EXHIBIT 2
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EXECUTION COPY
NOTE AND WARRANT PURCHASE AGREEMENT
Dated as of February 22, 2005
between
XXXXXXX IMAGING CORPORATION
and
COMVEST INVESTMENT PARTNERS II LLC
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EXECUTION COPY
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS.....................................................................................1
ARTICLE 2 AGREEMENT TO PURCHASE; CLOSING..................................................................7
2.1 Purchase of Initial Note........................................................................7
2.2 Closing.........................................................................................7
2.3 Additional Notes................................................................................7
2.4 No Reborrowing..................................................................................9
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF COMVEST.......................................................9
3.1 Organization....................................................................................9
3.2 Accredited Investor.............................................................................9
3.3 No Public Distribution..........................................................................9
3.4 Subsequent Offers and Sales.....................................................................9
3.5 Accuracy of ComVest's Representations and Warranties............................................9
3.6 Information....................................................................................10
3.7 Capacity and Authority.........................................................................10
3.8 Due Execution..................................................................................10
3.9 Brokers........................................................................................10
3.10 No General Solicitation........................................................................10
3.11 Domicile.......................................................................................10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................................10
4.1 Organization...................................................................................10
4.2 Capitalization.................................................................................11
4.3 Issuance of the Securities and Warrant Shares..................................................12
4.4 Legality.......................................................................................12
4.5 Due Execution..................................................................................12
4.6 Non-Contravention..............................................................................12
4.7 Approvals......................................................................................12
4.8 SEC Filings; Financial Statements..............................................................13
4.9 Absence of Certain Changes.....................................................................15
4.10 Insurance......................................................................................17
4.11 Compliance with Law............................................................................17
4.12 Absence of Litigation..........................................................................18
4.13 Private Offering; Trust Indenture Act..........................................................18
4.14 Brokerage Fees.................................................................................18
4.15 Intellectual Property..........................................................................18
4.16 Labor Relations................................................................................20
4.17 Benefit Plans and Agreements...................................................................20
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4.18 Environmental, Health and Safety Matters.......................................................21
4.19 FDA and Regulatory Matters; Clinical Trials....................................................22
4.20 List of Material Contracts and Other Data......................................................23
4.21 Tax Matters....................................................................................24
4.22 Real Property; Title to Assets.................................................................25
4.23 Rights Agreement Expired.......................................................................26
4.24 Company Products...............................................................................26
4.25 Certain Business Practices.....................................................................26
4.26 Interested Party Transactions..................................................................26
ARTICLE 5 COVENANTS AND ACKNOWLEDGMENTS..................................................................27
5.1 Transfer Restrictions..........................................................................27
5.2 Restrictive Legend.............................................................................27
5.3 Disclosure of Transaction......................................................................28
5.4 Lock-Up of Executive Officer and Director Shares...............................................28
5.5 Sales of Company Securities....................................................................28
5.6 Reporting Status...............................................................................28
5.7 Use of Proceeds................................................................................28
5.8 Registration Rights............................................................................29
5.9 Reservation of Common Stock Issuable upon Exercise of Warrants.................................29
5.10 Covenant as to Common Stock....................................................................29
5.11 Affirmative Covenants..........................................................................29
5.12 Negative Covenants.............................................................................31
5.13 Board of Directors.............................................................................32
5.14 Removal or Resignation of ComVest Director.....................................................33
5.15 Consulting Arrangement.........................................................................33
ARTICLE 6 CLOSING........................................................................................34
6.1 Execution and Delivery of Transaction Documents................................................34
6.2 Payment of Purchase Price......................................................................34
6.3 Payment of Financing Fee and Commitment Fee; Reimbursement of ComVest Expenses.................34
6.4 Officers' Certificate..........................................................................34
6.5 Secretary's Certificate........................................................................34
6.6 Certificate of Incorporation...................................................................35
6.7 Good Standing Certificates.....................................................................35
6.8 Pay-Off of Silicon Valley Bank Credit Facility.................................................35
6.9 Appointment of ComVest Director................................................................35
ARTICLE 7 INDEMNIFICATION................................................................................35
7.1 Indemnification of ComVest by the Company......................................................35
7.2 Indemnification of the Company by Com Vest.....................................................36
7.3 Third Party Claims.............................................................................36
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7.4 Non-Exclusive Remedies.........................................................................37
ARTICLE 8 EXPENSES.......................................................................................37
ARTICLE 9 SURVIVAL.......................................................................................37
ARTICLE 10 MISCELLANEOUS..................................................................................37
10.1 Governing Law; Jurisdiction....................................................................37
10.2 Counterparts...................................................................................38
10.3 Headings.......................................................................................38
10.4 Severability...................................................................................38
10.5 Parties in Interest; Successors and Assigns....................................................38
10.6 Remedies.......................................................................................38
10.7 Amendments.....................................................................................38
10.8 Merger.........................................................................................38
10.9 Notices........................................................................................38
10.10 Waiver of Jury Trial...........................................................................40
EXHIBITS
Exhibit A Senior Secured Note
Exhibit B Warrant
Exhibit C Registration Rights Agreement
Exhibit D Security Agreement
Exhibit E Lock-Up Agreement
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NOTE AND WARRANT PURCHASE AGREEMENT
THIS NOTE AND WARRANT PURCHASE AGREEMENT (this "AGREEMENT"), dated as
of the 22nd day of February, 2005, is made by and between Xxxxxxx Imaging
Corporation a Delaware corporation (the "COMPANY") and ComVest Investment
Partners II LLC, a Delaware limited liability company ("COMVEST").
RECITALS
WHEREAS, ComVest wishes to purchase, and the Company wishes to sell and
issue to ComVest, upon the terms and subject to the conditions stated in this
Agreement, a senior secured promissory note of the Company in the principal
amount of $5,000,000, in the form attached hereto as Exhibit A (the "INITIAL
NOTE"); and
WHEREAS, upon the terms and subject to the conditions stated in this
Agreement, ComVest will commit to purchase additional senior secured promissory
notes of the Company (i) in the principal amount of $2,000,000 (the "SECOND
NOTE") upon the performance of certain conditions and (ii) subject to the
purchase of the Second Note and certain further conditions, up to an aggregate
principal amount of $3,000,000 (the "ADDITIONAL NOTES", and together with the
Initial Note and the Second Note, the "NOTES"), each of which shall be in
substantially the form of the Initial Note and shall have the same maturity as
the Initial Note; and
WHEREAS, in connection with the sale of the Initial Note, the Company
will also issue to ComVest warrants to purchase 2,000,000 shares of the
Company's Common Stock upon the terms and subject to the conditions of this
Agreement in the form attached hereto as Exhibit B (each a "WARRANT" and
collectively, the "WARRANTS"); and
WHEREAS, in connection with the consummation of the transactions
contemplated by this Agreement, the parties hereto are also entering into, of
even date herewith, a Registration Rights Agreement in the form attached hereto
as Exhibit C (the "REGISTRATION RIGHTS AGREEMENT") and a Security Agreement in
the form attached hereto as Exhibit D (the "SECURITY AGREEMENT").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
AGREEMENTS:
ARTICLE 1
DEFINITIONS
"ACTIVITIES TO DATE" shall have the definition provided in Section
4.19(b).
"ADDITIONAL NOTE PURCHASE PRICE" shall have the definition provided in
Section 2.3.
"ADDITIONAL NOTES" shall have the definition provided in the second
paragraph of the Recitals.
"AFFILIATE" of a specified person shall mean a person who, directly or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such specified person.
"APPROVALS" shall have the definition provided in Section 4.19(b).
"AGREEMENT" shall have the definition provided in the introductory
paragraph.
"BALANCE SHEET" shall have the definition provided in Section 4.8(b).
"BOARD OF DIRECTORS" shall mean the Board of Directors of the Company.
"CAPITAL EXPENDITURES" shall mean all expenditures of the Company and
its subsidiaries for tangible assets which are capitalized, and the fair value
of any tangible assets leased by the Company or any of its subsidiaries under
any lease which is or should be capitalized on the Company's consolidated
balance sheet in accordance with GAAP, consistently applied, including all
amounts paid or accrued in connection with the purchase (whether on a cash or
deferred payment bases) or lease (including capitalized lease obligations) of
any machinery, equipment, tooling, real property, improvements to real property
(including leasehold improvements) or any other tangible asset of the Borrower
or any of its subsidiaries which is required, in accordance with GAAP,
consistently applied, to be treated as a fixed asset on the consolidated balance
sheet of the Company and its subsidiaries.
"CLAIM" shall have the definition provided in Section 7.3.
"CLOSING" shall have the definition provided in Section 2.2.
"CLOSING DATE" shall have the definition provided in Section 2.2.
"CMS" shall have the definition provided in Section 4.19(a).
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMITMENT FEE" shall have the definition provided in Article 8.
"COMMON STOCK" shall have the definition provided in the first
paragraph of the Recitals.
"COMPANY" shall have the definition provided in the introductory
paragraph.
"COMPANY INDEMNITEES" shall have the definition provided in Section
7.2.
"COMPANY PRODUCTS" shall have the definition provided in Section
4.19(b).
"COMVEST" shall have the definition provided in the introductory
paragraph.
"COMVEST DIRECTOR" shall have the definition provided in Section 5.13.
"COMVEST EXPENSES" shall have the definition provided in Article 8.
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"COMVEST INDEMNITIES" shall have the definition provided in Section
7.1.
"COMVEST OBSERVER" shall have the definition provided in Section 5.13.
"DEFAULT" shall mean any act, event, condition or circumstance which,
with the giving of notice, the passage of time, or both, would constitute an
Event of Default.
"DERIVATIVE SECURITIES" shall have the definition provided in Section
4.2.
"DISCLOSURE SCHEDULES" shall have the definition provided in Article 4.
"EBITDA" shall have the definition provided in the Initial Note.
"EMPLOYEE PLAN" shall mean any plan, program, policy, practice,
contract, agreement or other arrangement providing for compensation, severance,
termination pay, deferred compensation, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether written, unwritten or otherwise, funded or unfunded,
including, without limitation, each "employee benefit plan," within the meaning
of Section 3(3) of ERISA (whether or not ERISA is applicable to such plan), that
is or has been maintained, contributed to, or required to be contributed to, by
the Company, any Affiliate or any predecessor of the Company for the benefit of
any employee of the Company, or with respect to which the Company or any
Affiliate has or may have any liability or obligation.
"ENVIRONMENTAL LAW" shall mean any federal, state, local and foreign
statutes, regulations, ordinances and other provisions having the force or
effect of law, all judicial and administrative orders and determinations, all
contractual obligations and all common law concerning public health and safety,
worker health and safety, and pollution or protection of the environment,
including without limitation all those relating to (i) releases or threatened
releases of Hazardous Substances or materials containing Hazardous Substances;
(ii) the manufacture, handling, transport, use, treatment, storage or disposal
of Hazardous Substances or materials containing Hazardous Substances; or (iii)
pollution or protection of the environment, health, safety or natural resources.
"ENVIRONMENTAL PERMIT" shall have the definition provided in Section
4.18.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"EVENT OF DEFAULT" shall mean any of the events specified in Section 6
of the Initial Note or the corresponding section of any Additional Note,
provided that any requirement for the giving of notice, the passage of time, or
both, or any other condition, has been satisfied.
"EXCHANGE ACT" shall have the definition provided in Section 3.2.
"EXECUTIVE OFFICERS" shall mean Xxxxxx Ravine, the Company's President
and Chief Executive Officer, Xxxxx Xxxxxx, the Company's Senior Vice President,
Finance, Chief Financial Officer and Secretary, Xxxx Xxxx Xxxxxxxxxxx, the
Company's Controller, Xxxxx Xxxxx,
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the Company's Vice President of Sales and Marketing, and Xxxxxx Xxxxxxx, the
Company's Vice President of Business Development.
"FDA" shall have the definition provided in Section 4.19(a).
"FDA CERTIFICATE" shall have the definition provided in Section 2.3.
"FINANCIALS" shall have the definition provided in Section 4.8(b).
"FINANCING FEE" shall have the definition provided in Article 8.
"XXXXXXX EUROPE" shall have the definition provided in Section 6.5.
"XXXXXXX INTERNATIONAL" shall have the definition provided in Section
6.5.
"GAAP" shall have the definition provided in Section 4.8(b).
"HAZARDOUS SUBSTANCES" means (i) those substances defined in or
regulated under the following United States federal statutes and their state
counterparts, as each may be amended from time to time, and all regulations
thereunder: the Hazardous Materials Transportation Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water
Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide
Act and the Clean Air Act; (ii) petroleum and petroleum products, including
crude oil and any fractions thereof; (iii) natural gas, synthetic gas, and any
mixtures thereof; (iv) polychlorinated biphenyls, asbestos and radon; and (v)
any other contaminant, substance, material or waste regulated by any
governmental or regulatory authority pursuant to any Environmental Law.
"HHS" shall have the definition provided in Section 4.19(a).
