of each Investor’s
representations in this Agreement, will be issued, sold and delivered in
compliance with all applicable Federal and state securities laws and (iii)
will
be entitled to all rights, preferences and privileges described in the
Certificate of Designation. The Notes, the Warrants, the Conversion Shares
and
the Warrant Shares are duly authorized and, when issued, sold and delivered
in
accordance with the terms this Agreement, the Warrants, or the Certificate
of
Designation, as the case may be, will be duly and validly issued, fully paid
and
non-assessable, free and clear of any Liens imposed by or through the Company
and, assuming the accuracy of such Investor’s representations in this Agreement,
will be issued, sold and delivered in compliance with all applicable Federal
and
state securities laws. The VeriChip Warrants and the VeriChip Warrant Shares
are
duly authorized and, when issued, sold and delivered in accordance with the
terms this Agreement or the VeriChip Warrants, as the case may be, will be
duly
and validly issued, fully paid and non-assessable, free and clear of any
Liens
imposed by or through the Company and, assuming the accuracy of such Investor’s
representations in this Agreement, will be issued, sold and delivered in
compliance with all applicable Federal and state securities laws.
3.7 No
Conflict with Other Instruments.
Neither
the Company nor any of the Subsidiaries is in violation of any provisions
of its
Certificate of Incorporation, Bylaws or any other governing document or in
default (and no event has occurred which, with notice or lapse of time or
both,
would constitute a default) under any provision of any material instrument
or
material contract to which it is a party or by which it or any of its Property
is bound, or in violation of any provision of any Governmental Requirement
applicable to it, except for violations of any provision of a Governmental
Requirement that has not had or would not reasonably be expected to have
a
Material Adverse Effect (any such violation or default, a “Current
Violation”).
The
execution, delivery and performance of this Agreement and the other Transaction
Documents, and the consummation of the transactions contemplated hereby and
thereby (including without limitation, the filing of the Certificate of
Designation, the issuance of the Preferred Shares and Warrants and the
reservation and issuance of the Conversion Shares and Warrant Shares) will
not
result in a Current Violation or result in the creation of any Lien upon
any
assets of the Company or of any of the Subsidiaries or the triggering of
any
preemptive or, except as disclosed
on Schedule
3.7,
anti-dilution rights (including
without limitation pursuant to any “reset” or similar provisions) or
rights
of first refusal or first offer,
or
any
other rights that would allow or permit the holders of the Company’s securities
or other Persons to purchase shares of Common Stock or other securities of
the
Company (whether
pursuant to a shareholder rights plan provision or otherwise).
Existing Missouri control share acquisition or business combination statutory
provisions are inapplicable to the Company or to the issuance and delivery
of
the Securities to the
15
Investors
as contemplated by the Transaction Documents.
3.8 Financial
Condition; Taxes; Litigation.
3.8.1
The
consolidated financial condition of the Company and the Subsidiaries is,
in all
material respects, as described in the Disclosure Documents, except for changes
in the ordinary course of business and normal year-end adjustments that are
not,
in the aggregate, materially adverse to the consolidated business or financial
condition of the Company and the Subsidiaries taken as a whole. There has
occurred no (i) material adverse change to the Company’s business, operations,
properties, financial condition, or results of operations since the date
of the
Company’s most recent audited financial statements contained in the Disclosure
Documents or (ii) change by the Company in its accounting principles, policies
and methods except as required by changes in GAAP or applicable
law.
3.8.2
Each of
the Company and the Subsidiaries (i) has prepared in good faith and duly
and
timely filed all tax returns required to be filed by it and such returns
are
complete and accurate in all material respects and (ii) has paid all taxes
required to have been paid by it, except for taxes which it reasonably disputes
in good faith or the failure of which to pay has not had or would not reasonably
be expected to have a Material Adverse Effect, and has no liability with
respect
to accrued taxes in excess of the amounts that are described as accrued in
the
most recent financial statements included in the Disclosure Documents.
3.8.3
Except
as described in Schedule
3.8.3,
neither
the Company nor any of the Subsidiaries is the subject of any pending or,
to the
Company’s knowledge, threatened inquiry, investigation or administrative or
legal proceeding by the Internal Revenue Service, the taxing authorities
of any
state or local jurisdiction (other than with respect to taxes which it
reasonably disputes in good faith or the failure of which to pay has not
had or
would not reasonably be expected to have a Material Adverse Effect), the
Commission, the NASD, any state securities commission or other Governmental
Authority.
3.8.4
Except
as described in Schedule
3.8.4,
there
is no material claim, litigation or administrative proceeding pending or,
to the
Company’s knowledge, threatened or contemplated, against the Company or any of
the Subsidiaries, or, to the Company’s knowledge, against any officer, director
or employee of the Company or any such Subsidiary in connection with such
person’s employment therewith. Neither the Company nor any of the Subsidiaries
is a party to or subject to the provisions of, any order, writ, injunction,
judgment or decree of any court or Governmental Authority which has had or
would
reasonably be expected to have a Material Adverse Effect.
3.9 Form
S-3.
The
Company is eligible to register the Registrable Securities for resale by
such
Investor on a registration statement on Form S-3 under the Securities
Act.
To the
Company’s knowledge, there exist no facts or circumstances (including without
limitation any required approvals or waivers of any circumstances that may
delay
or prevent the obtaining of accountant’s consents) that could reasonably be
expected to prohibit or delay the preparation, filing or effectiveness of
such
registration statement.
3.10 Acknowledgement
of Dilution.
The
Company acknowledges that the issuance of the Conversion Shares upon conversion
of the Preferred Shares and issuance of Warrant Shares upon
16
exercise
of the Warrants may result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions.
The
Company further acknowledges that its obligation to issue Conversion Shares
upon
conversion of the Preferred Shares and Warrant Shares upon exercise of the
Warrants in accordance with the terms thereof is unconditional regardless
of the
effect of any such dilution. The Company further acknowledges that each Investor
may enter into short sales and engage in other hedging activity with respect
to
the Preferred Shares, the Conversion Shares, the Warrants and the Warrant
Shares
and, assuming such activity complies in all material respects with applicable
Governmental Requirements, the Company hereby waives any claim against any
Investor alleging that such activity constitutes a breach of such Investor’s
contractual or other obligations.
3.11 Intellectual
Property.
