<PAGE>
EXECUTION COPY
Exhibit 10.13
CASTLE BRANDS INC.
AMENDED AND RESTATED CONVERTIBLE NOTE PURCHASE AGREEMENT
AUGUST 16, 2005
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Table of Contents
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A.
Amendment and Restatement of Original Note Purchase
Documents............................
1
1.
Definitions..............................................................................
2
2.
Purchase and Sale of
Notes...............................................................
5
2.1 Sale and
Issuance of
Notes......................................................
5
2.2 Sale and
Issuance of Additional
Notes...........................................
6
2.3 Closing;
Delivery...............................................................
6
3.
Registration Rights; Corporate
Transaction...............................................
6
4.
Right of First
Offer.....................................................................
7
4.1 Notice of
Offering..............................................................
7
4.2 Offering
Period.................................................................
7
4.3 Expiration
of Offering
Period...................................................
7
4.4
Acknowledgement of Right of First
Offer.........................................
8
5.
Representations and Warranties of the
Company............................................
8
5.1
Representations and Warranties of the Company at each
Closing...................
8
5.2
Representations and Warranties of the Company at the Initial
Closing and the
June 27, 2005
Closing...........................................................
10
5.3
Representations and Warranties of the Company at the Additional
Note Closing....
11
6.
Representations and Warranties of the
Purchasers.........................................
13
6.1
Authorization...................................................................
13
6.2 Purchase
Entirely for Own
Account...............................................
13
6.3
Knowledge.......................................................................
14
6.4 Restricted
Securities...........................................................
14
6.5 No Public
Market................................................................
14
6.6
Legends.........................................................................
14
6.7 Accredited
Investor.............................................................
15
7.
Conditions to the Purchasers' Obligations at
Closing.....................................
15
8.
Conditions to the Company's Obligations at
Closing.......................................
16
8.1
Representations and
Warranties..................................................
16
8.2
Qualifications..................................................................
16
8.3 Delivery
of Form W-8 BEN or Form
W-9............................................
16
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Table of Contents
(continued)
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9.
Affirmative Covenants of the
Company.....................................................
16
9.1 Financial
Statements; Reports;
Certificates.....................................
16
9.2
Taxes...........................................................................
17
9.3
Notices.........................................................................
17
9.4 Corporate
Existence and Compliance with
Laws....................................
17
9.5 Further
Assurances..............................................................
17
10. Negative
Covenants of the
Company........................................................
17
10.1
Amendment or Modification of the
Notes..........................................
17
10.2
Issuance of Equity
Securities...................................................
17
10.3
Change in Authorized Capital
Stock..............................................
18
10.4
Mergers or
Acquisitions.........................................................
18
10.5
Indebtedness of the
Company.....................................................
18
10.6
Distributions;
Investments......................................................
18
10.7
Redemption or Repurchase of Equity
Securities...................................
18
10.8
Transactions with
Affiliates....................................................
18
10.9
Maintenance.....................................................................
19
10.10
Securities Law
Compliance.......................................................
19
11. Events of
Default........................................................................
19
11.1
Payment
Default.................................................................
19
11.2
Cross-Default...................................................................
19
11.3
Covenant
Default................................................................
19
11.4
Attachment......................................................................
20
11.5
Insolvency......................................................................
20
11.6
Other
Agreements................................................................
20
11.7
Judgments.......................................................................
20
11.8
Misrepresentations..............................................................
20
12. Board
Representation.....................................................................
20
13.
Miscellaneous............................................................................
21
13.1
Successors and
Assigns..........................................................
21
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Table of Contents
(continued)
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13.2
Governing
Law...................................................................
21
13.3
Counterparts....................................................................
21
13.4
Titles and
Subtitles............................................................
21
13.5
Notices.........................................................................
21
13.6
Finder's
Fee....................................................................
21
13.7
Amendments and
Waivers..........................................................
22
13.8
Severability....................................................................
22
13.9
Entire
Agreement................................................................
22
13.10
Exculpation Among
Purchasers....................................................
22
13.11 Fee
and Cost Reimbursement; Closing
Fee.........................................
23
13.12
Lock-Up
Agreement...............................................................
23
Schedule of Exhibits
Schedule of Exceptions
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iii
<PAGE>
CASTLE BRANDS INC.
AMENDED AND RESTATED CONVERTIBLE NOTE PURCHASE AGREEMENT
This
Amended and Restated Convertible Note Purchase Agreement (this
"AGREEMENT") is made as of the 16th day of
August, 2005 by and among Castle
Brands Inc., a Delaware corporation (the
"COMPANY") and the Purchasers (as
defined below).
RECITALS
A. The
Company and Mellon HBV (as defined below) have previously
entered
into that certain Convertible Note Purchase
Agreement dated as of March 1, 2005
(the "ORIGINAL NOTE PURCHASE AGREEMENT"),
pursuant to which the Company issued
and sold and Mellon HBV purchased the
Initial Note (as defined below) and an
Additional Note (the "MELLON ADDITIONAL
NOTE" and together with the Original
Note Purchase Agreement and the Initial
Note, the "ORIGINAL NOTE PURCHASE
DOCUMENTS").