"INDEBTEDNESS" shall mean, with respect to any person, (a) all
indebtedness of such person, whether or not contingent, for borrowed money, (b)
all obligations of such person for the deferred purchase price of property or
services, (c) all obligations of such person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (e) all obligations of such person as
lessee under leases that have been or should be, in accordance with GAAP,
consistently applied, recorded as capital leases, (f) all obligations,
contingent or otherwise, of such person under acceptance, letter of credit or
similar facilities, (g) all obligations of such person to purchase, redeem,
retire, defease or otherwise acquire for value any capital stock of such person
or any warrants, rights or options to acquire such capital stock, valued, in the
case of redeemable preferred stock, at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends, (h) all
Indebtedness of others referred to in clauses (a) through (g) above guaranteed
directly or indirectly in any manner by such Person, or in effect guaranteed
directly or indirectly by such person through an agreement (i) to pay or
purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services,
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primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to
supply funds to or in any other manner invest in the debtor (including any
agreement to pay for property or services irrespective of whether such property
is received or such services are rendered) or (iv) otherwise to assure a
creditor against loss, and (i) all Indebtedness referred to in clauses (a)
through (g) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any lien or other
encumbrance on property (including accounts and contract rights) owned by such
person, even though such person has not assumed or become liable for the payment
of such Indebtedness.
"INDEMNIFIED PARTY" shall have the definition provided in Section 7.3.
"INDEMNIFYING PARTY" shall have the definition provided in Section 7.3.
"INITIAL NOTE" shall have the definition provided in the first
paragraph of the Recitals.
"INITIAL NOTE PURCHASE PRICE" shall have the definition provided in
Section 2.1.
"INTELLECTUAL PROPERTY" shall mean any: (a) patent, patent application,
trademark (whether registered or unregistered), trademark application, trade
name, fictitious business name, domain name, service xxxx (whether registered or
unregistered), service xxxx application, copyright or rights of copyright
(whether registered or unregistered), copyright application, mask work, mask
work application, trade secret, customer list, system, computer software
(including source code and object code), computer program, invention, design,
blueprint, engineering drawing, proprietary product, technology, proprietary
right or other intellectual property right or intangible asset, confidential
information, ideas, and all other intellectual property or proprietary rights of
any kind, including without limitation writings of any kind, printed or graphic
matter (including all preparatory materials such as sketches, drafts, outtakes,
outlines and drawings), and any audiovisual works, artwork, designs,
photographs, video tapes, films, slides, tape recordings, music, and
mechanicals; or (b) right to use or exploit any of the foregoing.
"KNOWLEDGE OF THE COMPANY" shall mean the actual knowledge of any
director of the Company or any Executive Officer and such knowledge that any
such individual would obtain after the exercise of reasonable investigation.
"LEASE DOCUMENTS" shall have the definition provided in Section
4.22(b).
"LICENSED INTELLECTUAL PROPERTY" shall have the definition provided in
Section 4.15(b), and excludes any subscription or license to third party
commercial publications, online services, online applications, and software
applications, each of which are generally available for license or subscription
fees of $25,000 or less per year.
"LOSSES" shall have the definition provided in Section 7.1.
"MATERIAL ADVERSE EFFECT" shall mean, when used in connection with the
Company or any subsidiary of the Company, any event, circumstance, change or
effect that is or is reasonably likely to be materially adverse to the business,
condition (financial or otherwise), assets, liabilities or results of operations
of the Company and its subsidiaries taken as a whole.
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"MATERIAL CONTRACTS" shall have the definition provided in Section
4.20.
"NOTES" shall have the definition provided in the second paragraph of
the Recitals.
"OIG" shall have the definition provided in Section 4.19(a).
"OPTION PLANS" shall have the definition provided in Section 4.2.
"OWNED INTELLECTUAL PROPERTY" shall have the definition provided in
Section 4.15(a).
"PBGC" shall have the definition provided in Section 4.17(a).
"PERMITS" shall have the definition provided in Section 4.11.
"POST-CLOSING COMMITMENT" shall mean the commitment of ComVest to
purchase the Second Note and the Additional Notes subject to and in accordance
with Section 2.3.
"PREFERRED STOCK" shall have the definition provided in Section 4.2.
"REGISTRATION RIGHTS AGREEMENT" shall have the definition provided in
the fourth paragraph of the Recitals.
"RETURNS" shall have the definition provided in Section 4.21.
"RIGHTS AGREEMENT" shall mean the Amended and Restated Rights Agreement
between the Company and Computershare Trust Company, Inc. (as Rights Agent),
dated as of November 9, 2001.
"RIGHTS" shall have the definition under the Rights Agreement.
"SECOND NOTE" shall have the meaning provided in the first paragraph of
the Recitals.
"SECOND NOTE CLOSING DATE" shall have the meaning provided in Section
2.3(a).
"SECOND NOTE PURCHASE PRICE" shall have the meaning provided in Section
2.3(a).
"SEC REPORTS" shall have the definition provided in Section 4.8(a).
"SECURITIES" shall mean the collective reference to the Notes, the
Warrants and the Warrant Shares.
"SECURITIES ACT" shall have the definition provided in Section 3.3.
"SECURITY AGREEMENT" shall have the definition provided in the fourth
paragraph of the Recitals.
"TAX" or collectively, "TAXES", shall mean any and all federal, state,
local and foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by gross
receipts, income, profits, sales, use and occupation, and
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valued added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts and any obligations under any
agreements or arrangements with any other person with respect to such amounts
and including any liability for taxes of a predecessor entity.
"TRANSACTION DOCUMENTS" shall mean this Agreement, the Notes, the
Warrants, the Registration Rights Agreement and the Security Agreement
(including collateral assignments of Intellectual Property pursuant thereto).
"WARRANT" and "WARRANTS" shall have the definition provided in the
third paragraph of the Recitals.
"WARRANT SHARES" shall mean the shares of Common Stock issued or
issuable upon exercise of the Warrants.
ARTICLE 2
AGREEMENT TO PURCHASE; CLOSING
2.1 PURCHASE OF INITIAL NOTE. Upon the terms and subject to the
conditions set forth herein, the Company hereby agrees to issue and sell to
ComVest and ComVest hereby agrees to purchase from the Company, at the Closing,
the Initial Note in the principal amount of $5,000,000. The purchase price (the
"INITIAL NOTE PURCHASE PRICE") for the Initial Note to be purchased hereunder is
$5,000,000. In connection with the purchase of the Initial Note by ComVest, the
Company shall issue the Warrants to ComVest at the Closing.
2.2 CLOSING. The closing (the "CLOSING") of the purchase and sale of
the Initial Note and the issuance of the Warrants will take place at the offices
of Xxxxx Xxxxxx & Xxxxxx LLP (or such other place as the parties may agree) on
the date hereof. The date of the Closing is referred to herein as the "CLOSING
DATE." At the Closing, the parties shall take such actions and make such
deliveries as are provided in Article 6 below.
2.3 ADDITIONAL NOTES.
(a) Second Note. Within five (5) calendar days after the
receipt by ComVest of a certificate (the "FDA CERTIFICATE"), signed on behalf of
the Company by its President and Chief Executive Officer, to the effect that (i)
the FDA has completed its field audit at the Company and the Company has met
with the lead auditor and conducted an exit (or completion) interview to review
the results of the audit and to discuss with the lead auditor the findings,
recommendations, citations and requirements that are likely to be, or, if then
available, that are contained in the FDA's written report (including any Form
483) to be issued in connection with the audit, (ii) based on the exit
interview, such written report (including any Form 483), if any, and taking into
account discussions with the FDA audit team during the course of the audit, to
the Company's knowledge, neither the FDA audit report, when issued, nor any
interim finding, order or requirement issued by the FDA in connection with the
audit contains or recommends any of the following: (A) any order requiring
closure of one or more of the Company's present or contemplated lines of
business; (B) any order requiring a product recall, which, if required to be
implemented in accordance with its terms, would reasonably be expected to have a
Material Adverse Effect; (C) the imposition of any fines that would reasonably
be expected to have a
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Material Adverse Effect; or (D) any requirement to change the practices or
business operations of the Company in a manner materially inconsistent with its
present method of operation (except for such matters which the Company is then
contesting in good faith) unless such changes are not reasonably expected to
have a Material Adverse Effect or to have a materially adverse impact on its
presently forecasted results of operations for 2005 and 2006 and (iii) the
Company wishes to issue and sell the Second Note, ComVest shall purchase the
Second Note. The purchase price for the Second Note to be purchased hereunder is
$2,000,000 (the "SECOND NOTE PURCHASE PRICE"), which shall be payable by wire
transfer of immediately available funds to the Company at the time of closing of
such Second Note purchase (the "SECOND NOTE CLOSING Date"). If the FDA
Certificate is not received by ComVest by November 15, 2005, then the
Post-Closing Commitment shall automatically terminate and be of no further force
or effect.
(b) Subsequent Notes. Within twenty (20) calendar days
after written request made by the Company at any time and from time to time
subsequent to the Second Note Closing and before November 15, 2005, ComVest
shall purchase one or more Additional Notes, provided that (a) each such request
to purchase an Additional Note shall be in the minimum amount of $750,000 (or
such lesser amount as shall constitute the remaining unfunded portion of the
Post-Closing Commitment), (b) ComVest shall not be required to purchase
Additional Notes in any amount in excess of (i) $750,000 in the aggregate
pursuant to a request made by the Company between the Second Note Closing Date
and May 5, 2005, (ii) $1,500,000 in the aggregate pursuant to a request made by
the Company between the Second Note Closing Date and Xxxxxx 0, 0000, (xxx)
$2,500,000 in the aggregate pursuant to a request made by the Company between
the Second Note Closing Date and November 5, 2005 and (iv) $3,000,000 in the
aggregate pursuant to a request made by the Company between the Second Note
Closing Date and November 15, 2005, and (c) the aggregate principal amount of
Additional Notes required to be purchased hereunder shall in no event and under
no circumstances exceed $3,000,000. The purchase price for each Additional Note
shall be an amount equal to the principal amount of such Additional Note (the
"ADDITIONAL NOTE PURCHASE PRICE"), which shall be payable by wire transfer of
immediately available funds to the Company at the time of closing of such
Additional Note purchase.
(c) Additional Conditions. ComVest's obligation to
purchase the Second Note or any Additional Note(s) hereunder is expressly
subject to and conditioned upon the following: (A) the Closing shall have
occurred and, with respect to the Additional Notes, the Second Note shall have
been issued, (B) no Default or Event of Default shall exist at the time of the
Company's delivery of the FDA Certificate or request to ComVest under Section
2.3(b), as the case may be, and at the time of the closing of such Second Note
or Additional Note purchase, (C) in the FDA Certificate or in the request for
the purchase of the Additional Note, as the case may be, the Company shall
certify to ComVest that no Default or Event of Default then exists, (D)
immediately prior to ComVest's payment for such Second Note or Additional Note,
the Company shall certify in writing to ComVest that no Default or Event of
Default then exists, and (E) the Company shall pay to ComVest, at the time of
the Second Note purchase and each Additional Note purchase, an additional
financing fee in an amount equal to 1.25% of the subject Second Note Purchase
Price or Additional Note Purchase Price, as the case may be. In no event and
under no circumstances shall ComVest be required to purchase any Additional
Notes based upon any request made by the Company subsequent to November 15,
2005, and in the event that any of the Notes shall be accelerated or shall be
declared to be immediately due and payable in
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either case by reason of any Event of Default, then the Post-Closing Commitment
(or the remaining portion thereof not theretofore funded) shall automatically
terminate and be of no further force or effect.
2.4 NO REBORROWING. Any principal amounts repaid or prepaid under any
of the Notes may not be reborrowed.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF COMVEST
ComVest hereby represents and warrants to the Company that the
following representations and warranties are true and correct as of the date of
this Agreement, except for representations and warranties that are made only as
of a specific date, which are true and correct as of such specific date.
3.1 ORGANIZATION. ComVest is a limited liability company duly organized
and validly existing and in good standing under the laws of the State of
Delaware.
3.2 ACCREDITED INVESTOR. ComVest is: (i) experienced in making
investments of the kind contemplated by this Agreement; (ii) able, by reason of
its business and financial experience, to protect its own interests in
connection with the transactions contemplated by this Agreement; (iii) able to
afford the entire loss of its investment in the Securities; (iv) an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D of the
Securities Act; and (v) not a broker-dealer as such term is defined in the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "EXCHANGE ACT").
3.3 NO PUBLIC DISTRIBUTION. ComVest is acquiring the Securities for its
own account, for investment purposes only, and not with a present view towards
the public sale or distribution thereof, except pursuant to a sale or sales that
are registered under the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "SECURITIES ACT") or exempt from such registration.
ComVest has not been organized for the purpose of investing in securities of the
Company, although such investment is consistent with its purposes.
3.4 SUBSEQUENT OFFERS AND SALES. All subsequent offers and sales of the
Securities by ComVest shall be made pursuant to an effective registration
statement under the Securities Act or pursuant to an applicable exemption from
such registration; with any offers and sales which are being made pursuant to an
applicable exemption from registration being accompanied by a customary legal
opinion obtained by ComVest, which legal opinion shall be reasonably
satisfactory to the Company and the Company's legal counsel.
3.5 ACCURACY OF COMVEST'S REPRESENTATIONS AND WARRANTIES. ComVest
understands that the Securities are being offered and sold to it in reliance
upon exemptions from the registration requirements of the United States federal
securities laws, and that the Company is relying upon the truth and accuracy of
ComVest's representations and warranties contained in the Transaction Documents
and any ancillary documents thereto, as applicable, and ComVest's compliance
with the Transaction Documents and any ancillary documents thereto, in order to
determine the availability of such exemptions and the eligibility of ComVest to
acquire the Securities in accordance with the terms and provisions of the
Transaction Documents.