The
Company and the Subsidiaries each owns or possesses, licenses or can acquire
or
make use of, without undue expense, all
Intellectual Property that is necessary
for
the
operation of its businesses as presently conducted and as proposed to be
conducted, without any known conflict with the rights of others. The
consummation of the transactions contemplated by this Agreement and the other
Transaction Documents will not materially alter or impair, individually or
in
the aggregate, any of such rights of the Company. To the Company’s
knowledge,
(i)
none
of
its current products or services infringes upon any Intellectual Property
of any
other Person, and no claim or litigation is pending or, to the knowledge
of the
Company, threatened against the Company contesting its right to sell or
otherwise use any product or material or service which has
had
or would reasonably be expected to have a
Material Adverse Effect and (ii) the use by the Company of any Intellectual
Property does not infringe the rights of any third party to such Intellectual
Property. There is no violation by the Company with respect to any Intellectual
Property owned or used by the Company and
the
Company’s rights to such Intellectual Property are valid and enforceable and no
registration relating thereto has lapsed, expired or terminated or is the
subject of any claim or proceeding that could result in any such lapse,
expiration or termination. The Company and the Subsidiaries each has complied
in
all material respects with its obligations pursuant to any agreement relating
to
Intellectual Property rights that are the subject of licenses granted by
third
parties, except for any non-compliance that has not had or would not
reasonably be expected to have a Material Adverse Effect.
3.12 Registration
Rights.
Except
as described on Schedule
3.12
hereto,
the Company has not granted or agreed to grant to any person or entity any
rights (including “piggy-back” registration rights) to have any securities of
the Company registered with the Commission or any other governmental authority
which has not been satisfied in full prior to the date hereof.
3.13 No
Solicitation; Other Issuances of Securities.
Except
as described on Schedule
3.13
hereto,
either the Company nor any of its Subsidiaries or Affiliates, nor any person
acting on its or their behalf, (i) has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D)
in
connection with the offer or sale of the Securities, or (ii) has, directly
or
indirectly, made any offers or sales of any security or the right to purchase
any security, or solicited any offers to buy any security or any such right,
under circumstances that would require registration of the Securities under
the
Securities Act or that would cause this offering of Securities to be integrated
with any prior offering of securities of the Company for purposes of the
Securities Act or the listing criteria of the Nasdaq Stock Market.
17
3.14 Fees.
The
Company is not obligated to pay any compensation or other fee, cost or related
expenditure to any underwriter, broker, agent or other representative in
connection with the transactions contemplated hereby. The Company will indemnify
and hold harmless such Investor from and against any claim by any person
or
entity alleging that,
as a
result of any agreement or arrangement between such Person and the
Company,
such
Investor is obligated to pay any such compensation, fee, cost or related
expenditure in connection with the transactions contemplated
hereby.
3.15 Foreign
Corrupt Practices.
Neither
the Company, nor to the Company’s knowledge any of the Subsidiaries nor to the
Company’s knowledge any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary, has (i) used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity, (ii) made any direct or indirect
unlawful payment to any foreign or domestic government official or employee
(including without limitation any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment), or (iii) violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended.
3.16 Key
Employees.
Each of
the Company’s executive officers (as
defined in Rule 501(f) of the Securities Act) (each,
a
“Key
Employee”)
is
currently serving in the capacity indicated in Schedule
3.16
hereto.
The Company has no knowledge of any fact or circumstance (including without
limitation (i) the terms of any agreement to which such person is a party
or any
litigation in which such person is or may become involved and (ii) any illness
or medical condition that could reasonably be expected to result in the
disability or incapacity of such person) that would limit or prevent any
such
person from serving in such capacity on a full-time basis in the foreseeable
future, or of any intention on the part of any such person to limit or terminate
his or her employment with the Company. No Key Employee has borrowed money
pursuant to a currently outstanding loan that is secured by Common Stock
or any
right or option to receive Common Stock.
3.17 Employee
Matters.
There
is no strike, labor dispute or union organization activities pending or,
to the
knowledge of the Company, threatened between it and its employees (or between
any of the Subsidiaries and such Subsidiary’s employees). No employees of the
Company belong to any union or collective bargaining unit. The Company has
complied in all material respects with all applicable federal and state equal
opportunity and other laws related to employment.
3.18 Environment.
To the
Company’s knowledge, neither the Company nor any of the Subsidiaries has any
current liability under any Environmental Law, nor, to the knowledge of the
Company, do any factors exist that are reasonably likely to give rise to
any
such liability that, individually or in the aggregate, has
had
or would reasonably be expected to have a
Material Adverse Effect. To the Company’s knowledge, neither the Company nor any
of the Subsidiaries has violated any Environmental Law applicable to it now
or
previously in effect, other than such violations or infringements that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Material Adverse Effect.
3.19 ERISA.
Except
as described on Schedule
3.19,
neither
the Company nor any of the Subsidiaries maintains or contributes to, or has
any
obligation under, any Pension Plan. The Company and each of the Subsidiaries
is
in compliance in all material respects with the presently applicable provisions
of ERISA and the United States Internal Revenue Code of 1986, as
amended,
18
except
for matters that, individually or in the aggregate, have not had, and would
not
reasonably be expected to have, a Material Adverse Effect.
3.20 Disclosure.
No
written statement, information, report, representation or warranty made by
the
Company in this Agreement or any other Transaction Document or furnished
to such
Investor by or on behalf of the Company or any of the Subsidiaries in connection
with the Transaction Documents or such Investor’s due diligence investigation of
the Company contains any untrue statement of a material fact or omits to
state
any material fact necessary to make the statements herein or therein, in
light
of the circumstances in which made, not misleading. Following
the issuance of the press release and Current Report on Form 8-K in accordance
with Section
4.1(c)
hereof,
such Investor will not, to the Company’s knowledge, possess any material
non-public information concerning the Company. The Company acknowledges that
such Investor is relying on the representations, acknowledgements and agreements
made by the Company in this Section
3.20
and
elsewhere in this Agreement in making trading and other decisions concerning
the
Company’s securities.
3.21 Insurance.
The
Company and each Subsidiary maintains insurance for itself and the Subsidiaries
in such amounts and covering such losses and risks as the Company believes
to be
reasonably prudent in relation to the businesses in which the Company and
the
Subsidiaries are engaged. No notice of cancellation has been received for
any of
such policies and the Company reasonably believes that is in compliance with
all
of the terms and conditions thereof. The Company has no reason to believe
that
it will not be able to renew any existing insurance coverage as and when
such
coverage expires or to obtain similar coverage from similar insurers as may
be
necessary to continue doing business as currently conducted without a
significant increase in cost. Without limiting the generality of the foregoing,
the Company maintains Director’s and Officer’s insurance in an amount not less
than $10 million for each covered occurrence and in the aggregate.
3.22
Property.
Except
as set forth in Schedule
3.22,
the
Company and the Subsidiaries have good and marketable title to all personal
Property and good and marketable title in fee simple to all of its real property
owned by them which, individually or in the aggregate, is material to the
business of the Company and the Subsidiaries, in each such case free and
clear
of all Liens except for Permitted Liens. Any Property held under lease by
the
Company and the Subsidiaries is held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made or proposed to be made of such Property by the Company
and the
Subsidiaries.
3.23 Regulatory
Permits.