B. The
Company desires to issue and sell to a certain Purchaser, and
such
Purchaser desires to purchase, an
Additional Note (as defined below).
C. The
Company and Mellon HBV each desire to amend and restate the
Original Note Purchase Documents in order
to induce such Purchaser to purchase
an Additional Note and make certain other
changes.
AGREEMENT
In
consideration of the mutual promises contained herein and other
good
and valuable consideration, receipt of
which is hereby acknowledged, the parties
to this Agreement agree as follows:
A.
AMENDMENT AND RESTATEMENT OF ORIGINAL NOTE PURCHASE DOCUMENTS.
Effective and contingent upon the execution
of this Agreement, the Amended
Initial Note (as defined below) and the
Amended Additional Note (as defined
below) by the Company and Mellon HBV, (i)
the Original Note Purchase Agreement
is hereby amended and restated in its
entirety as set forth below in this
Agreement, and the Company and each of the
Purchasers hereby agree to be bound
by the provisions hereof as the sole
agreement of the Company and the Purchasers
with respect to the issuance, sale and
purchase of the Notes and certain other
rights, as set forth herein; (ii) the
Initial Note shall be amended and restated
in its entirety in the form of amended and
restated Initial Note attached hereto
as Exhibit B (the "AMENDED INITIAL NOTE")
and the Company and Mellon HBV hereby
agree to be bound by the provisions of the
Amended Initial Note and that the
Initial Note shall be deemed cancelled as
of the date of the Amended Initial
Note; and (iii) the Mellon Additional Note
shall be amended and restated in its
entirety in the form of amended and
restated Mellon Additional Note attached
hereto as Exhibit C (the "AMENDED
ADDITIONAL NOTE") and the Company and Mellon
HBV hereby agree to be bound by the
provisions of the Amended Additional Note
and that the Mellon Additional Note shall
be deemed cancelled as of the date of
the Amended Additional Note.
<PAGE>
1.
DEFINITIONS.
As used in
this Agreement, the following capitalized terms have the
following meanings:
"ADDITIONAL NOTE" means an additional US $5,000,000 convertible
promissory
note due March 1, 2010 issued by the
Company in substantially the form attached
to this Agreement as Exhibit D;
"ADDITIONAL NOTE CLOSING" has the meaning set forth in Section 2.3
below;
"ADDITIONAL NOTE CLOSING FINANCIAL STATEMENTS" has the meaning set
forth
in Section 5.2 below.
"AFFILIATE" means, with respect to any Person, a Person that owns
or
controls directly or indirectly such
Person, any Person that controls or is
controlled by or is under common control
with such Person, and each of that
Person's senior executive officers,
directors, partners and, for any Person that
is a limited liability company, that
Person's managers and members;
"AGREEMENT" means this Convertible Note Purchase Agreement, as
amended
from time to time;
"AMENDED
ADDITIONAL NOTE" has the meaning set forth in Section A above;
"AMENDED
INITIAL NOTE" has the meaning set forth in Section A above;
"BLACK
RIVER" means Black River Global Credit Fund Ltd.;
"BUSINESS
DAY" means any day other than a day on which commercial banks
in
New York are required or permitted by law
to be closed;
"CLOSING"
means the Initial Closing, the June 27, 2005 Closing and the
Additional Note Closing;
"COMMON
STOCK" means the shares of common stock, $.01 par value, per
share, of the Company;
"COMPANY"
has the meaning set forth in the introductory paragraph above;
"CONVERSION SHARES" has the meaning set forth in Section 3
below;
"CORPORATE
TRANSACTION" means, whether effected in one transaction or one
or more related transactions, (i) a
liquidation, dissolution or winding up of
the Company, (ii) a sale of all or
substantially all of the assets of the
Company or (iii) a merger, consolidation or
sale of capital stock as a result of
which the stockholders of the Company
immediately prior to such merger,
consolidation or sale own less than 50% of
the Company's voting power
immediately after such merger,
consolidation or sale;
2
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"DISCLOSURE MATERIALS" has the meaning set forth in Section 5.3
below;
"EQUITY
SECURITIES" means any share or interest in the Company and any
convertible notes, warrants or other
instruments convertible into any share or
interest in the Company;
"EVENT OF DEFAULT" has the
meaning set forth in Section 11 below;
"EXCLUDED
SECURITIES" means, with respect to any Equity Securities issued
by the Company, (i) the Notes and the
Conversion Shares; (ii) Common Stock
issued or issuable as a dividend or
distribution on or upon conversion of the
preferred stock of the Company; (iii)
Common Stock issued or issuable by reason
of a dividend, stock split, split-up or
other distribution on Common Stock, (iv)
any Common Stock issued or issuable
(including pursuant to options or warrants)
to financial institutions in connection
with commercial credit arrangements
approved by the Board of Directors of the
Company, (v) any Common Stock issued
or issuable to employees, officers, or
directors of the Company or their
respective immediate family members
pursuant to currently outstanding or newly
created options or warrants that are
approved by the Board of Directors of the