9
3.6 INFORMATION. ComVest: (i) has been provided with and has reviewed
all requested information concerning the business of the Company, including,
without limitation, the Company's SEC Reports and (ii) has had all requested
access to the management of the Company and has had the opportunity to ask
questions of the management of the Company.
3.7 CAPACITY AND AUTHORITY. ComVest has the requisite capacity and
authority to execute, deliver and perform each of the Transaction Documents and
any and all ancillary documents thereto and to consummate the transactions
contemplated thereby.
3.8 DUE EXECUTION. This Agreement and the other Transaction Documents,
and any ancillary documents thereto, have been duly and validly authorized by
ComVest and have been duly executed and delivered by ComVest, and such
agreements, when executed and delivered by each of the other parties thereto,
will each be a valid and binding agreement of ComVest, enforceable against
ComVest in accordance with its terms, except to the extent that enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other similar laws now or hereafter in effect relating to
creditors' rights generally, and by general principles of equity.
3.9 BROKERS. ComVest has not employed, engaged or retained, or
otherwise incurred any liability to, any person as a broker, finder, agent or
other intermediary in connection with the transactions contemplated herein.
3.10 NO GENERAL SOLICITATION. ComVest has not learned of the investment
in the Securities as a result of any public advertising or general solicitation.
3.11 DOMICILE. ComVest has its principal place of business in the
jurisdiction set forth below ComVest' s name in the notice provisions of this
Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to ComVest that the
following representations and warranties are true and correct on and as of the
date of this Agreement, except for representations and warranties that are made
only as of a specific date, which are true and correct as of such specified
date. The disclosure schedules ("DISCLOSURE SCHEDULES") contemplated by this
Article 4 have been arranged to correspond to the numbered and lettered sections
of this Article 4 and have been delivered concurrently with the execution of
this Agreement. Any items referenced in a section of such Disclosure Schedules
will be deemed to be included in the Disclosure Schedule sections of any
reasonably related representations.
4.1 ORGANIZATION. The Company is a corporation duly incorporated and
validly existing under the laws of the State of Delaware. Each of the Company's
subsidiaries is a corporation duly incorporated and validly existing under the
laws of its respective jurisdiction of incorporation. Each of the Company and
its subsidiaries is duly qualified as a foreign corporation in all jurisdictions
in which the failure to so qualify would, individually or in the aggregate, have
a Material Adverse Effect. Except as set forth on Schedule 4.1 (which sets forth
for each subsidiary of the Company the number of issued and outstanding shares
of each class of capital stock of each such subsidiary of the Company and the
record and beneficial owner of
10
such outstanding shares), all of the outstanding shares of capital stock of the
Company's subsidiaries is owned, beneficially and of record, either directly or
indirectly (through another subsidiary) by the Company, free and clear of all
liens and other encumbrances. Except as disclosed in Schedule 4.1, the Company
does not directly or indirectly own any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for any equity or
similar interest in, any corporation, partnership, joint venture or other
business association or entity. Each of the Company and its subsidiaries has all
requisite corporate power and authority, and holds all licenses, permits and
other required authorizations from governmental authorities, necessary to
conduct its business as it is now being conducted or proposed to be conducted
and to own or lease its properties and assets as they are now owned or held
under lease, except to the extent the failure to hold such licenses, permits and
other authorizations would not, individually or in the aggregate, have a
Material Adverse Effect. The Certificates of Incorporation, By-laws or
equivalent organizational documents of the Company and each of its subsidiaries
are in full force and effect and (i) the Company is not in violation of any of
the provisions of its Certificate of Incorporation or By-laws and (ii) none of
its subsidiaries is in violation of any of the provisions of its Certificate of
Incorporation, By-laws or equivalent organizational documents except for
violations that would not, individually or in the aggregate, have a Material
Adverse Effect.
4.2 CAPITALIZATION. On the date hereof, the authorized capital of the
Company consists of 25,000,000 shares of Common Stock and 5,000,000 shares of
preferred stock, $.01 par value per share ("PREFERRED STOCK"). On the date
hereof, there are 9,348,484 shares of Common Stock issued and outstanding and no
shares of Preferred Stock issued and outstanding. Except for grants of rights to
purchase shares of the Company's Common Stock under the Company's 1991 Stock
Option Plan, as amended, 1993 Non-Employee Director Stock Option Plan, as
amended, and the Company's 2004 Stock Incentive Plan and under other options
granted to officers, employees, and consultants as compensation (the "OPTION
PLANS"), in each case as set forth on Schedule 4.2 (which sets forth (i) the
total number of options which have been granted by the Company, whether such
options were granted pursuant to the Option Plans or otherwise, (ii) the name of
each person who holds such an option, (iii) the particular plan pursuant to
which such option was granted, (iv) the number of shares of Company Common Stock
subject to such option, (v) the exercise or purchase price of such option, (vi)
the date on which such option was granted, (vii) the applicable vesting
schedule, (viii) the date on which such option expires, and (ix) whether the
exercisability of such option will be accelerated in any way by the transactions
contemplated by this Agreement), there are no options, warrants or convertible
securities of the Company or any other rights to acquire securities of the
Company (collectively, the "DERIVATIVE SECURITIES"). All outstanding securities
of the Company are duly authorized, validly issued, fully paid and
nonassessable. No stockholder of the Company is entitled to any preemptive
rights with respect to the purchase of or sale of any securities by the Company.
Except (a) for the Warrant Shares as contemplated herein, (b) for 3,392,000
shares of Common Stock reserved for issuance under the Company's Option Plans,
or (c) as set forth in Schedule 4.2, none of the shares of capital stock of the
Company is reserved for any purpose, and the Company is neither subject to any
obligation (contingent or otherwise), nor has any option, to repurchase or
otherwise acquire or retire any shares of its capital stock. Except as set forth
in Schedule 4.2, all outstanding shares of Common Stock, all outstanding Company
stock options and all outstanding shares of capital stock of each subsidiary of
the Company have been issued and granted in compliance with all applicable
securities laws and other applicable laws, rules and
11
regulations and all material requirements set forth in applicable contracts,
except for such noncompliance that would not, individually or in the aggregate,
have a Material Adverse Effect.
4.3 ISSUANCE OF THE SECURITIES AND WARRANT SHARES. The Notes and the
Warrants have been duly and validly authorized, issued and delivered, free and
clear of any liens or other encumbrances imposed by or through the Company, and
the Warrant Shares when issued in accordance with the terms of the Warrants,
will be duly authorized, validly issued, fully paid and nonassessable, will be
free and clear of any liens or other encumbrances imposed by or through the
Company, and will not be subject to preemptive rights. There are no preemptive
rights of any stockholder of the Company to acquire the Securities. The Company
has duly reserved from its authorized and unissued shares of Common Stock
2,000,000 shares of Common Stock for issuance upon exercise of the Warrants.
4.4 LEGALITY. The Company has the requisite corporate power and
authority to enter into each of the Transaction Documents and to issue and
deliver the Securities.
4.5 DUE EXECUTION. This Agreement and the other Transaction Documents,
and any ancillary documents thereto, have been duly and validly authorized by
all necessary corporate action on the part of the Company, and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement and the other Transaction Documents, and this Agreement and the other
Transaction Documents and any ancillary documents thereto have been duly
executed and delivered by the Company, and such agreements, when executed and
delivered by each of the other parties thereto, will be the legal, valid and
binding agreement and obligation of the Company, enforceable in accordance with
their respective terms, except to the extent that enforcement of such agreement
may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other similar laws now or hereafter in effect relating to creditors'
rights generally, and by general principles of equity.
4.6 NON-CONTRAVENTION. The execution and delivery of the Transaction
Documents, and the performance by the Company of its obligations thereunder,
does not (i) constitute or result in a violation of either the Certificate of
Incorporation or By-laws of the Company, or (ii) constitute a default under (or
an event which with notice or lapse of time or both could become a default) or
give to others any rights of termination, amendment or cancellation of, any
agreement, indenture or instrument to which the Company is a party unless the
same shall have been waived or consented to by the other party, or result in a
violation of any law, rule, regulation, order, judgment or decree (foreign or
domestic and including federal and state securities laws and regulations)
applicable to the Company or by which any property or asset of the Company is
bound or affected other than any of the foregoing matters in this clause (ii)
which would not, individually or in the aggregate, have a Material Adverse
Effect. Except as set forth in Schedule 4.6, neither the filing of the
registration statement required to be filed by the Company pursuant to the
Registration Rights Agreement nor the offering or sale of the Notes, the
Warrants and the Warrant Shares as contemplated by this Agreement gives rise to
any rights, other than those which have been waived or satisfied on or prior to
the date hereof, for or relating to the registration of any shares of the Common
Stock.
4.7 APPROVALS. Other than the filing of a registration statement with
the SEC as contemplated by the Registration Rights Agreement, and the receipt by
the Company of approval
12
from the SEC for such registration statement to be declared effective, no
authorization, approval or consent of any court, governmental body, regulatory
agency, self-regulatory organization, stock exchange or market is required to be
obtained by the Company for the entry into or the performance of the Transaction
Documents.
4.8 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Except as set forth on Schedule 4.8(a), the Company
has filed, and as of the Closing will have filed, all registration statements,
prospectuses, reports, schedules, forms, statements and other documents
(including exhibits and all other information incorporated by reference)
required to be filed by it with the SEC since December 31, 2003, and the Company
has made the same available to ComVest in the form filed with the SEC. All such
registration statements, prospectuses, reports, schedules, forms, statements and
other documents filed since December 31, 2003 (including those that the Company
may file subsequent to the date of this Agreement), as amended, are referred to
herein as the "SEC REPORTS." As of their respective dates, the SEC Reports (i)
were prepared in accordance and complied in all material respects with the
requirements of the Securities Act and the Exchange Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to such SEC Reports,
and (ii) did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except to the extent
corrected prior to the date of this Agreement by a subsequently filed SEC
Report. None of the Company's subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the SEC
Reports (the "FINANCIALS") (i) complied in all material respects as to form with
the published rules and regulations of the SEC with respect thereto, (ii) was
prepared in accordance with U.S. generally accepted accounting principles
("GAAP"), consistently applied, during the periods involved (except as may be
indicated in the notes thereto or, in the case of unaudited interim financial
statements, as may be permitted by the SEC on Form l0-Q, Form 8-K or any
successor form under the Exchange Act), and (iii) fairly presented in all
material respects the consolidated financial position of the Company and its
consolidated subsidiaries as at the respective dates thereof and the
consolidated results of the Company's operations and cash flows for the periods
indicated. The balance sheet of the Company as of September 30, 2004 contained
in the SEC Reports is hereinafter referred to as the "BALANCE SHEET."
(c) Except as disclosed in the Financials, since the date
of the Balance Sheet and through the date of this Agreement, neither the Company
nor any of its subsidiaries has any liabilities or obligations of any nature
(absolute, accrued, contingent or otherwise) required under GAAP to be set forth
on a consolidated balance sheet, except for (i) liabilities incurred since the
date of the Balance Sheet in the ordinary course of business consistent with
past practices which would not, individually or in the aggregate, have a
Material Adverse Effect, (ii) liabilities set forth on Schedule 4.8(c), and
(iii) liabilities incurred pursuant to this Agreement.
(d) The Company has heretofore furnished to ComVest
complete and correct copies of all material amendments and modifications that
have not been filed by the Company
13
with the SEC to all agreements, documents and other instruments that previously
had been filed by the Company with the SEC and are currently in effect.
(e) The Company has made available to ComVest all comment
letters received by the Company from the SEC or the staff thereof since December
31, 2003 and all responses to such comment letters filed by or on behalf of the
Company.
(f) To the Company's knowledge, each director and
executive officer of the Company has filed with the SEC all statements required
by Section 16(a) of the Exchange Act and the rules and regulations thereunder
since December 31, 2003.
(g) The Company has timely filed and made available to
ComVest all certifications and statements required by (i) Rule 13a-14 or Rule
15d-14 under the Exchange Act, or (ii) 18 U.S.C. Section 1350 (Section 906 of
the Xxxxxxxx-Xxxxx Act of 2002) with respect to any SEC Report. Except as
disclosed in the SEC Reports or as set forth in Schedule 4.8(g), the Company
maintains disclosure controls and procedures required by Rule 13a-15 or Rule
15d-15 under the Exchange Act and such controls and procedures are effective to
ensure that all material information concerning the Company and its subsidiaries
is made known on a timely basis to the individuals responsible for the
preparation of the Company's SEC filings and other public disclosure documents.
As used in this Section 4.8, the term "file" shall be broadly construed to
include any manner in which a document or information is furnished, supplied or
otherwise made available to the SEC.