The
Company and the Subsidiaries possess all material certificates, authorizations
and permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses other than where
the failure to possess such certificates, authorizations or permits,
individually or in the aggregate, has not had and would not reasonably be
expected to have a Material Adverse Effect. Neither the Company nor any such
Subsidiary has received any notice or otherwise become aware of any proceedings,
inquiries or investigations relating to the revocation or modification of
any
such certificate, authorization or permit.
3.24 Exchange
Act Registration; Listing.
The
Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
Act and is listed on the Nasdaq SmallCap Market or the Nasdaq National Market
(collectively, the “Nasdaq
Stock Market”).
The
Company currently meets the continuing eligibility requirements for listing
on
the Nasdaq Stock Market and has not received
19
any
notice from the Nasdaq Stock Market that it may not currently satisfy such
requirements or that such continued listing is in any way threatened. The
Company has taken no action designed to, or which, to the knowledge of the
Company, may have the effect of, terminating the registration of the Common
Stock under the Exchange Act or delisting the Common Stock from the Nasdaq
Stock
Market.
3.25 Investment
Company Status.
The
Company is not, and immediately after receipt of the Purchase Price for the
Purchased Securities issued under this Agreement will not be, an “investment
company”
or an
entity “controlled”
by an
“investment
company”
within
the meaning of the Investment Company Act of 1940, as amended (the “Investment
Company Act”),
and
shall conduct its business in a manner so that it will not become subject
to the
Investment Company Act.
3.26 Transfer
Taxes.
No
stock transfer or other taxes (other than income taxes) are required to be
paid
in connection with the issuance and sale of any of the Securities, other
than
such taxes for which the Company has established appropriate reserves and
intends to pay in full on or before the Closing.
3.27 Internal
Controls and Procedures.
The
Company maintains internal accounting controls, policies and procedures as
certified by the Company’s Chief Executive Officer and Chief Financial Officer
in the SEC Documents.
3.28
Embargoed
Person.
None of
the funds or other assets of the Company or its Subsidiaries constitutes
property of, or is beneficially owned, directly or indirectly, by any person
subject to trade restrictions under United States law, including, but not
limited to, the International Emergency Economic Powers Act, 50 U.S.C.
§ 1701 et seq.,
The
Trading with the Enemy Act, 50 U.S.C. App. 1 et seq.,
and any
Executive Orders or regulations promulgated under any such United States
laws
(each, an “Embargoed
Person”),
with
the result that the investments evidenced by the Securities are or would
be in
violation of law. No Embargoed Person shall have any interest of any nature
whatsoever in the Company with the result that the investments evidenced
by the
Securities are or would be in violation of law. None of the funds or other
assets of the Company shall be derived from any unlawful activity with the
result that the investments evidenced by the Securities are or would be in
violation of law.
3.29 Xxxxxxxx-Xxxxx
Act; Internal Controls and Procedures.
The
Company is in compliance in all material respects with all applicable
requirements of the Xxxxxxxx-Xxxxx Act of 2002 and all applicable rules and
regulations promulgated by the SEC thereunder that are effective as of the
date
hereof, except for instances of noncompliance that would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
The Company maintains internal accounting controls, policies and procedures,
and
such books and records as are reasonably designed to provide reasonable
assurance that (i) all transactions to which the Company or any Subsidiary
is a
party or by which its properties are bound are effected by a duly authorized
employee or agent of the Company, supervised by and acting within the scope
of
the authority granted by the Company’s senior management; (ii) the recorded
accounting of the Company’s consolidated assets is compared with existing assets
at regular intervals; and (iii) all transactions to which the Company or
any
Subsidiary is a party, or by which its properties are bound, are recorded
(and
such records maintained) in accordance with all Government Requirements and
as
may be
20
necessary
or appropriate to ensure that the financial statements of the Company are
prepared in accordance with GAAP, except, in any individual case or in the
aggregate, has not had, and would not reasonably be expected to have, a Material
Adverse Effect.
3.30 Solvency.
(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 Debt as such Debt
matures or is otherwise payable; (ii) 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 taking into account the
current
and projected capital requirements of the business conducted by the Company
and
projected capital availability; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive upon liquidation of
its
assets, after taking into account all anticipated uses of such amounts, would
be
sufficient to pay all Debt when such Debt is required to be paid. The Company
does not intend to incur Debt beyond its ability to pay such Debt as it matures.
The Company has no knowledge of any facts or circumstances which lead it
to
believe that it will be required to file for reorganization or liquidation
under
the bankruptcy or reorganization laws of any jurisdiction, and has no present
intention to so file.
3.31 Transactions
with Interested Person.
Except
as set forth in Schedule 3.31, no officer, director or employee of the Company
or any of its Subsidiaries is or has taken any steps to become a party to
any
transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors) that could reasonably be considered material
to the Company or such individual, 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.
3.32 Customers;
Suppliers.
The
relationships of the Company and its Subsidiaries with their respective
customers and suppliers are maintained on commercially reasonable terms.
Since
December 31, 2004, no customer or supplier of the Company or its Subsidiaries
has canceled, materially modified, or otherwise terminated its relationship
with
the Company or its Subsidiaries or decreased materially its usage or purchase
or
supply of the services or products of the Company or its Subsidiaries, except
for such modifications and terminations which, individually and in the
aggregate, have not had, and cannot reasonably be expected to have, a Material
Adverse Effect, nor does any customer or supplier have, to the Company’s
knowledge, any plan or intention to do any of the foregoing. The Company
has no
reason to believe that any of its or its Subsidiaries’ suppliers will experience
a manufacturing disruption, a failure to dedicate adequate resources to the
production, assembly or testing of the Company’s or its Subsidiaries’ products,
or financial instability, or that any such supplier will be unable to
successfully transition its manufacturing capabilities to the future needs
of
the Company and its Subsidiaries.
4. COVENANTS
OF THE COMPANY AND THE INVESTORS.
4.1 The
Company agrees with each Investor that it will:
21
(a) file
a
Form D with the Commission and any applicable state securities department
with
respect to the Securities issued at the Closing as and when required under
Regulation D and provide a copy thereof to each Investor promptly after such
filing;
(b) take
such
action as the Company reasonably determines upon the advice of counsel is
necessary to qualify the Securities for sale under applicable state or
“blue-sky” laws or obtain an exemption therefrom, and shall provide evidence of
any such action to each Investor at the Closing; and
(c) (i)
on or
prior to 8:30 a.m. (eastern time) on the Business Day immediately following
the
Execution Date, issue a press release disclosing the material terms of the
Certificate of Designation, the Notes, this Agreement and the other Transaction
Documents and the transactions contemplated hereby and thereby and (ii) on
or
prior to 5:00 p.m. (eastern time) on the Business Day immediately following
the Execution
Date,
file with the Commission a Current Report on Form 8-K disclosing the material
terms of the
Certificate of Designation, this
Agreement and the other Transaction Documents and the transactions contemplated
hereby and thereby and including as exhibits the Certificate of Designation,
the
Notes, this
Agreement and the other Transaction Documents;
provided,
however,
that
each Investor shall have a reasonable opportunity to review and comment on
any
such press release or Current Report on Form 8-K prior to the issuance or
filing
thereof.