(h) The Company maintains a standard system of accounting
established and administered in accordance with GAAP. Except as set forth in
Schedule 4.8(h), the Company and its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(i) Since December 31, 2003, except as set forth in
Schedule 4.8(i), neither the Company nor any subsidiary nor, to the Company's
knowledge, any director, officer, employee, auditor, accountant or
representative of the Company or any subsidiary, has received or otherwise had
or obtained knowledge of any complaint, allegation, assertion or claim, whether
written or oral, regarding the accounting or auditing practices, procedures,
methodologies or methods of the Company or any subsidiary or their respective
internal accounting controls, including any complaint, allegation, assertion or
claim that the Company or any subsidiary has engaged in questionable accounting
or auditing practices. No attorney representing the Company or any subsidiary,
whether or not employed by the Company or any subsidiary, has reported evidence
of a material violation of securities laws, breach of fiduciary duty or similar
violation by the Company or any of its officers, directors, employees or agents
to the Board of Directors or any committee thereof or to any director or officer
of the Company. Except as set forth in the SEC Reports or in Schedule 4.8(i),
since December 31, 2003, there have been no internal investigations regarding
accounting or revenue recognition discussed with, reviewed by
14
or initiated at the direction of the chief executive officer, chief financial
officer, general counsel, the Board of Directors or any committee thereof.
(j) To the knowledge of the Company, except at set forth
on Schedule 4.8(j), no employee of the Company or any subsidiary has provided or
is providing information to any law enforcement agency regarding the commission
or possible commission of any crime or the violation or possible violation of
any applicable law, rule, regulation or order. Neither the Company nor any
subsidiary nor any officer, employee, contractor, subcontractor or agent of the
Company or any such subsidiary has discharged, demoted, suspended, threatened,
harassed or in any other manner discriminated against an employee of the Company
or any Subsidiary in the terms and conditions of employment because of any act
of such employee described in 18 U.S.C. ss. 1514A(a).
(k) All accounts receivable of the Company and its
subsidiaries reflected on the Balance Sheet or arising thereafter have arisen
from bona fide transactions in the ordinary course of business consistent with
past practices and in accordance with SEC regulations and GAAP applied on a
consistent basis and are not to the knowledge of the Company subject to valid
defenses, set-offs or counterclaims. To the knowledge of the Company, the
Company's reserve for contractual allowances and doubtful accounts is adequate
and has been calculated in a manner consistent with past practices. Since the
date of the Balance Sheet, neither the Company nor any of its subsidiaries has
modified or changed in any material respect its sales practices or methods
including, without limitation, such practices or methods in accordance with
which the Company or any of its subsidiaries sells goods, fills orders or
records sales.
(l) Other than as set forth in Schedule 4.8(1), all
accounts payable of the Company and its subsidiaries reflected on the Balance
Sheet or arising thereafter are the result of bona fide transactions in the
ordinary course of business and have been paid or are not yet due or payable.
Since the date of the Balance Sheet, the Company and its subsidiaries have not
altered in any material respects their practices for the payment of such
accounts payable, including the timing of such payment.
(m) Other than as set forth in Schedule 4.8(m), as of the
date hereof, the Company and its subsidiaries have no Indebtedness except (i)
pursuant to the credit facility with Silicon Valley Bank (which is to be repaid
in full at Closing in accordance with Section 6.8, using proceeds of the Initial
Note Purchase Price), and (ii) accounts payable, trade payables and capital
lease obligations incurred by the Company and its subsidiaries in the ordinary
course of business, consistent with past practices.
4.9 ABSENCE OF CERTAIN CHANGES. Since December 31, 2003, except as set
forth in Schedule 4.9, or as expressly contemplated by this Agreement, or
specifically disclosed in the SEC Reports filed since December 31, 2003 and
prior to the date of this Agreement, (a) the Company and its subsidiaries have
conducted their businesses only in the ordinary course and in a manner
consistent with past practice, (b) there has not been any event, circumstance,
change or effect that, individually or in the aggregate, would have a Material
Adverse Effect, and (c) in furtherance, and not in limitation, of the foregoing,
none of the Company or any subsidiary has, directly or indirectly:
15
(i) amended or otherwise changed its Certificate of
Incorporation or By-laws or equivalent organizational documents;
(ii) issued, sold, pledged, disposed of, granted or
encumbered, or authorized the issuance, sale, pledge, disposition, grant or
encumbrance of, (A) any shares of any class of capital stock of the Company or
any subsidiary, or any options, warrants, convertible securities or other rights
of any kind to acquire any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom interest), of the Company
or any subsidiary, or (B) any assets of the Company or any subsidiary, except in
the ordinary course of business and in a manner consistent with past practice;
(iii) declared, set aside, made or paid any dividend or
other distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock;
(iv) reclassified, combined, split, subdivided or
redeemed, or purchased or otherwise acquired, directly or indirectly, any of its
capital stock;
(v) (A) acquired (including, without limitation, by
merger, consolidation, or acquisition of stock or assets or any other business
combination) any corporation, partnership, other business organization or any
division thereof or any significant amount of assets; (B) incurred any material
Indebtedness or issued any debt securities or assumed, guaranteed or endorsed,
or otherwise become responsible for, the obligations of any person, or made any
loans or advances, or granted any security interest in any of its assets, except
in the ordinary course of business and consistent with past practice; (C)
entered into any material contract or agreement other than in the ordinary
course of business and consistent with past practice; (D) authorized, or made
any commitment with respect to, any single capital expenditure which is in
excess of $100,000 or capital expenditures which are, in the aggregate, in
excess of $200,000 for the Company and its subsidiaries taken as a whole; or (E)
entered into or amended any contract, agreement, commitment or arrangement with
respect to any matter set forth in this clause (v);
(vi) hired any executive officer or individual with an
employment agreement, increased the compensation payable or to become payable or
the benefits provided to its directors, officers or employees, except for
increases in the ordinary course of business and consistent with past practice
in salaries, wages, bonuses, incentives or benefits of employees of the Company
or any subsidiary who are not directors or officers of the Company or any
subsidiary, or granted any severance or termination pay to, or entered into any
employment or severance agreement with, any director, officer or other employee
of the Company or of any subsidiary, or established, adopted, entered into or
amended any collective bargaining, bonus, profit-sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any director, officer or employee;
(vii) taken any action, other than reasonable and usual
actions in the ordinary course of business and consistent with past practice,
with respect to accounting policies or procedures;
16
(viii) made any Tax election or settled or compromised any
United States federal, state, local or non-United States income Tax liability;
(ix) paid, discharged or satisfied any material claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business and consistent with past practice, of liabilities
reflected or reserved against in the Balance Sheet or subsequently incurred in
the ordinary course of business and consistent with past practice;
(x) amended, modified or consented to the termination of
any Material Contract, or amended, waived, modified or consented to the
termination of any material rights of the Company or any subsidiary thereunder,
other than in the ordinary course of business and consistent with past practice;
(xi) commenced or settled any material litigation, suit,
claim, action or proceeding;
(xii) permitted any item of Owned Intellectual Property to
lapse or to be abandoned, dedicated, or disclaimed, failed to perform or make
any material filings, recordings or other similar actions or filings applicable
to the Owned Intellectual Property, or failed to pay all fees and Taxes required
to maintain and protect its interest in each and every item of Owned
Intellectual Property;
(xiii) failed to make in a timely manner any filings with
the SEC required under the Securities Act or the Exchange Act or the rules and
regulations promulgated thereunder; or
(xiv) announced an intention, entered into any formal or
informal agreement or otherwise made a commitment, to do any of the foregoing.
4.10 INSURANCE. The Company and its subsidiaries maintain property and
casualty, general liability, personal injury and other similar types of
insurance that are reasonably adequate and consistent with industry standards
and historical claims experience. Except as set forth in Schedule 4.10, the
Company and its subsidiaries have not received notice from, and have no
knowledge of any threat by, any insurer (that has issued any insurance policy to
the Company or its subsidiaries) that such insurer intends to deny coverage
under or cancel, discontinue or not renew any insurance policy covering the
Company or any of its subsidiaries presently in force.
4.11 COMPLIANCE WITH LAW. Except as set forth in Schedule 4.11, the
Company and its subsidiaries are in compliance in all material respects with all
statutes, laws, rules, regulations and orders of the United States and of all
states, municipalities and applicable agencies and foreign jurisdictions or
bodies which are applicable to the Company, any of its subsidiaries, any of
their assets or properties or any of their businesses or operations, and the
prior failure, if any, by the Company or its subsidiaries to have fully complied
with any such statute, law, rule, regulation or order has not resulted in and
would not, individually or in the aggregate, reasonably be expected to result in
a Material Adverse Effect. Each of the Company and its subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates, approvals and orders
of any governmental or regulatory authority necessary for each of the Company or
its subsidiaries to own, lease and operate its
17
properties or to carry on its business as it is now being conducted, except as
would not, individually or in the aggregate, have a Material Adverse Effect (the
"PERMITS"). As of the date of this Agreement, no suspension or cancellation of
any of the Permits is pending or, to the knowledge of the Company, threatened.
4.12 ABSENCE OF LITIGATION. Except as disclosed in the SEC Reports or
as set forth in Schedule 4.12, there is no action, suit, formal inquiry or
investigation, or proceeding before or by any governmental or regulatory
authority, court, public board or body pending or, to the knowledge of the
Company or any of its subsidiaries, threatened, against or affecting the Company
or any of its subsidiaries, or any of their assets, properties, business or
operations, in which an unfavorable decision, ruling or finding would,
individually or in the aggregate, have a Material Adverse Effect or adversely
affect the transactions contemplated by the Transaction Documents or the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, the Transaction Documents. Except as disclosed in
the SEC Reports or as set forth in Schedule 4.12, neither the Company nor any of
its subsidiaries nor any property, asset, business or operation of the Company
or any of its subsidiaries is subject to any continuing order of, consent
decree, settlement agreement or similar written agreement with, or, to the
knowledge of the Company, continuing investigation by, any governmental or
regulatory authority, or any order, writ, judgment, injunction, decree,
determination or award of any governmental or regulatory authority that would,
individually or in the aggregate, have a Material Adverse Effect.
4.13 PRIVATE OFFERING; TRUST INDENTURE ACT. Subject to the accuracy of
ComVest's representations and warranties set forth in Article 3 hereof, the
offer, sale and issuance of the Securities, as contemplated by this Agreement,
are exempt from the registration requirements of the Securities Act and the
Company is not required to qualify an indenture relating to the Notes under the
Trust Indenture Act of 1939, as amended. Prior to the effectiveness of the
registration statement contemplated by the Registration Rights Agreement, the
Company agrees not to take any action that would render the issuance and sale of
such Securities subject to the registration requirements of the Securities Act.
The Company has not offered or sold the Securities by any form of general
solicitation or general advertising, as such terms are used in Rule 502(c) under
the Securities Act.
4.14 BROKERAGE FEES. The Company and its subsidiaries have not incurred
any liability for any consulting fees or agent's commissions in connection with
the offer and sale of the Securities and the transactions contemplated by this
Agreement, except that the Company shall, at Closing, pay the Financing Fee and
the Commitment Fee, and shall, at the time of the purchase of the Second Note
and any Additional Notes, pay the additional financing fee described in Section
2.3(c).
4.15 INTELLECTUAL PROPERTY.
(a) Schedule 4.15(a) sets forth all material Intellectual
Property owned by the Company and its subsidiaries ("OWNED INTELLECTUAL
PROPERTY"), including the name, if any, and a brief description thereof. Except
as set forth in Schedule 4.15(a), to the knowledge of the Company, either the
Company or one of its subsidiaries holds good, valid and indefeasible title to
all Owned Intellectual Property, free and clear of any liens or encumbrances of
any kind,
18
except for: (i) any lien for current taxes not yet due and payable, and (ii)
liens that have arisen in the ordinary course of business and that do not
(individually or in the aggregate) materially detract from the value of such
assets subject thereto or materially impair the operations of the Company and
its subsidiaries.
(b) Schedule 4.15(b) further sets forth: (i) all material
Intellectual Property licensed by the Company or any of its subsidiaries from
third parties and used in the conduct of the business of the Company and its
subsidiaries ("LICENSED INTELLECTUAL PROPERTY"), including a brief description
thereof; (ii) with respect to any Owned Intellectual Property that is the
subject of any registration or pending application in any jurisdiction
worldwide, the names of the jurisdictions, any registration and/or application
serial numbers, current status, any action, filing, submission, or maintenance
fee due, and the date by which any of the foregoing are due; (iii) a brief
description of all material licenses, sublicenses, and other agreements pursuant
to which the Company (or any of its subsidiaries) or any sublicensee of the
Company (or any of its subsidiaries) has granted to any third party the right to
use any of the Owned Intellectual Property; (iv) all other material consents,
indemnifications, forbearances to xxx, settlement agreements and licensing or
cross-licensing arrangements to which the Company or any of its subsidiaries is
a party relating to the Owned Intellectual Property; and (v) any ongoing royalty
or payment obligations with respect to the Licensed Intellectual Property.
(c) To the knowledge of the Company, the Company and its
subsidiaries have a valid right to use, license, and otherwise exploit all
Licensed Intellectual Property and any rights thereunder will not be affected by
the Company entering into this Agreement and the agreements and transactions
contemplated hereby. Except as set forth in Schedule 4.15(c), neither the
Company nor any of its subsidiaries is under any obligation to pay royalties or
other payments in connection with any license, sublicense, or other agreement,
nor restricted from assigning its rights under any sublicense or agreement
respecting the Licensed Intellectual Property, nor will the Company or any of
its subsidiaries otherwise be, as a result of the execution and delivery of this
Agreement or the performance of its obligations under this Agreement, in breach
of any license, sublicense or other agreement relating to the Licensed
Intellectual Property.