Thereafter, the Company shall timely file any filings and notices required
by
the Commission or applicable law with respect to the transactions contemplated
hereby.
4.2 The
Company agrees that it will, during the period beginning on the Execution
Date
and ending on the Termination Date:
(a) maintain
its corporate existence in good standing;
(b) maintain,
keep and preserve all of its Properties necessary in the proper conduct of
its
businesses in good repair, working order and condition (ordinary wear and
tear
excepted) and make all necessary repairs, renewals and replacements and
improvements thereto, except where the failure to do so would not reasonably
be
expected to have, individually or in the aggregate, a Material Adverse
Effect;
(c) pay
or
discharge before becoming delinquent (a) all taxes, levies, assessments
and
governmental charges imposed on it or its income or profits or any of its
Property and (b) all lawful claims for labor, material and supplies,
which,
if unpaid, might become a Lien upon any of its Property, except where the
failure to do so would not reasonably be expected to have, individually or
in
the aggregate, a Material Adverse Effect; provided,
however,
that
the Company shall not be required to pay or discharge any tax, levy, assessment
or governmental charge, or claim for labor, material or supplies, whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings being diligently pursued and for which adequate reserves have
been
established under GAAP;
(d) comply
with all Governmental Requirements applicable to the operation of its business,
except for instances of noncompliance that would not reasonably be expected
to
have, individually or in the aggregate, a Material Adverse Effect; provided,
however,
that
the Company shall not be required to comply with any Governmental Requirements,
the
22
applicability
or validity of which is being contested in good faith by appropriate proceedings
being diligently pursued and for which adequate reserves have been established
under GAAP;
(e)
comply
with all agreements, documents and instruments binding on it or affecting
its
Properties or business, including, without limitation, all Material Contracts,
except for instances of noncompliance that would not reasonably be expected
to
have, individually or in the aggregate, a Material Adverse Effect;
(f) provide
each Investor with copies of all materials sent to the Company’s shareholders,
in each such case at the same time as such materials are delivered to such
shareholders;
(g) timely
file with the Commission all reports required to be filed pursuant to the
Exchange Act and refrain from terminating its status as an issuer required
by
the Exchange Act to file reports thereunder even if the Exchange Act or the
rules or regulations thereunder would permit such termination;
(h) during
any Restricted Period, restrict Key Employees from selling shares of Common
Stock, other than pursuant to any 10b-5(1) trading plans in effect on the
Execution Date and acceptable to the Investors , it being presumed that any
such
plan is acceptable to the Investors if it provides for sales of Common Stock
only at per share prices that exceed one hundred and fifty percent (150%)
of the
Conversion Price; and
(i) maintain
adequate insurance coverage (including D&S insurance) for the
Company and each Subsidiary.
4.3 Reservation
of Common Stock.
The
Company shall, on the Closing Date, have authorized and reserved for issuance,
free from any preemptive rights, a number of shares of Common Stock (the
“Reserved
Amount”)
that,
on the Closing Date, is not less than one hundred twenty five percent (125%)
of
the maximum number of shares of Common Stock issuable (A) upon conversion
of all
of the Initial Preferred Shares at the Conversion Price then in effect, (B)
upon
exercise in full of the Warrants, in each case without regard to any limitation
on such conversion or exercise that may otherwise be set forth in the
Certificate of Designation or the Warrants, and (C) as Dividends (as defined
in
the Certificate of Designation) accruing on the Initial Preferred Shares
through
the second anniversary of the Issue Date (as defined in the Certificate of
Designation). The Company shall, on the Exchange Date, have authorized and
reserved for issuance, free from any preemptive rights, a number of shares
of
Common Stock that, on the Exchange Date (after giving effect to the Exchange),
is not less than one hundred twenty five percent (125%) of the maximum number
of
shares of Common Stock issuable (A) upon conversion of all of the Preferred
Shares at the Conversion Price then in effect, (B) upon exercise in full
of the
Warrants, in each case without regard to any limitation on such conversion
or
exercise that may otherwise be set forth in the Certificate of Designation
or
the Warrants, and (C) as Dividends (as defined in the Certificate of
Designation) accruing on the Preferred Shares through the second anniversary
of
the Issue Date (as defined in the Certificate of Designation) for such Preferred
Shares. If, on any date following the Closing Date, the Reserved Amount is
insufficient (whether as a result of an anti-dilution adjustment, or otherwise)
at any time to cover one hundred ten percent (110%) of the Issuable Amount,
the
Company shall use its best efforts (including without limitation holding
a
meeting of its shareholders) to increase the Reserved Amount to cover one
hundred twenty five percent (125%) of the Issuable Amount, such increase
to be
effective not later than the thirtieth (30th) day (or
23
seventy-fifth
(75th) day, in the event shareholder approval is required for such increase)
following such date. Each increase in the Reserved Amount shall be allocated
pro
rata
among
the Investors based on the amount of Registrable Securities into which all
of
the Preferred Shares and Warrants held by such Investor at the time of such
increase are convertible or exercisable (without regard to any limitation
on
such conversion or exercise). While any Preferred Shares or Warrants are
outstanding, the Company shall not reduce the Reserved Amount without obtaining
the prior written consent of each Investor. In the event that an Investor
shall
sell or otherwise transfer any portion of such Investor’s Preferred Shares or
Warrants, each transferee shall be allocated a pro
rata
portion
of the Reserved Amount.
4.4 Use
of
Proceeds.
The
Company shall use the proceeds from the sale of the Purchased Securities
solely
to pay the purchase price for the acquisition of Instantel, Inc. and for
no
other purpose.
4.5
Use
of
Investor Name.
Except
as may be required by applicable law and/or this Agreement, the Company shall
not use, directly or indirectly, any Investor’s name or the name of any of its
affiliates in any advertisement, announcement, press release or other similar
communication unless it has received the prior written consent of such Investor
for the specific use contemplated or as otherwise required by applicable
law or
regulation.
4.6 Company’s
Instructions to Transfer Agent.
On or
prior to each Closing Date, the Company shall execute and deliver irrevocable
written instructions to the transfer agent for its Common Stock (the
“Transfer
Agent”),
and
provide each Investor with a copy thereof, directing the Transfer Agent (i)
to
issue certificates representing Conversion Shares upon conversion of the
Preferred Shares and receipt of a valid Conversion Notice (as defined in
the
Certificate of Designation) from an Investor, in the amount specified in
such
Conversion Notice, in the name of such Investor or its nominee, (ii) to issue
certificates representing Warrant Shares upon exercise of the Warrants and
(iii)
to deliver such certificates to such Investor no later than the close of
business on the third (3rd)
business day following the related Conversion Date (as defined in the
Certificate of Designation) or Exercise Date (as defined in the Warrant),
as the
case may be. Such certificates may bear legends pursuant to applicable
provisions of this Agreement or applicable law. The Company shall instruct
the
transfer agent that, in lieu of delivering physical certificates representing
shares of Common Stock to an Investor upon conversion of the Preferred Shares,
or exercise of the Warrants, and as long as the Transfer Agent is a participant
in the Depository Trust Company (“DTC”)
Fast
Automated Securities Transfer program (“FAST”)
and
the Conversion Shares are eligible to be delivered through the FAST system,
and
such Investor has not informed the Company that it wishes to receive physical
certificates therefor, and no restrictive legend is required to appear on
any
physical certificate if issued, the transfer agent may effect delivery of
Conversion Shares or Warrant Shares, as the case may be, by crediting the
account of such Investor or its nominee at DTC for the number of shares for
which delivery is required hereunder within the time frame specified above
for
delivery of certificates. The Company represents to and agrees with each
Investor that it will not give any instruction to the Transfer Agent that
will
conflict with the foregoing instruction or otherwise restrict such Investor’s
right to convert the Preferred Shares or to receive Conversion Shares in
accordance with the terms of the Certificate of Designation or to exercise
the
Warrant or to receive Warrant Shares upon exercise of the Warrants. In the
event
that the Company’s relationship with the Transfer Agent should be terminated for
any reason, the Company shall use its best efforts to cause the Transfer
Agent
to continue acting as transfer agent pursuant to the terms hereof until such
time that a successor transfer agent is appointed by the Company and receives
the instructions described above.
24
4.7 No
Adverse Action.
The
Company and the Subsidiaries shall refrain, during the period beginning on
the
Execution Date and ending on the Termination Date, from taking any action
or
entering into any arrangement which in any way materially and adversely affects
the provisions of the Certificate of Designation, this Agreement or
any
other Transaction Document.
4.8 Limitations
on Disposition.
No
Investor shall sell, transfer, assign or dispose of any Securities,
unless:
(a) there
is
then in effect an effective registration statement under the Securities Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(b) such
Investor has notified the Company in writing of any such disposition, received
the Company’s written consent to such disposition and furnished the Company with
an opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such Securities under the
Securities Act; provided,
however,
that no
such consent or opinion of counsel will be required (A) if the sale,
transfer or assignment complies with federal and state securities laws and
is
made to an Affiliate of such Investor which is also an “accredited investor” as
that term is defined in Rule 501 of Regulation D, and such Affiliate delivers
to
the Company a duly executed Investment Representation Certificate in the
form
attached hereto as Exhibit
F
(an
“Investment
Certificate”),
(B)
if the sale, transfer or assignment is made pursuant to Rule 144 and
such
Investor provides the Company with evidence reasonably satisfactory to the
Company that the proposed transaction satisfies the requirements of Rule
144 or
(C) in connection with a bona
fide
pledge
or hypothecation of any Securities under a margin arrangement with a
broker-dealer or other financial institution.
4.9 Disclosure
of Information.
The
Company agrees that it will not at any time following the Execution Date
disclose material non-public information to any Investor without first receiving
such Investor’s written consent to such receive such disclosure. If the Company
breaches its obligations under this Section
4.9,
it
shall promptly following a request by an Investor, and no later than one
Business Day following such breach, make a public disclosure, in compliance
with
Regulation FD under the Exchange Act, of all such material non-public
information theretofore disclosed to such Investor.
4.10 Quotation
on Nasdaq.
The
Company shall (i) promptly following the Closing, use its commercially
reasonable efforts to include all of the Conversion Shares issuable upon
conversion of the Preferred Shares (without regard to any limitation on such
conversion) and all of the Warrant Shares issuable upon exercise of the Warrants
(without regard to any limitation on such exercise) for designation and
quotation on the Nasdaq Stock Market, and (ii) use its commercially reasonable
efforts to maintain the designation and quotation, or listing, of the Common
Stock on the Nasdaq SmallCap Market, the Nasdaq National Market or the New
York
Stock Exchange for a minimum of five (5) years following the Closing
Date.
4.11 Restrictions
on Issuances of Securities.
25
(a) During
the period beginning on the Execution Date and ending on the later to occur
of
(i) the ninetieth (90th) day following the Closing Date, and (ii) the thirtieth
(30th) day following the last day of a Restricted Period, the Company shall
not
effect a Subsequent Issuance.
(b) During
the period beginning on the Execution Date and ending on the date on which
the
Company obtains Shareholder Approval, the Company shall not effect a Subsequent
Issuance if, immediately following such Subsequent Issuance, as a result
of the
operation of anti-dilution or other adjustments provided for in the Preferred
Shares or Warrants or otherwise, the sum of (i) number of Conversion Shares
issued or issuable upon conversion of the Preferred Shares (including Preferred
Shares issuable pursuant to an Exchange) (without
regard to any limitation on conversion contained in the Certificate of
Designation)
and (ii)
the number of Warrant Shares issued or issuable upon exercise of the Warrants
(without
regard to any limitation on exercise contained in the Warrants),
would
exceed the Cap Amount (as defined in the Certificate of
Designation).
(c) During
the period beginning on the Execution Date and ending on the Termination
Date,
the Company shall not effect a Subsequent Issuance of (i) any Senior Securities
or Pari Passu Securities (as such terms are defined in the Certificate of
Designation), (ii) any other security of the Company which by its terms is
convertible into or exchangeable or exercisable for any Senior Security or
Pari
Passu Security, or (iii) any option, warrant or other right to subscribe
for,
purchase or otherwise acquire any such security described in the foregoing
clauses (i) and (ii); provided,
however,
that
the foregoing shall not apply to the issuance of Permitted Debt.
(d)
Except
as
otherwise provided in this Section
4.11,
the
Company shall have the right to effect a Subsequent Issuance.
4.12 Limitation
on Debt and Liens.
During
the period beginning on the Execution Date and ending on the Termination
Date,
the Company shall refrain, and shall ensure that each of its Subsidiaries
that
is not a Public Subsidiary refrains, (a) from incurring any Debt (including
without limitation by issuing any Debt securities), other than Permitted
Debt,
or increasing the amount of any existing line of credit or other Debt facility
beyond the amount outstanding on the date hereof, and (b) from granting,
establishing or maintaining any Lien on any of its assets, including without
limitation any pledge of securities owned or held by it (including without
limitation any securities issued by any such Subsidiary), other than Permitted
Liens.
4.13
Certain
Transactions.