(d) To the knowledge of the Company, each of the
Company's and its subsidiaries' rights in all of the Owned Intellectual Property
are valid, subsisting, and enforceable. None of the Owned Intellectual Property
or any registrations therefor have been canceled or adjudicated invalid or
unenforceable, or are subject to any outstanding order, judgment, or decree
restricting its use or adversely affecting or reflecting the Company's or any of
it subsidiaries' rights thereto. All Owned Intellectual Property that is the
subject of a registration or pending application is valid, subsisting,
unexpired, in proper form and all renewal fees and other maintenance fees that
have fallen due on or prior to the Closing Date have been paid. Either the
Company or its applicable subsidiary has timely made all filings and payments
with the appropriate foreign and domestic intellectual property offices required
to maintain in subsistence all Owned Intellectual Property. No due dates for
filings or payments concerning any Owned Intellectual Property (including,
without limitation, office action responses, affidavits of use, affidavits of
continuing use, renewals, requests for extension of time, maintenance fees,
application fees and foreign convention priority filings) fall due within ninety
(90) days of the Closing Date, whether or not such due dates are extendable. All
documentation
19
necessary to confirm and effect the Company's and its subsidiaries' ownership of
and rights in any Owned Intellectual Property that is the subject of a
registration or pending application acquired by the Company or any of its
subsidiaries from third parties has been filed in the United States Patent and
Trademark Office and the United States Copyright Office, and all other relevant
intellectual property offices and agencies in other jurisdictions. Except as set
forth in Schedule 4.15(d), no Owned Intellectual Property is the subject of any
legal or governmental proceeding before any governmental, registration or other
authority in any jurisdiction, including any office action or other form of
preliminary or final refusal of registration.
(e) The consummation of the transactions contemplated
hereby will not materially alter or impair any Owned Intellectual Property. To
the knowledge of the Company, no Owned Intellectual Property has been used,
divulged, disclosed or appropriated to the detriment of the Company or any of
its subsidiaries for the benefit of any third party; and, to the knowledge of
the Company, no employee or agent of the Company or any of its subsidiaries has
misappropriated any material trade secrets or other material confidential
information of any third party in the course of the performance of his or her
duties as an employee of the Company or any of its subsidiaries. To the
knowledge of the Company and except as set forth in Schedule 4.15(e): (i) none
of the Owned Intellectual Property infringes, misappropriates, or conflicts with
any Intellectual Property owned or used by any other third party; (ii) none of
the products that are or have been designed, created, developed, assembled,
manufactured or sold by the Company or any of its subsidiaries is infringing,
misappropriating, or making any unlawful or unauthorized use of any Intellectual
Property owned or used by any other third party, and the Company and its
subsidiaries have all rights and licenses reasonably necessary in order to make,
have made, use or sell such products; (iii) no third party is infringing,
misappropriating or making any unlawful or unauthorized use of, and no
Intellectual Property owned or used by any other third party infringes or
conflicts with, any Owned Intellectual Property; and (iv) except as set forth in
Schedule 4.15, there is no claim, suit, action or proceeding pending or
threatened or asserted against the Company or any of its subsidiaries: (A)
alleging any conflict or infringement by the Company or any of its subsidiaries
of any third party's intellectual property or proprietary rights; or (B)
challenging the Company's or any of its subsidiaries' ownership or use of, or
the validity or enforceability of, any of the Owned Intellectual Property or the
Licensed Intellectual Property.
4.16 LABOR RELATIONS. Except as set forth on Schedule 4.16, there are
no complaints, charges or claims against the Company or any of its subsidiaries
pending or filed with any governmental authority, arbitrator or court based on,
arising out of, in connection with, or otherwise relating to the employment or
termination of employment of any individual by the Company or any of its
subsidiaries, which, if adversely determined, would, individually or in the
aggregate, have a Material Adverse Effect, and neither the Company nor any of
its subsidiaries has received any notice of such complaint, charge or claim.
Neither the Company nor any of its Affiliates has any liability for any failure
to comply with applicable legal requirements with respect to employment,
employment practices, terms and conditions of employment, wages and hours, tax
withholding, payment of wages and compensation, Company-owed employment taxes,
and/or classification of employees and independent contractors, except as would
not, individually or in the aggregate, have a Material Adverse Effect.
4.17 BENEFIT PLANS AND AGREEMENTS. Except as would not, individually or
in the aggregate, have a Material Adverse Effect:
20
(a) The Company and all Affiliates have substantially
performed all obligations required to be performed by them under, are not in
default or violation of, and have no knowledge of any default or violation by
any other party to, the terms of any Employee Plan, and each Employee Plan has
been established and maintained substantially in accordance with its terms and
in substantial compliance with all applicable legal requirements, including,
without limitation, ERISA and the Code.
(b) The Company has no liabilities under its Employee
Plans, other than (i) routine claims for benefits, (ii) funding obligations
pursuant to the terms of such Employee Plans, and (iii) taxes due in the normal
course that may be paid prior to their due date.
(c) The Company does not maintain, administer or
contribute to, has never maintained, administered or contributed to, and has no
liability under any employee benefit plan (i) that is subject to Title IV of
ERISA; (ii) that is a "multiemployer plan" as defined in Section 3(37) of ERISA;
or (iii) that is not subject to United States law or that covers or has covered
employees of the Company or of an Affiliate whose services are performed
primarily outside of the United States.
(d) Except as set forth on Schedule 4.17, with respect to
any Employee Plan, as of the Closing Date, there will have been no prohibited
transactions (as defined in Section 4975(c) of the Code and Section 406 of
ERISA) that could result in the imposition of a liability against the Company or
reportable events (as defined in Section 4043(b) of ERISA and regulations
thereunder).
(e) The Company has no liability with respect to any
Employee Plan that is maintained or contributed to by an Affiliate.
(f) No Employee Plan provides (except at no cost to the
Company or any Affiliate), or represents any liability of the Company or any
Affiliate to provide, retiree life insurance, retiree health or other retiree
employee welfare benefits to any person for any reason, except as may be
required by Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
or other applicable legal requirements.
4.18 ENVIRONMENTAL, HEALTH AND SAFETY MATTERS. Except as described in
Schedule 4.18 or as would not, individually or in the aggregate, have a Material
Adverse Effect (a) none of the Company nor any of its subsidiaries has violated
or is in violation of any Environmental Law; (b) none of the properties
currently or formerly leased or operated by the Company or any of its
subsidiaries (including, without limitation, soils and surface and ground
waters) are contaminated with any Hazardous Substance resulting from any act or
omission of the Company or any of its subsidiaries and none of the properties
formerly owned by the Company or any of its subsidiaries (including, without
limitation, soils and surface and ground waters) were, during the time of the
Company's or such subsidiaries' ownership thereof, contaminated with any
Hazardous Substance; (c) none of the Company or any of its subsidiaries is
actually, potentially or allegedly liable for any off-site contamination by
Hazardous Substances; (d) none of the Company or any of its subsidiaries is
actually, potentially or allegedly liable under any Environmental Law
(including, without limitation, pending or threatened liens); (e) each of the
Company and each of its subsidiaries has all permits, licenses and other
authorizations required
21
under any Environmental Law ("ENVIRONMENTAL PERMITS") and (1) each of the
Company and each of its subsidiaries is in compliance with its Environmental
Permits.
4.19 FDA AND REGULATORY MATTERS; CLINICAL TRIALS.
(a) Except as set forth in Schedule 4.19(a) or as would
not, individually or in the aggregate, have a Material Adverse Effect, the
Company and each of its subsidiaries is in compliance with all applicable laws,
regulations, rules, and policies of or administered by, as the case may be, the
United States Department of Health and Human Services ("HHS") and each of its
constituent agencies, including, but not limited to, the Food and Drug
Administration ("FDA"), the Centers for Medicare & Medicaid Services ("CMS"),
and the Office of Inspector General ("OIG"), and with all laws, regulations,
rules, and policies of or administered by their respective foreign counterparts,
and state and local governments. For purposes of applying this section, any
responsibility of the Company or any of its subsidiaries under any of the
aforementioned laws, rules, regulations or policies that has been transferred by
the Company or such subsidiary through contract to another person or entity,
shall for purposes of ascertaining compliance with this section, be deemed to be
the responsibility of the Company notwithstanding any contract to the contrary.
(b) Except as set forth in Schedule 4.19(b) or as would
not, individually or in the aggregate, have a Material Adverse Effect, the
Company and each of its subsidiaries has obtained all necessary and applicable
approvals, clearances, authorizations, licenses and registrations required by
United States or foreign governments or government agencies to permit the
design, development, pre-clinical and clinical testing, manufacture, labeling,
sale, distribution and promotion of the Company's products (the "COMPANY
PRODUCTS") in jurisdictions where it and they currently conduct such activities
(the "ACTIVITIES TO DATE") with respect to each Company Product (collectively,
the "APPROVALS"). The Company and each of its subsidiaries is in compliance in
all material respects with the terms and conditions of each of the Approvals and
has no reason to believe that any governmental entity will seek to revoke or
otherwise cancel or amend the Approvals.
(c) The Company and each of its subsidiaries is in
compliance with all FDA and non-United States equivalent agencies and similar
state and local laws, rules or regulations applicable to the maintenance,
compilation and filing of reports, including medical device reports, with regard
to the Company Products, except for such noncompliance as would not,
individually or in the aggregate, have a Material Adverse Effect. Schedule
4.19(c) sets forth a list of all applicable adverse event reports related to the
Company Product, including any Medical Device Reports (as defined in 21 CFR part
803). Set forth on Schedule 4.19(c) are complaint review and analysis reports of
the Company and its subsidiaries in connection with the their business through
the date hereof, including information regarding complaints, categorized by
product and root cause analysis of closed complaints, which reports are correct
in all material respects.
(d) Except as set forth in Schedule 4.19(d), none of the
Company nor any of its subsidiaries has received any written notice or other
written communication from the FDA or any other governmental entity and has no
reason to believe that it will receive such notice for any act or omission
antedating this Agreement: (i) contesting the pre-market clearance or approval
22
of, the uses of or the labeling and promotion of any of the Company Products; or
(ii) otherwise alleging any violation of any laws, rules or regulations by the
Company, any such subsidiary or any of their employees or contractors.
(e) There have been no recalls, field notifications or
seizures ordered or adverse regulatory actions taken (or, to the knowledge of
the Company, threatened), including but not limited to FDA Form 483 and FDA
Warning Letters, or any other governmental entity with respect to any of the
Company Products, including any facilities where any such products are produced,
processed, packaged or stored, and neither the Company nor any of its
subsidiaries has, within the last three (3) years, either voluntarily or at the
request of any governmental entity, initiated or participated in a recall or
field upgrade of any such product, except as noted in Schedule 4.19(e).
(f) The Company has conducted all of its clinical trials
with respect to the Company Products with reasonable care and in accordance with
all applicable laws, rules, regulations and policies, and the stated protocols
for such clinical trials.
(g) All filings with and submissions to the HHS, FDA,
CMS, OIG and any similar regulatory entity in any other jurisdiction made by the
Company or any of its subsidiaries with regard to the Company Products, whether
oral, written or electronically delivered, were true, accurate and complete in
all material respects as of the date made, and, to the extent required to be
updated, have been updated to be true, accurate and complete in all material
respects as of the date of such update, and to the knowledge of the Company such
filings, submissions and updates comply with all regulations of the HHS, FDA,
CMS, OIG or such similar regulatory entity regarding material misstatements and
omissions to state material facts.
4.20 LIST OF MATERIAL CONTRACTS AND OTHER DATA. Set forth on Schedule
4.20 is a complete list of the following contracts and agreements to which the
Company or any of its subsidiaries is a party or by which its or their assets or
business or operations may be bound or affected (collectively, the "MATERIAL
CONTRACTS"): (i) all material contracts, as defined by Item 601 of Regulation
S-K, (ii) all material distribution and supply agreements and (iii) all other
contracts, agreements or arrangements which are material to the Company and its
subsidiaries, taken as a whole, or to the business or operations of the Company
and its subsidiaries, or the absence of which would, individually or in the
aggregate, have a Material Adverse Effect, and, in each case, which are not
directed sales agreements. Each of the Material Contracts is legal, valid and
binding and in full force and effect, and none of the Company, any of its
subsidiaries nor, to the knowledge of the Company, any other party to such
Material Contract is in violation of or in default in the performance,
observance or fulfillment of any material obligation, agreement, covenant or
condition contained therein, except as would not, individually in the aggregate,
have a Material Adverse Effect. Except as set forth in Schedule 4.20, the
Company has not received any notice from any party to any Material Contract (i)
stating that such party intends not to perform, observe or fulfill any of its
obligations, agreements, covenants or conditions under such Material Contract,
or (ii) claiming that the Company or any of its subsidiaries is in violation or
breach of, or default under, any Material Contract. Except as would not,
individually or in the aggregate, have a Material Adverse Effect, neither the
execution of the Transaction Documents nor the consummation of any transaction
contemplated thereby shall constitute a default under, give rise to cancellation
rights under, or otherwise adversely affect any of the rights of the
23
Company or any of its subsidiaries under any Material Contract. The Company has
furnished or made available to ComVest true and complete copies of all Material
Contracts, including any and all amendments thereto.