During
the period beginning on the Execution Date and ending on the Termination
Date,
and except as may be expressly permitted or required by the Certificate of
Designation or the Transaction Documents and the Debt that is outstanding
on the
Execution Date and specifically disclosed on Schedule
3.5
hereto,
the Company shall not, nor will it permit any of its Subsidiaries that is
not a
Public Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of the Company or any such Subsidiary of the Company (a) to pay dividends
or
make any other distribution to the Company or any such Subsidiary of the
Company
in respect of capital stock or with respect to any other interest or
participation in, or measured by, its profits, or (b) to pay any amounts
that
are or become payable under the Certificate of Designation or any of the
Transaction Documents.
26
4.14 Transactions
with Affiliates.
The
Company agrees that, during the period beginning on the Execution Date and
ending on the Termination Date, any material transaction or arrangement between
it or any of its Subsidiaries and any Affiliate or employee of the Company
or
any of its Subsidiaries shall be effected only on an arms’ length basis and
shall be approved by the Board of Directors, including a majority of the
Company’s directors not having an interest in such transaction.
4.15 Indemnification
of Investors.
The
Company will indemnify and hold each Investor and its directors, managers,
officers, shareholders, members, partners, employees and agents (each, an
“Investor Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Investor Party may suffer or incur as
a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement
or in
the other Transaction Documents or (b) any action instituted against an
Investor, or any of them or their respective Affiliates, by any shareholder
of
the Company who is not an Affiliate of such Investor, with respect to any
of the
transactions contemplated by the Transaction Documents (unless such action
is
based upon a breach by such Investor of such Investor’s representations,
warranties or covenants under the Transaction Documents or any agreements
or
understandings such Investor may have with any such shareholder or any
violations by such Investor of state or federal securities laws or any conduct
by such Investor which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Investor Party
in
respect of which indemnity may be sought pursuant to this Agreement, such
Investor Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing and to control any settlement of the claim; provided, however, that
the
Company will not settle any claim unless it first obtains the consent of
the
relevant Investor Parties, which consent shall not be unreasonably withheld
if
such settlement (i) does not require the Investor Parties to make any payment
that is not indemnified under this Agreement, (ii) does not impose any
non-financial obligations on the Investor Parties and (iii) does not require
an
acknowledgment of wrongdoing on the part of the Investor Parties. Any Investor
Party shall have the right to employ separate counsel in any such action
and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Investor Party except to the extent that
(i) the
employment thereof has been specifically authorized by the Company in writing,
(ii) the Company has failed after a reasonable period of time to assume such
defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Investor
Party. The Company will not be liable to any Investor Party under this Agreement
(i) for any settlement by an Investor Party effected without the Company’s prior
written consent, which shall not be unreasonably withheld or delayed (it
being
agreed that it shall not be unreasonable for the Company to withhold or delay
such consent if the Company (x) has acknowledged in writing its obligation
to
indemnify such Investor Party with respect to such matter, (y) the Company
has
assumed and is actively and in good faith pursuing the defense of such matter
as
herein provided, and (z) provided to such Investor Party reasonably acceptable
evidence that the Company is able to comply with its indemnification obligations
hereunder); or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to such
27
Investor
Party’s wrongful actions or omissions, or gross negligence or to such Investor
Party’s breach of any of the representations, warranties, covenants or
agreements made by such Investor in this Agreement or in the other Transaction
Documents.
5. CONDITIONS
TO CLOSING.
5.1 Conditions
to Investors’ Obligations at the Closing.
Each
Investor’s obligations to effect the Closing, including without limitation its
obligation to purchase the Purchased Securities at the Closing, are conditioned
upon the fulfillment (or waiver by such Investor in its sole and absolute
discretion) of each of the following events as of the Closing Date:
|
5.1.1
|
the
representations and warranties of the Company set forth in this
Agreement
and in the other Transaction Documents shall be true and correct
in all
material respects as of such date as if made on such date (except
that to
the extent that any such representation or warranty relates to
a
particular date, in which case such representation or warranty
shall be
true and correct in all respects as of that particular date);
|
|
5.1.2
|
the
Company shall have complied with or performed in all material respects
all
of the agreements, obligations and conditions set forth in this
Agreement
and in the other Transaction Documents that are required to be
complied
with or performed by the Company on or before the Closing;
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|
5.1.3
|
the
Company shall have filed the Certificate of Designation with the
Secretary
of State of the State of Missouri and delivered to such Investor
written
evidence of the acceptance of such
filing;
|
|
5.1.4
|
the
Closing Date shall occur on a date that is not later than June
10,
2005;
|
|
5.1.5
|
the
Company shall have delivered to such Investor a certificate,
signed by the
Chief Executive Officer and Chief Financial Officer of the Company,
certifying that the conditions specified in this Section
5.1
have been fulfilled as of the Closing, it being understood that
such
Investor may rely on such certificate as though it were a representation
and warranty of the Company made
herein;
|
|
5.1.6
|
the
Company shall have delivered to such Investor a certificate,
signed by the
Secretary or an Assistant Secretary of the Company, attaching
(i) the
Certificate of Incorporation and By-Laws of the Company, and
(ii)
resolutions passed by its Board of Directors to authorize the
transactions
contemplated hereby and by the other Transaction Documents, and
certifying
that such documents are true and complete copies of the originals
and that
such
|
28
|
|
resolutions
have not been amended or superseded, it being understood that
such
Investor may rely on such certificate as though it were a representation
and warranty of the Company made herein;
|
|
5.1.7
|
the
Company shall have delivered to such Investor one or more opinions
of
counsel for the Company, dated as of the Closing Date, in substantially
the form set forth on Exhibit 5.1.7 hereto;
|
|
5.1.8
|
the
Company shall have delivered to such Investor the duly executed
Note and
duly executed certificates representing the Preferred Shares Warrant
and
VeriChip Warrant being purchased by such
Investor;
|
|
5.1.9
|
the
Company shall have executed and delivered to such Investor the
Registration Rights Agreement;
|
|
5.1.10
|
the
Company shall have obtained the written agreement of each Key Employee
to
refrain from selling shares of Common Stock during any Restricted
Period,
except for sales made pursuant to a 10b-5(1) plan described in
Section
4.2(h);
|
|
5.1.11
|
there
shall have occurred no material adverse change in the Company’s
consolidated business or financial condition since the date of
the
Company’s most recent financial statements contained in the Disclosure
Documents;
|
|
5.1.12
|
the
Common Stock shall be quoted and actively traded on the Nasdaq
Stock
Market; and
|
|
5.1.13
|
there
shall be no injunction, restraining order or decree of any nature
of any
court or Government Authority of competent jurisdiction that is
in effect
that restrains or prohibits the consummation of the transactions
contemplated hereby or by the other Transaction
Documents.
|
5.2 Conditions
to Company’s Obligations at the Closing.
The
Company’s obligations to effect the Closing with each Investor are conditioned
upon the fulfillment (or waiver by the Company in its sole and absolute
discretion) of each of the following events as of the Closing Date:
|
5.2.1
|
the
representations and warranties of such Investor set forth in this
Agreement and in the other Transaction Documents shall be true
and correct
in all material respects as of such date as if made on such date
(except
that to the extent that any such representation or warranty relates
to a
particular date, in which case such representation or warranty
shall be
true and correct in all respects as of that particular
date);
|
|
5.2.2
|
such
Investor shall have complied with or performed all of the agreements,
obligations and conditions set forth in this Agreement
and
|
29
|
|
in
the other Transaction Documents that are required to be complied
with or
performed by such
Investor
on
or before the Closing;
|
|
5.2.3
|
there
shall be no injunction, restraining order or decree of any nature
of any
court or Government Authority of competent jurisdiction that is
in effect
that restrains or prohibits the consummation of the transactions
contemplated hereby or by the other Transaction Documents;
|
|
5.2.4
|
such
Investor shall have executed each Transaction Document to which
it is a
party and delivered the same to the Company;
and
|
|
5.2.5
|
such
Investor shall have delivered to the Company the Purchase Price
for
the Purchased Securities being purchased by it at the Closing
by wire
transfer of immediately available
funds.
|
6. MISCELLANEOUS.
6.1 Survival;
Severability.
The
representations, warranties, covenants and indemnities made by the parties
herein and in the other Transaction Documents shall survive the Closing
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon; provided,
however,
that
the representations and warranties made by the parties herein and in the
other
Transaction Documents shall survive only until the Termination Date. In the
event that any provision of this Agreement becomes or is declared by a court
of
competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision; provided
that in
such case the parties shall negotiate in good faith to replace such provision
with a new provision which is not illegal, unenforceable or void, as long
as
such new provision does not materially change the economic benefits of this
Agreement to the parties.
6.2 Successors
and Assigns.
The
terms and conditions of this Agreement shall inure to the benefit of and
be
binding upon the respective successors and permitted assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon
any
party other than the parties hereto or their respective successors and permitted
assigns any rights, remedies, obligations or liabilities under or by reason
of
this Agreement, except as expressly provided in this Agreement. Each Investor
may assign its rights and obligations hereunder, in connection with any private
sale or transfer of the Purchased Securities in accordance with the terms
hereof, as long as, as a condition precedent to such transfer, the transferee
executes an acknowledgment agreeing to be bound by the applicable provisions
of
this Agreement, in which case the term “Investor” shall be deemed to refer to
such transferee as though such transferee were an original signatory hereto.
The
Company may not assign its rights or obligations under this
Agreement.
6.3 No
Reliance.
Each
party acknowledges that (i) it has such knowledge in business and financial
matters as to be fully capable of evaluating this Agreement, the other
Transaction Documents, and the transactions contemplated hereby and thereby,
(ii) it is not relying on any advice or representation of any other party
in
connection with entering into this Agreement, the other Transaction Documents,
or such transactions (other than the representations made in this
30
Agreement
or the other Transaction Documents), (iii) it has not received from such
party
any assurance or guarantee as to the merits (whether legal, regulatory, tax,
financial or otherwise) of entering into this Agreement or the other Transaction
Documents or the performance of its obligations hereunder and thereunder,
and
(iv) it has consulted with its own legal, regulatory, tax, business, investment,
financial and accounting advisors to the extent that it has deemed necessary,
and has entered into this Agreement and the other Transaction Documents based
on
its own independent judgment and on the advice of its advisors as it has
deemed
necessary, and not on any view (whether written or oral) expressed by such
other
party.
6.4 [Intentionally
Omitted]
6.5
Injunctive
Relief.
The
parties hereto acknowledge and agree that a breach by either of their
obligations hereunder will cause irreparable harm the other party and that
the
remedy or remedies at law for any such breach will be inadequate and agrees,
in
the event of any such breach, in addition to all other available remedies,
the
non-breaching party shall be entitled to an injunction restraining any breach
and requiring immediate and specific performance of such obligations without
the
necessity of showing economic loss.
6.6 Governing
Law; Jurisdiction.
This
Agreement shall be governed by and construed under the laws of the State
of
Delaware applicable to contracts made and to be performed entirely within
the
State of Delaware. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting in the
City
of New York in the borough of Manhattan (for any claims initiated by an
Investor) or in Miami-Dade County (for any claims initiated by the
Company),
for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby, and hereby irrevocably waives, and agrees
not
to assert in any suit, action or proceeding involving an Investor or permitted
assignee of an Investor, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding
is
improper. Each party hereby irrevocably waives personal service of process
and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices
to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein
shall
be deemed to limit in any way any right to serve process in any manner permitted
by law.
6.7 Counterparts.
This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed an original, and all of which together shall constitute one and the
same
instrument. This Agreement may be executed and delivered by facsimile
transmission.
6.8 Headings.
The
headings used in this Agreement are used for convenience only and are not
to be
considered in construing or interpreting this Agreement.
6.9 Notices.
Any
notice, demand or request required or permitted to be given by the Company
or an
Investor pursuant to the terms of this Agreement shall be in writing and
shall
be deemed delivered (i) when delivered personally or by verifiable facsimile
transmission, unless such delivery is made on a day that is not a Business
Day,
in which case such delivery will be deemed to be made on the next succeeding
Business Day, (ii) on the next Business Day after timely delivery
to
31
an
overnight courier and (iii) on
the
Business Day actually received if deposited
in the U.S. mail (certified or registered mail, return receipt requested,
postage prepaid), addressed as follows:
If
to
the Company:
0000
X.
Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx
Xxxxx, XX 00000
Attn:
Xxxxx
X.
Xxxxxxxxx
Tel:
000-000-0000
Fax: 000-000-0000
with
a copy to:
Holland
& Knight LLP
000
Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxx,
Xxxxxxx 00000
Mailing
Address: X.X. Xxx 000000, Xxxxxxx, 00000
Attn:
Xxxxxx
X.
Xxxxxxx, Esq.
Tel:
000-000-0000
Fax:
000-000-0000
and
if to
an Investor, to such address for such Investor as shall appear on the signature
page hereof executed by such Investor, or as shall be designated by such
Investor in writing to the Company in accordance with this Section
6.9.