4.21 TAX MATTERS. Except as set forth in Schedule 4.21 or as would not,
individually or in the aggregate, have a Material Adverse Effect:
(a) The Company has prepared and timely filed or made a
timely request for extension for all required federal, state, local and foreign
returns, estimates, information statements and reports (collectively, the
"RETURNS") relating to any and all Taxes concerning or attributable to the
Company, its subsidiaries or its or their operations required to be filed by the
Company or any of its subsidiaries for the period prior to the date hereof, and
such Returns are true and correct in all material respects and have been
completed in accordance with applicable laws, rules and regulations.
(b) The Company (i) has paid or accrued all Taxes it is
required to pay or accrue, and (ii) will have withheld and timely remitted with
respect to its employees all federal and state income taxes, FICA, FUTA, and
other Taxes required to be withheld and remitted.
(c) Neither the Company nor any of its subsidiaries has
been delinquent in payment of any Tax, nor is there any Tax deficiency
outstanding, assessed or, to the Company's knowledge, proposed against the
Company or any of its subsidiaries in writing; nor has the Company or any of its
subsidiaries executed any waiver of any statute of limitations on or extending
the period for the assessment or collection of any Tax.
(d) No audit or other examination of any Returns of the
Company or any of its subsidiaries is presently in progress; nor has the Company
or any of its subsidiaries been notified in writing of any request for such an
audit or other examination.
(e) None of the Company or any of its subsidiaries has
any liabilities for any unpaid federal, state, local or foreign Taxes which have
not been accrued or reserved against on the Company's balance sheets, whether
asserted or unasserted, contingent or otherwise.
(f) There are no liens, pledges, charges, claims,
security interests or other encumbrances of any sort on the assets of the
Company or any of its subsidiaries relating to or attributable to Taxes other
than liens for taxes and assessments which are not yet due and payable or which
are being actively contested in good faith with the appropriate taxing
authority.
(g) The Company has no knowledge of any reasonable basis
for the assertion of any claim relating or attributable to Taxes, which, if
adversely determined, would result in any lien, pledge, charge, claim, security
interest or other encumbrances on any assets of the Company or any of its
subsidiaries.
(h) None of the Company's or any of its subsidiaries'
assets are treated as "tax-exempt use property" within the meaning of Section
168 of the Code.
(i) None of the Company or any of its subsidiaries has
filed a consent agreement under Section 341(f) of the Code concerning
collapsible corporations or agreed to
24
have Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
asset (as defined in Section 341(f)(4) of the Code) owned by the Company or any
of its subsidiaries.
(j) None of the Company or any of its subsidiaries is a
party to a tax sharing or allocation agreement; nor does the Company or any of
its subsidiaries owe any amount under any such agreement.
(k) Within the past five calendar years, neither the
Company nor any subsidiary of the Company has distributed stock of a controlled
corporation pursuant to Section 355 of the Code nor had its stock distributed by
another corporation pursuant to Section 355 of the Code.
(l) None of the Company or any of its subsidiaries has
liability for the Taxes of any person under Treasury Regulation Section 1.1502-6
(or any similar provision of state, local or foreign law), as transferee or
successor, by contract, or otherwise.
4.22 REAL PROPERTY; TITLE TO ASSETS.
(a) None of the Company or any of its subsidiaries owns,
or has in the past ten (10) years owned, any real property.
(b) Schedule 4.22(b) lists each parcel of real property
currently leased or subleased by the Company or any of its subsidiaries, with
the name of the lessor and the date of the lease, sublease, assignment of the
lease, any guaranty given or leasing commissions payable by the Company or any
Subsidiary in connection therewith and each amendment to any of the foregoing
(collectively, the "LEASE DOCUMENTS"). True, correct and complete copies of all
Lease Documents have been delivered to ComVest. Except as would not,
individually or in the aggregate, have a Material Adverse Effect, all such
current leases and subleases are in full force and effect and are valid and
effective in accordance with their respective terms, and there is not, under any
of such leases, any existing default or event of default (or event which, with
notice or lapse of time, or both, would constitute a default) by the Company or
any of its subsidiaries or, to the Company's knowledge, by the other party to
such lease or sublease, or person in the chain of title to such leased premises.
(c) There are no contractual or legal restrictions that
preclude or restrict the ability to use any real property owned or leased by the
Company or any of its subsidiaries for the purposes for which it is currently
being used. There are no material latent defects or material adverse physical
conditions affecting the real property, and improvements thereon, owned or
leased by the Company or any of its subsidiaries other than those that would
not, individually or in the aggregate, have a Material Adverse Effect.
(d) Except as set forth in Schedule 4.22(d) or as would
not, individually or in the aggregate, have a Material Adverse Effect, each of
the Company and its subsidiaries has good and valid title to, or, in the case of
leased properties and assets, valid leasehold or subleasehold interests in, all
of its properties and assets, tangible and intangible, real, personal and mixed,
used or held for use in its business, free and clear of any liens or other
encumbrances, except for such imperfections of title, if any, that do not
interfere with the present value of the subject property.
25
4.23 RIGHTS AGREEMENT EXPIRED. The Rights Agreement has expired by its
terms, there are no longer any Rights issued or exercisable under the Rights
Agreement, and none of the execution or delivery of this Agreement or the other
Transaction Documents or the exercise of the Warrant to acquire the Warrant
Shares or the consummation of any other transaction contemplated by the
Transaction Documents will result in (i) the occurrence of the "flip-in event"
described under Section 11 of the Rights Agreement, (ii) the occurrence of the
"flip-over event" described in Section 13 of the Rights Agreement, or (iii) the
Rights under the Rights Agreement becoming evidenced by, and transferable
pursuant to, certificates separate from the certificates representing shares of
Common Stock.
4.24 COMPANY PRODUCTS. Except as disclosed in the SEC Reports or as set
forth in Schedule 4.24 and as would not, individually or in the aggregate, have
a Material Adverse Effect, each product manufactured, sold, leased or delivered
by the Company or any of its subsidiaries has been in conformity with all
applicable contractual commitments and all express and implied warranties, and
to the Company's knowledge, neither the Company nor any of its subsidiaries has
any claims outstanding for the replacement or repair of such products or other
damages in connection therewith. Except as set forth in the SEC Reports filed
prior to the date of this Agreement or as would not, individually or in the
aggregate, have a Material Adverse Effect, neither the Company nor any of its
subsidiaries has any liabilities or obligations arising out of any injury to
persons or property as a result of the ownership, possession or use of any
product manufactured, sold, leased or delivered by the Company or any of its
subsidiaries.
4.25 CERTAIN BUSINESS PRACTICES. None of the Company, any of its
subsidiaries or, to the Company's knowledge, any directors or officers, agents
or employees of the Company or any of its subsidiaries, has (i) used any funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to political activity; (ii) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political
parties or campaigns or violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended; or (iii) made any payment in the nature of criminal
bribery.
4.26 INTERESTED PARTY TRANSACTIONS. Except as set forth in Schedule
4.26, no director, officer or other Affiliate of the Company or any of its
subsidiaries has or has had, directly or indirectly, (i) an economic interest in
any person that has furnished or sold, or furnishes or sells, services or
products that the Company or any of its subsidiaries furnishes or sells, or
proposes to furnish or sell; (ii) an economic interest in any person that
purchases from or sells or furnishes to, the Company or any of its subsidiaries,
any goods or services; (iii) a beneficial interest in any contract or agreement
disclosed in the Disclosure Schedules; or (iv) any contractual or other
arrangement with the Company or any of its subsidiaries; provided, however, that
ownership of no more than one percent (1%) of the outstanding voting stock of a
publicly traded corporation shall not be deemed an "economic interest in any
person" for purposes of this Section 4.26. The Company and its subsidiaries have
not, since December 31, 2003, (i) extended or maintained credit, arranged for
the extension of credit or renewed an extension of credit in the form of a
personal loan to or for any director or executive officer (or equivalent
thereof) of the Company, or (ii) materially modified any term of any such
extension or maintenance of credit.
26
ARTICLE 5
COVENANTS AND ACKNOWLEDGMENTS
5.1 TRANSFER RESTRICTIONS.
(a) ComVest acknowledges and agrees that until thirty
(30) days after the expiration of the Post-Closing Commitment, it may not assign
or transfer any Note or any rights or obligations thereunder. After such date,
the Notes may only be transferred in amounts of at least $1,000,000 and upon
fifteen (15) days prior written notice to the Company. Neither the Notes nor any
interest or participation therein may be assigned or transferred to Hologic,
Inc., General Electric Medical Systems, Philips Medical Systems, Ethicon
Endo-Surgery, Inc. or Siemens Medical Solutions; to any other business or entity
which directly or indirectly engages in the business of developing, designing,
manufacturing, supplying and/or distributing diagnostic medical imaging products
competitive with any of the Company's then current product lines; to Xxxxxx
Xxxxxx or any business or entity in which he is employed or is otherwise
involved or has a greater than 5% ownership interest; or to any Affiliate of any
of the foregoing. Notwithstanding the foregoing, ComVest shall be entitled to
transfer all or any portion of the Notes to its Affiliates or to make a
distribution of all or any portion of the Notes to its members.
(b) ComVest acknowledges and agrees that, except as
provided in the Registration Rights Agreement, (i) none of the Securities has
been, or is being, registered under the Securities Act, and such Securities may
not be transferred unless (A) subsequently registered thereunder, or (B) they
are transferred pursuant to an exemption from such registration; and (ii) any
sale of the Securities made in reliance upon Rule 144 under the Securities Act
may be made only in accordance with the terms of said Rule, accompanied by a
legal opinion obtained by ComVest which is reasonably satisfactory to the
Company's legal counsel. Notwithstanding the foregoing or anything else
contained herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement. The
provisions of Sections 5.1 and 5.2 hereof, together with the rights and
obligations of ComVest under the Transaction Documents, shall be binding upon
any subsequent transferees of the Securities.
5.2 RESTRICTIVE LEGEND. ComVest acknowledges and agrees that, until
such time as the Securities shall have been registered under the Securities Act
or ComVest demonstrates to the reasonable satisfaction of the Company and its
legal counsel that such registration shall no longer be required, the Notes and
certificates evidencing the Securities shall bear 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
"ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
THE ACT OR AN OPINION OF COUNSEL (IN FORM AND FROM COUNSEL) OR
OTHER EVIDENCE REASONABLY
27
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION SHALL NO
LONGER BE REQUIRED.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the Securities Act or otherwise may be sold pursuant to Rule 144
without any restriction as to the number of securities as of a particular date
that can then be immediately sold, or (b) such holder provides the Company with
an opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Security may be made without registration under the Securities Act and
such sale or transfer is effected. ComVest agrees to sell all Securities,
including those represented by a certificate(s) from which the legend has been
removed, in compliance with applicable prospectus delivery requirements, if any.
5.3 DISCLOSURE OF TRANSACTION. The Company shall issue a press release
describing the material terms of the transactions contemplated hereby as soon as
practicable after the Closing but in no event later than one (1) business day
after Closing. The Company shall also file with the SEC a Current Report on Form
8-K describing the material terms of the transactions contemplated hereby (and
attaching as exhibits thereto this Agreement, the Registration Rights Agreement,
the Initial Note, the Warrant and the Security Agreement) as soon as practicable
following the date of execution of this Agreement but in no event more than four
(4) business days following the date of execution of this Agreement. The Company
will provide ComVest and its counsel sufficient opportunity to review and
provide comments to such press release and Form 8-K.
5.4 LOCK-UP OF EXECUTIVE OFFICER AND DIRECTOR SHARES. The Company will
use its best efforts to cause Xxxxxx Ravine and Xxxxx Xxxxxx and each of its
directors to enter into the Lock-Up Agreement substantially in the form of
Exhibit E.
5.5 SALES OF COMPANY SECURITIES. ComVest agrees that for the shorter of
(i) a period of three (3) years after Closing or (ii) until the Post-Closing
Commitment is no longer outstanding, the Warrant has been exercised in full and
all of the Warrant Shares have been sold, it will not, and will cause its
Affiliates not to, sell short, sell short against the box, engage in other
similar derivative transactions or otherwise effect any sales of securities of
the Company except for sales which are covered through the delivery of the
Warrant Shares.
5.6 REPORTING STATUS. The Company's Common Stock is registered under
Section 12(g) of the Exchange Act. So long as ComVest beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
with the SEC pursuant to the Exchange Act, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination.
5.7 USE OF PROCEEDS. The Company will use the net proceeds from the
sale of the Initial Note (a) first, to pay in full all outstanding obligations
of the Company to Silicon Valley Bank, in accordance with the payoff and release
letter contemplated by Section 6.8, and (b)
28
second, for working capital needs, and will use the proceeds from the sale of
the Second Note and any Additional Notes for general corporate purposes;
provided, however, that without the prior written consent of ComVest, no
proceeds of the Notes shall be used or applied to the payment of any judgment in
or settlement of any litigation, arbitration or other proceeding or legal
dispute relating to the Company.
5.8 REGISTRATION RIGHTS. The Company acknowledges that with respect to
the Warrant Shares, it has provided ComVest with certain registration rights
under the Securities Act as set forth in the Registration Rights Agreement.
5.9 RESERVATION OF COMMON STOCK ISSUABLE UPON EXERCISE OF WARRANTS. The
Company hereby agrees at all times to reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
providing for the full exercise of the Warrants, such number of shares of Common
Stock as shall from time to time equal the number of shares sufficient to permit
the full exercise of the Warrants.