6.10 Expenses.
The
Company and each Investor shall pay all costs and expenses that it incurs
in
connection with the negotiation, execution, delivery and performance of this
Agreement or the other Transaction Documents; provided,
however,
that
that
the
Company shall, at the Closing, pay (i) to the appropriate taxing authorities,
all documentary stamp taxes that accrue with respect to the purchase and
sale of
the Securities and (ii)
to
Satellite Strategic Finance Associates, LLC (“Satellite”),
$60,000.00 in immediately available funds for
the
out-of-pocket expenses (including without limitation the reasonable legal
fees
and expenses of Xxxxx & Stachenfeld LLP) incurred by Satellite in connection
its due diligence investigation of the Company and the negotiation, preparation,
execution, delivery and performance of this Agreement and the other Transaction
Documents (including
fees and expenses estimated to be incurred for completion of the transaction
and
post-closing matters). At the Closing, such amount may
be
netted out of the Purchase Price payable by Satellite.
Notwithstanding
anything herein to the contrary, if
the
Closing
does not
occur
otherwise than as a result of a breach of this Agreement by Satellite or
the
failure of Satellite to satisfy any closing conditions,
the
Company shall
remain obligated to
pay the
expenses
of Satellite in the aggregate amount of $60,000.00.
6.11 Entire
Agreement; Amendments.
This
Agreement and the other Transaction Documents constitute the entire agreement
between the parties with regard to the subject matter hereof and thereof,
superseding all prior agreements or understandings, whether written or oral,
between or among the parties. Except as expressly provided herein, neither
this
Agreement nor any term hereof
32
may
be
amended except pursuant to a written instrument executed by the Company and
the
holders of at least two-thirds (2/3) of the number of Outstanding Registrable
Securities,
and no
provision hereof may be waived other than by a written instrument signed
by the
party against whom enforcement of any such waiver is sought. Any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
[Signature
Pages to Follow]
33
IN
WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first-above written.
APPLIED
DIGITAL SOLUTIONS, INC.
By:
/s/ Xxxx
X. XxXxxxx
Name: Xxxx X. XxXxxxx
Title: SVP, CFO
SATELLITE
STRATEGIC FINANCE ASSOCIATES, LLC
By:
Satellite
Asset Management, L.P., its Manager
By:
/s/
Xxxxx Xxxxxxx
Name:
Xxxxx Xxxxxxx
Title:
General Counsel
ADDRESS:
c/o
Satellite Advisors, L.L.C.
000
Xxxxx
Xxxxxx, 00xx Xxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Tel:
000-000-0000
Fax: 000-000-0000
With
a copy to:
Xxxxx
& Stachenfeld LLP
000
Xxxx
00xx
Xxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attn:
Xxxxxx
X.
Xxxxxx, Esq.
Tel:
000-000-0000
Fax:
000-000-0000
Number
of
Shares to be Purchased: 4,680
IN
WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first-above written.
APPLIED
DIGITAL SOLUTIONS, INC.
By:
/s/ Xxxx
X. XxXxxxx
Name:
Xxxx X. XxXxxxx
Title: SVP, CFO
SATELLITE
STRATEGIC FINANCE PARTNERS, LTD.
By:
Satellite
Asset Management, L.P., its Manager
By:
/s/
Xxxxx Xxxxxxx
Name:
Xxxxx Xxxxxxx
Title:
General Counsel
ADDRESS:
c/o
Satellite Advisors, L.L.C.
000
Xxxxx
Xxxxxx, 00xx Xxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Tel:
000-000-0000
Fax:
000-000-0000
With
a copy to:
Xxxxx
& Stachenfeld LLP
000
Xxxx
00xx
Xxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attn:
Xxxxxx
X.
Xxxxxx, Esq.
Tel:
000-000-0000
Fax:
000-000-0000
Number
of
Shares to be Purchased: 7,860
2
EXHIBIT
F
INVESTMENT
REPRESENTATION CERTIFICATE
Purchaser:
______________
Company:
Applied
Digital Solutions, Inc. (the “Company”)
Security: ______________
Amount: ______________
Date:
______________
In
connection with the purchase of the above-listed securities (the “Securities”),
the undersigned (the “Purchaser”) represents to the Company as
follows:
The
Purchaser is aware of the Company’s business affairs and financial condition,
and has acquired sufficient information about the Company to reach an informed
and knowledgeable decision to acquire the Securities. The Purchaser is
purchasing the Securities for its own account for investment purposes only
and
not with a view to, or for the resale in connection with, any “distribution”
thereof for purposes of the Securities Act of 1933, as amended (the “Securities
Act”).
The
Purchaser understands that the Securities have not been registered under
the
Securities Act in reliance upon a specific exemption therefor, which exemption
depends upon, among other things, the bona fide nature of the Purchaser’s
investment intent as expressed herein. In this connection, the Purchaser
understands that, in the view of the Securities and Exchange Commission (“SEC”),
the statutory basis for such exemption may be unavailable if the Purchaser’s
representation was predicated solely upon a present intention to hold these
Securities for the minimum capital gains period specified under tax statutes,
for a deferred sale, for or until an increase or decrease in the market price
of
the Securities, or for a period of one year or any other fixed period in
the
future. The Purchaser is an “accredited investor” as that term is defined under
Regulation D promulgated by the Securities and Exchange Commission under
the
Securities Act.
The
Purchaser further understands that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. In addition, the Purchaser understands
that the certificate evidencing the Securities will be imprinted with the
legend
referred to in this Warrant under which the Securities are being
purchased.
The
Purchaser is aware of the provisions of Rule 144, promulgated under
the
Securities Act, which, in substance, permit limited public resale of “restricted
securities” acquired, directly or indirectly, from the issuer thereof (or from
an affiliate of such issuer), in a non-public offering subject to the
satisfaction of certain conditions, if applicable, including, among other
things: (i) the availability of certain public information about the
Company; (ii) the resale occurring not less than one (1) year
after
the party has purchased and paid for the securities to be sold (subject to
certain “tacking” provisions); (iii) the resale being made through a broker
in an unsolicited “broker’s transaction” or in transactions directly with a
market maker (as said term is defined under the Securities Exchange Act of
1934,
as amended) and the amount of securities being sold during any three-month
period not exceeding the specified limitations stated therein.
3
The
Purchaser further understands that at the time it wishes to sell the Securities
there may be no public market upon which to make such a sale, and that, even
if
such a public market upon which to make such a sale then exists, notwithstanding
the Company’s best efforts obligation to do so set forth in the Warrant, the
Company may not be satisfying the current public information requirements
of
Rule 144, and that, in such event, the Purchaser may be precluded
from
selling the Securities under Rule 144 even if the one-year minimum
holding
period had been satisfied.
The
Purchaser further understands that in the event all of the requirements of
Rule 144 are not satisfied, registration under the Securities Act
or an
exemption from registration will be required; and that, notwithstanding the
fact
that Rule 144 is not exclusive, the staff of the SEC has expressed
its
opinion that persons proposing to sell private placement securities other
than
in a registered offering and otherwise than pursuant to Rule 144 will
have
a substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons
and
their respective brokers who participate in such transactions do so at their
own
risk.
Date:
___________________
[PURCHASER]
4