5.10 COVENANT AS TO COMMON STOCK. The Company covenants that all shares
of Common Stock which may be issued upon exercise of the Warrants will, upon
issuance pursuant to the terms of the Warrants, be duly authorized, validly
issued, fully paid and nonassessable.
5.11 AFFIRMATIVE COVENANTS. For so long as any of the Notes or the
Post-Closing Commitment is outstanding, the Company shall, and shall cause each
of its subsidiaries to:
(a) Do or cause to be done all things necessary to at all
times (i) preserve, renew and keep in full force and effect its corporate or
other legal existence and all material rights, permits and franchises, (ii)
comply with its covenants and agreements in this Agreement and the other
Transaction Documents, (iii) maintain, preserve and protect all of its material
property (including all Owned Intellectual Property) used or useful in the
conduct of its business and keep same in good repair, working order and
condition (reasonable wear and tear excepted), and from time to time make or
cause to be made all needed and proper repairs, renewals, replacements,
betterments and improvements thereto, (iv) maintain insurance of such types, in
such amounts and against such hazards as is legally required and/or as is
reasonable, prudent and customary for businesses of similar size and scope and
similarly situated, and with respect to all such insurance (other than workers'
compensation insurance), name ComVest as loss payee and/or additional insured as
its interests appear, and provide for ComVest to receive written notice thereof
at least thirty (30) days prior to any cancellation, modification or non-renewal
of the subject policy, and (v) comply in all material respects with all laws,
rules, regulations and other legal requirements applicable to its business
operations, whether now in effect or hereafter enacted, promulgated or issued;
(b) File, pay and discharge, or cause to be filed, paid
and discharged, all material taxes, assessments and governmental charges or
levies imposed upon it or its income and profits or any of its property or any
part thereof, before the same shall become in default, as well as all material
lawful claims for labor, materials, supplies and otherwise, which, if unpaid
when due, might become a lien or charge upon such property or any part thereof;
provided, that the Company and its subsidiaries shall not be required to pay or
discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof is being contested in good faith
29
by appropriate proceedings and adequate reserves have been set aside on its
books with respect thereto, and payment with respect to such tax, assessment,
charge, levy or claim shall be made before any of the Company's or any of its
subsidiaries' property is seized or sold in satisfaction thereof;
(c) Give prompt written notice to ComVest of (i) any
proceedings instituted against the Company or any of its subsidiaries in any
federal or state court or before any commission or other regulatory body
(whether federal, state or local) which, if adversely determined, would,
individually or in the aggregate, have a Material Adverse Effect, and (ii) the
occurrence of any Default or Event of Default, and the action taken or proposed
to be taken with respect thereto;
(d) Furnish to ComVest: (i) promptly after filing with
the SEC, all annual, quarterly and other periodic reports, and all current
reports, relating to the Company, with all financial information contained
therein to be prepared and presented in compliance with all applicable rules and
regulations; (ii) concurrently with the delivery of each annual report described
in the foregoing clause (i), a certificate from the independent certified public
accountants for the Company, in form and content reasonably satisfactory to
ComVest, certifying that, in connection with their audit, which was performed to
express an opinion on such financial statements, such accountants either do not
have knowledge of the existence of any Event of Default under Sections 5.11(i)
and 5.12(1) or, to their knowledge, the extent of such Event of Default; (iii)
promptly after distribution to the Company's stockholders, copies of all proxy
materials, reports and other information provided by the Company to its
stockholders; (iv) within fifteen (15) days of the end of each calendar month, a
certificate signed on behalf of the Company by its Chief Financial Officer,
certifying that he has examined the provisions of this Agreement and the Notes,
and that to his knowledge, no Default or Event of Default has occurred or is
continuing; (v) promptly after receipt from the FDA, a copy of any Form 483
received by the Company in connection with the FDA audit; and (vi) promptly,
from time to time, such other non-confidential information regarding the Company
and/or its subsidiaries as ComVest may reasonably request;
(e) Maintain centralized books and records regarding all
of the Company's business operations at the Company's principal place of
business, and permit agents or representatives of ComVest to inspect, at any
time during normal business hours, upon reasonable notice, and without undue
disruption of the Company's business, all of the Company's and its subsidiaries'
various books and records, and to make copies, extracts, abstracts and/or
reproductions thereof;
(f) Maintain a standard system of accounting in order to
permit the preparation of financial statements in accordance with GAAP,
consistently applied;
(g) In the event of any discharge, spill, injection,
escape, emission, disposal, leak or other release of Hazardous Substances on any
real property owned or leased by the Company or any of its subsidiaries, which
is not authorized by an Environmental Permit, and which requires notification to
or the filing of any report with any federal, state or local governmental
agency, the Company shall promptly notify ComVest thereof, and shall comply with
the notice requirements of any applicable governmental agency, and take all
steps necessary
30
to promptly clean up such discharge, spill, injection, escape, emission,
disposal, leak or other release in accordance with all applicable Environmental
Law;
(h) Cause Xxxxxx Ravine and Xxxxx Xxxxxx to continue to
be employed or to function as the senior executive officers of the Company,
unless a successor to any of them is appointed within ninety (90) days of the
termination of such individual's employment, each such successor to be
reasonably satisfactory to ComVest; and
(i) Achieve EBITDA of not less than the amount set forth
below for each period indicated:
Quarter Ending Minimum EBITDA
-------------- --------------
March 31, 2005 $(2,000,000)
June 30, 2005 $(1,000,000)
September 30, 2005 $750,000
December 31, 2005 $750,000
March 31, 2006, and $1,000,000
each quarter thereafter
5.12 NEGATIVE COVENANTS. For so long as any of the Notes or the
Post-Closing Commitment is outstanding, the Company hereby agrees that it will
not (and that no subsidiary of the Company will), without the prior written
consent of ComVest (which consent shall not be unreasonably withheld):
(a) Materially change the nature of the Company's business;
(b) Sell, assign, transfer, lease or otherwise convey all
or any substantial portion of the assets of the Company outside of the ordinary
course of business, or enter into any agreement of consolidation or merger or
agree to any share exchange;
(c) Incur any Indebtedness (exclusive of Indebtedness
under the Notes) in excess of $1,000,000 in the aggregate at any time
outstanding, or become a guarantor or otherwise liable (contingently or
otherwise) for any Indebtedness (other than endorsements of negotiable
instruments for collection in the ordinary course of business), except for (i)
Indebtedness incurred to prepay the Notes in full (provided that, in conjunction
with such prepayment, the Company shall affirmatively release ComVest from all
further funding obligations in respect of the Post-Closing Commitment), and (ii)
current liabilities incurred in the ordinary course of business consistent with
past practices; or permit to exist any lien or other encumbrance on any of its
assets or properties except as may be permitted pursuant to the Security
Agreement;
(d) Become subject to (including, without limitation, by
way of amendment to or modification of), any agreement or instrument, which by
its terms would conflict with or materially restrict the Company's right to
perform the provisions of this Agreement or any other Transaction Document;
31
(e) Redeem or repurchase any securities of the Company
(other than the Notes) or set aside any funds therefor;
(f) Declare or pay any dividends or other distributions
on the capital stock of the Company, or set aside any funds therefor;
(g) Increase or agree to increase the compensation
payable or to become payable to Xxxxxx Ravine or Xxxxx Xxxxxx other than
reasonable increases consistent with past practices;
(h) Enter into any non-ordinary course agreement,
directly or indirectly, with officers, employees, stockholders, directors or
Affiliates of the Company, other than employment agreements, compensation
arrangements, stock options or other service-related transactions that are
approved or ratified by a majority of the disinterested members of the Board of
Directors;
(i) Make any investments in, or otherwise acquire or hold
securities of, or make loans or advances to, or enter into any arrangement for
the purpose of providing funds or credit to, any other person, except (i)
existing investments in the Company's subsidiaries, and loans by the Company to
existing subsidiaries, up to a maximum aggregate principal amount of $7,730,000
at any time outstanding, (ii) advances to employees of the Company or its
subsidiaries for business expenses not to exceed at any time $25,000 in the
aggregate, (iii) recoverable draws not to exceed $100,000 in the aggregate to
sales representatives employed by the Company against commissions to be payable
to such representatives on sales completed but not yet collected, and (iv)
temporary short-term investments in obligations of the United States or
certificates of deposit of commercial banks reasonably satisfactory to ComVest,
having a maturity not more than one (1) year after the date of acquisition
thereof;
(j) Initiate the voluntary dissolution or winding up or
reorganization of the Company;
(k) Agree, consent, permit or otherwise undertake to
amend any of the terms or provisions of the Company's or any of its
subsidiaries' certificate of incorporation, by-laws or other organizational
documents in a manner which may impair in any respect any of ComVest's rights
under any of the Transaction Documents;
(l) Make aggregate Capital Expenditures (whether through
cash purchase, principal payments under capitalized leases or purchase money
financing, or otherwise) in any fiscal year of the Company in excess of
$1,250,000 in the aggregate for the Company and all of its subsidiaries; or
(m) Change its fiscal year.
5.13 BOARD OF DIRECTORS. Until such time as (i) the Notes shall have
been paid off in full and (ii) either (A) all of the Warrant Shares shall have
been registered for resale by ComVest pursuant to either Section 2 or Section 3
of the Registration Rights Agreement and shall be freely sellable by ComVest or
(B) the Registration Rights Agreement shall have been terminated pursuant to
clause (b) of Section 13 thereof):
32
(a) The Board of Directors shall consist of not more than
six (6) members (subject to the last sentence of this paragraph (a)) and ComVest
shall have the right to nominate one (1) individual for election to the Board of
Directors (the "COMVEST DIRECTOR"). The ComVest Director shall be entitled to
participate in all compensation plans available to non-management directors and
shall be covered by any director insurance provided by the Company to the other
directors. The Company will cause the Class II slate of Directors presented to
the stockholders of the Company for election to the Board of Directors to
include the ComVest Director, and the Company shall recommend that the
stockholders of the Company vote their shares in favor of the election of the
ComVest Director. If the stockholders of the Company shall fail to elect the
named ComVest Director to the Board of Directors, then the Board of Directors
shall (i) fill such vacancy with another individual nominated by ComVest or (ii)
if there is no vacancy, immediately increase the number of Directors of the
Company by one (1) and appoint such other ComVest nominee to the Board of
Directors.
(b) In addition, ComVest shall have the right to appoint
one (1) individual as a nonvoting and nonparticipating observer representative
(the "COMVEST OBSERVER") at all meetings of the Board of Directors and
committees thereto. The Company shall provide the ComVest Observer, concurrently
with the members of the Board of Directors, and in the same manner, copies of
all notices, minutes, consents, materials and other information provided to or
to which the Company's directors have access; provided however, that the ComVest
Observer shall agree to hold in confidence any non-public confidential
information so provided; and provided further, that the Company shall have the
right to request that the ComVest Observer not participate in any portion of any
Board of Directors meeting in which the Board of Directors determines that (a)
the ComVest Observer's presence would threaten the Company's ability to claim
attorney-client privilege with respect to the matters being discussed, (b) the
subject matter to be discussed by the Board of Directors involves an actual
conflict of interest between the Company and the ComVest Observer, as reasonably
determined in good faith by the Board of Directors, or (c) the ComVest
Observer's presence would cause the Company to breach confidentiality provisions
to which the Company is bound. Meetings to be held by telephone conference and
actions to be taken by written consent shall not be prohibited, provided that
the ComVest Observer shall be given notice of such meeting or a copy of each
written consent at the same time as provided to the Company's directors. The
ComVest Observer shall receive no compensation, except that the Company will
reimburse out-of-pocket expenses of the ComVest Observer in the same manner as
the directors of the Company.
5.14 REMOVAL OR RESIGNATION OF COMVEST DIRECTOR. As long as ComVest has
any right to nominate a person for election to the Board of Directors, as
specified in Section 5.13(a), at any time at which a vacancy shall be created on
the Board of Directors as a result of the death, disability, retirement,
resignation, removal or otherwise of the ComVest Director, ComVest shall be
entitled to nominate another individual to fill the vacancy and the Company will
cause such individual to become a member of the Board of Directors until the
next succeeding annual meeting of the stockholders of the Company, at which time
the provisions of Section 5.13(a) shall apply.
5.15 CONSULTING ARRANGEMENT. ComVest will assist the Company in
identifying potential strategic partners, merger or acquisition candidates or
acquisition targets. In the event that ComVest introduces a joint venture
partner, a merger or acquisition partner or an acquisition
33
target to the Company, then, at the closing of such transaction, the Company
shall pay to ComVest a cash fee equal to 1% of the transaction value (which
shall include not only amounts paid for equity interests or for assets, but
assumed Indebtedness as well) less (i) an amount equal to the Financing Fee,
Commitment Fee and Additional Note financing fees theretofore paid (provided,
this clause (i) shall apply only until such time as an amount equal to such
Financing Fee, Commitment Fee and Additional Note financing fees shall have been
fully deducted from the fees contemplated by this Section 5.15) and (ii) an
amount equal to any investment banking fairness opinion fees necessary to
complete such transaction, provided that the fee payable to ComVest under this
Section 5.15 shall be at least $500,000 in connection with a Sale of the Company
(as defined in the Notes) or any transaction or series of related transactions
in which any person other than ComVest acquires from the Company, directly or
indirectly, equity interests in the Company possessing more than 30% of the
voting power of all outstanding equity interests in the Company.
ARTICLE 6
CLOSING
The parties will take the following actions at Closing:
6.1 EXECUTION AND DELIVERY OF TRANSACTION DOCUMENTS. Each of ComVest
and the Company shall execute each of the Transaction Documents to which it is a
party and any and all ancillary documents thereto and deliver the same to the
other party. In addition, the Company shall deliver to ComVest executed copies
of Lock-Up Agreements, substantially in the form of Exhibit E, as executed by
Xxxxxx Ravine and Xxxxx Xxxxxx and each of the directors of the Company.
6.2 PAYMENT OF PURCHASE PRICE. ComVest shall pay to the Company the
Initial Note Purchase Price, by wire transfer of immediately available funds
payable to the Company.
6.3 PAYMENT OF FINANCING FEE AND COMMITMENT FEE; REIMBURSEMENT OF
COMVEST EXPENSES. The Company shall pay to ComVest the Financing Fee, the
Commitment Fee and the ComVest Expenses, by wire transfer of immediately
available funds payable to ComVest.
6.4 OFFICERS' CERTIFICATE. The Company shall deliver a certificate
executed by the President or the Chief Executive Officer of the Company and by
the Chief Financial Officer of the Company, stating that all of the
representations and warranties of the Company set forth in the Transaction
Documents are accurate as of the Closing Date and that the Company has performed
all of its covenants and agreements required to be performed under the
Transaction Documents on or before the Closing Date.
6.5 SECRETARY'S CERTIFICATE. The Company shall deliver a certificate of
the Secretary of the Company, dated the Closing Date, (i) certifying the
continued and valid existence of the Company, Xxxxxxx Imaging Europe SA, Societe
anonyme ("XXXXXXX EUROPE") and Xxxxxxx Imaging Deutschland GmbH ("XXXXXXX
INTERNATIONAL"), (ii) certifying that no amendments to the Company's Certificate
of Incorporation have been approved or adopted by the Board of Directors or the
stockholders of the Company since the date of the certificate specified in
Section
34
6.6 below, (iii) certifying the attached copy of the By-laws of the Company as
being a true, accurate and complete copy of the By-laws of the Company, (iv)
certifying the total number of outstanding shares of Common Stock as of the
Closing Date, (v) certifying the authorization of the Company's execution,
delivery and performance of the Transaction Documents, and (vi) certifying the
resolutions adopted by the Board of Directors authorizing the actions to be
taken by the Company contemplated by the Transaction Documents.
6.6 CERTIFICATE OF INCORPORATION. The Company shall deliver a copy of
the Certificate of Incorporation (or equivalent organizational document) of the
Company and each of its subsidiaries, certified by the Secretary of State (or
equivalent governmental authority) of the jurisdiction of formation of each such
entity as of a date not more than 10 business days prior to the Closing Date.
6.7 GOOD STANDING CERTIFICATES. The Company shall deliver good standing
certificates for the Company from Delaware and Colorado as of a date not more
than five business days prior to the Closing Date and tax certificates of
Xxxxxxx Europe and Xxxxxxx Deutschland from their respective jurisdictions of
organization.
6.8 PAY-OFF OF SILICON VALLEY BANK CREDIT FACILITY. The Company shall
obtain from Silicon Valley Bank, and shall deliver to ComVest, a payoff and
release letter, in form and substance reasonably satisfactory to ComVest,
stating (a) the amounts (principal, interest, fees and other charges) required
in order to pay in full all obligations of the Company to Silicon Valley Bank as
of the Closing Date, and (b) that, upon receipt by Silicon Valley Bank of such
stated payoff amount, all obligations of the Company to Silicon Valley Bank
(other than inchoate indemnification obligations) shall be deemed satisfied and
all liens and security interests securing the Company's obligations to Silicon
Valley Bank shall be deemed released (with express authority to the Company to
file or cause to be filed UCC termination statements and other releases in
respect of all filed financing statements, collateral assignments and/or other
filings with respect to such liens and security interests); and the Company
shall utilize or direct the payment of a portion of the Initial Note Purchase
Price to effect such full payoff of Silicon Valley Bank.
6.9 APPOINTMENT OF COMVEST DIRECTOR. The Company shall cause its Board
of Directors to elect the ComVest Director to the Board of Directors as a Class
II Director.
ARTICLE 7
INDEMNIFICATION
7.1 INDEMNIFICATION OF COMVEST BY THE COMPANY. The Company hereby
agrees to indemnify and hold harmless each of ComVest, its Affiliates, their
investment advisors, their managing members, and each of their respective
officers, managers, members, directors, partners, shareholders, and employees
(collectively, the "COMVEST INDEMNITEES"), from and against any and all losses,
claims, damages, judgments, penalties, liabilities and deficiencies (including
the reasonable fees and expenses of legal counsel) (collectively, "LOSSES"), to
the extent arising out of or in connection with:
35
(i) any misrepresentation, omission of fact or breach of
any of the Company's representations or warranties contained in this Agreement
or the other Transaction Documents, the annexes, schedules or exhibits hereto or
any instrument, agreement or certificate entered into or delivered by the
Company pursuant to this Agreement or the other Transaction Documents; or
(ii) any failure by the Company to perform any of its
covenants, agreements, undertakings or obligations set forth in this Agreement
or the other Transaction Documents, the annexes, schedules or exhibits hereto or
any instrument, agreement or certificate entered into or delivered by the
Company pursuant to this Agreement or the other Transaction Documents.
7.2 INDEMNIFICATION OF THE COMPANY BY COM VEST. ComVest hereby agrees
to indemnify and hold harmless the Company and its officers, directors and
employees (collectively, the "COMPANY INDEMNITEES"), from and against any and
all Losses to the extent arising out of or in connection with any
misrepresentation, omission of fact or breach of any of ComVest's
representations, warranties or covenants contained in this Agreement or the
other Transaction Documents to which it is a party and any failure by ComVest to
perform any of its covenants, agreements, undertakings or obligations set forth
in this Agreement or the other Transaction Documents to which it is a party.
7.3 THIRD PARTY CLAIMS. Promptly after receipt by either party hereto
seeking indemnification pursuant to this Article 7 (an "INDEMNIFIED PARTY") of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a "CLAIM"), the
Indemnified Party promptly shall notify the party against whom indemnification
pursuant to this Article 7 is being sought (the "INDEMNIFYING PARTY") of the
commencement thereof; but the omission to so notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim, the Indemnifying Party shall be entitled to assume
the defense thereof. Notwithstanding the assumption of the defense of any Claim
by the Indemnifying Party, the Indemnified Party shall have the right to employ
separate legal counsel and to participate in the defense of such Claim, and the
Indemnifying Party shall bear the reasonable fees, out-of-pocket costs and
expenses of such separate legal counsel to the Indemnified Party if (and only
if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent
36
of the Indemnified Party (which consent shall not unreasonably be withheld)
settle or compromise any Claim or consent to the entry of any judgment that does
not include an unconditional release of the Indemnified Party from all
liabilities with respect to such Claim or judgment.
7.4 NON-EXCLUSIVE REMEDIES. The parties' rights to indemnification
under this Article 7 are in addition to, and not exclusive of, any and all other
rights and remedies granted to the parties in the Transaction Documents, all of
which may be exercised singly or concurrently.
ARTICLE 8
EXPENSES
The Company covenants and agrees with ComVest that the Company shall
pay or cause to be paid the following: (i) all expenses in connection with
registration or qualification of the Warrant Shares for offering and sale under
federal securities laws and state securities laws; (ii) a financing fee in the
amount of $112,500 (the "FINANCING FEE"), which shall be fully earned by and
payable to ComVest at Closing; (iii) a commitment fee in the amount of $50,000
(the "COMMITMENT FEE") in respect of the Post-Closing Commitment, which shall be
fully earned by and payable to ComVest at Closing; (iv) the additional financing
fee in respect of purchases of the Second Note and Additional Notes, which shall
be fully earned by and payable to ComVest in accordance with Section 2.3(c); and
(v) all reasonable costs and expenses incident to the performance of ComVest' s
obligations hereunder which are not otherwise specifically provided for in this
Section, including the fees and disbursements of ComVest's counsel and due
diligence expenses, which payment or reimbursement shall not exceed $100,000
(the "COMVEST EXPENSES"). Other than as set forth in this Article 8, each of the
parties hereto agrees that it shall each be responsible for and pay its own
expenses and fees, including all legal, accounting and other professional fees,
associated with the transactions contemplated by Transaction Documents.
ARTICLE 9
SURVIVAL
The representations and warranties of the Company and ComVest shall
survive the Closing until eighteen (18) months following the Closing Date;
provided, that the representations and warranties set forth in Sections 3.1,
3.7, 3.8, 4.1, 4.2, 4.3, 4.4 and 4.5 shall survive indefinitely. The agreements
and covenants of the Company and ComVest, including the covenants and
acknowledgments under Article 5 and the indemnification obligations under
Article 7, shall survive the execution and delivery of this Agreement and the
delivery of the Securities hereunder until such time as is specified in the
applicable provision or, if no time is specified, indefinitely.
ARTICLE 10
MISCELLANEOUS
10.1 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by
and interpreted in accordance with the internal laws of the State of New York,
without giving effect to conflicts of laws issues. Each of the parties submits
to the jurisdiction of the federal courts
37
whose district encompass the Borough of Manhattan, City of New York or the state
courts of the State of New York sitting in the Borough of Manhattan, City of New
York in connection with any dispute arising under this Agreement or any of the
transactions contemplated hereby, and hereby waives, to the maximum extent
permitted by law, any objection, including any objections based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions.
10.2 COUNTERPARTS. This Agreement may be signed in two or more
counterparts (and by facsimile), each of which shall be deemed an original.
10.3 HEADINGS. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of, this
Agreement.
10.4 SEVERABILITY. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or unenforceability of this Agreement in any other jurisdiction.
10.5 PARTIES IN INTEREST; SUCCESSORS AND ASSIGNS. This Agreement shall
be binding upon and inure solely to the benefit of each party hereto and their
successors and assigns, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement. Except in
connection with an assignment and transfer of the Notes in compliance with
Section 5.1 of this Agreement and the terms of the Notes, neither the Company
nor ComVest shall assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other. Notwithstanding the foregoing,
ComVest may assign its rights hereunder to any of its Affiliates.
10.6 REMEDIES. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to ComVest by vitiating the
intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that
ComVest shall be entitled, in addition to all other available remedies in law or
in equity, to an injunction or injunctions to prevent or cure any breaches of
the provisions of this Agreement and to enforce specifically the terms and
provisions of this Agreement, without the necessity of showing economic loss and
without any bond or other security being required.
10.7 AMENDMENTS. This Agreement, including without limitation the Notes
and Warrants, may be modified or amended in writing by the Company and ComVest.
No waiver hereunder shall be effective unless in writing signed by the party to
be charged therewith.
10.8 MERGER. This Agreement, together with the other Transaction
Documents, supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof, including, without limitation,
the Term Sheet dated December 29, 2004.
10.9 NOTICES. Any notice required or permitted hereunder shall be given
in writing (unless otherwise specified herein) and shall be effective upon
personal delivery, via facsimile (upon receipt of confirmation of error-free
transmission) or two business days following deposit
38
of such notice with an internationally recognized courier service, with postage
prepaid and addressed to each of the other parties thereunto entitled at the
following addresses, or at such other addresses as a party may designate by five
days advance written notice to each of the other parties hereto.
Company: Xxxxxxx Imaging Corporation
00000 X. Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
ATTENTION: Xxxxxx Ravine
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to: Xxxxxx X. Xxxxxx, XX
Xxxxx Xxxxxx & Xxxxxx LLP
0000 Xxxxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
ComVest: ComVest Investment Partners II LLC
Xxx Xxxxx Xxxxxxxx, Xxxxx 000
Xxxx Xxxx Xxxxx, Xxxxxxx 00000
ATTENTION: Xxxx Xxxxxxxx
Telephone: (000) 000-0000
e-mail: Xxxxx@XxxXxxx.xxx
with a copy to: Xxxxxxxxx Xxxxxxx, LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
ATTENTION: Xxxx Annex
and Xxxxxxx X. Xxxxxxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
39
10.10 WAIVER OF JURY TRIAL. Each of the parties hereto hereby waives to
the fullest extent permitted by applicable law any right it may have to a trial
by jury with respect to any litigation directly or indirectly arising out of,
under or in connection with this Agreement, the other Transaction Documents or
the transactions contemplated hereby and thereby. Each of the parties hereto (a)
certifies that no representative, agent or attorney of any other party has
represented, expressly or otherwise, that such other party would not, in the
event of litigation, seek to enforce that foregoing waiver and (b) acknowledges
that it and the other hereto have been induced to enter into this Agreement, the
other Transaction Documents and the transactions contemplated hereby and
thereby, as applicable, by, among other things, the mutual waivers and
certifications in this Section 10.10.
[REMAINDER OF PAGE BLANK]
40
IN WITNESS WHEREOF, this Agreement has been duly executed by each of
the undersigned.
COMPANY:
XXXXXXX IMAGING CORPORATION
By:
--------------------------------------------
Name: Xxxxxx Ravine
Title: President and Chief Executive Officer
COMVEST INVESTMENT PARTNERS II LLC
By:
--------------------------------------------
Name:
Title:
41