Company or a committee thereof, (vi) Common
Stock issued upon conversion of the
Company's 5% Convertible Subordinated Notes
due on or about the third
anniversary of the Series C Closing Date as
defined in the Restated Charter in
the aggregate principal amount of
E1,374,750, (vii) shares or interests issued
or issuable pursuant to any rights or
agreements, options, warrants or
convertible securities outstanding as of
the date of this Agreement or the
issuance of any of the warrants listed on
Section 5.3(a) of the Schedule of
Exceptions to this Agreement or the
issuance of any shares of Common Stock upon
exercise thereof, (viii) any Equity
Securities issued for consideration other
than cash pursuant to a merger,
consolidation, strategic alliance, acquisition
or similar business combination approved by
the Board of Directors of the
Company, (ix) any Equity Securities issued
in connection with any
recapitalization or similar event by the
Company, (x) any Equity Securities that
are issued by the Company pursuant to an
IPO, and (xi) any Equity Securities
issued in connection with strategic
transactions involving the Company and other
entities, including joint ventures,
manufacturing, marketing or distribution
arrangements provided that the issuance of
shares therein has been approved by
the Board of Directors of the Company;
"FINANCIAL
STATEMENTS" has the meaning set forth in the Section 5.1 below;
"FULLY-EXERCISING PURCHASER" means a Purchaser electing to purchase
the
full amount of the Equity Securities
offered to such Purchaser in accordance
with Section 4.2 below;
"GOSLING'S" means Gosling's Export (Bermuda) Limited;
"GOSLING'S
INVESTMENT" means a joint venture agreement with Gosling's
whereby a 60% owned subsidiary of the
Company, Gosling - Castle Partners Inc.,
will acquire a 100% interest in the
worldwide export rights of all products made
by Gosling's for a total investment of $5
million;
3
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"INITIAL
CLOSING" means closing of the sale of the Initial Note at the
offices of Orrick, Herrington &
Sutcliffe LLP, 666 Fifth Avenue, New York, NY
10103-0001, at 5:00 p.m., on March 1,
2005;
"INITIAL
NOTE" means that certain convertible promissory note of the
Company issued to Mellon HBV due March 1,
2010;
"INTEREST
NOTE" means a convertible promissory note or notes due March 1,
2010 in substantially the form attached to
this Agreement as Exhibit E;
"IPO"
means a firm commitment public offering by the Company of shares
of
its common stock pursuant to a registration
statement on Form S-1 under the
Securities Act of 1933, as amended;
"JUNE 27,
2005 CLOSING" means the closing of the sale of the Mellon
Additional Note at the offices of Orrick,
Herrington & Sutcliffe LLP, 666 Fifth
Avenue, New York, NY 10103-0001 at 5 p.m.
on June 27, 2005;
"MATERIAL
ADVERSE EFFECT" means a change or effect that is or is
reasonably likely to be, materially adverse
to the condition (financial or
otherwise), properties, assets,
liabilities, business, operations or results of
operations of the Company and its
Affiliates, taken as a whole, or will prevent
or materially delay consummation of the
transactions contemplated by this
Agreement or otherwise will prevent the
Company and/or Affiliates from
performing their material obligations under
the Notes or this Agreement;
"MATURITY
DATE" shall have the meaning set forth in the Notes;
"MELLON
ADDITIONAL NOTE" has the meaning set forth in the recitals
above;
"MELLON
HBV" means Mellon HBV SPV LLC;
"NET
EQUITY VALUE" means the product of (i) the aggregate amount of
the
Company's outstanding Equity Securities on
a fully-diluted basis (excluding any
warrants or options to purchase Common
Stock) multiplied by (ii) the average of
the highest bid and lowest asked prices on
the exchange or over-the-counter
quotation system on which Common Stock is
listed; provided that if there are no
sales of Common Stock on such exchange or
over-the-counter quotation system on
any given day, then the Net Equity Value
for such day shall equal that of the
previous day;
"NOTES"
means the Amended Initial Note, the Amended Additional Note,
the
Additional Note and the Interest Notes, if
any;
"NOTICE"
has the meaning set forth in Section 4.1 below;
"ORIGINAL
NOTE PURCHASE AGREEMENT" has the meaning set forth in the
Recitals above.
4
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"PERSON"
shall mean and include any individual, partnership, corporation
(including a business trust), joint stock
company, limited liability company,
unincorporated association, joint venture,
governmental entity or other entity;
"PURCHASER" or "PURCHASERS" means Mellon HBV and any other
purchaser
listed on Exhibit A attached hereto;
"QUALIFIED
ACQUISITION DEBT" means, in connection with the acquisition of
a brand related to or an entity doing
business in or related to the beverage
alcohol market (collectively, the
"TARGET"), any debt incurred by the Company or
its Affiliates in connection the
acquisition of the Target (including costs and
fees associated with incurring such debt)
that does not exceed an amount equal
to three times the Target's earnings before
interest, taxes, depreciation and
amortization ("EBITDA"), subject to
reasonable adjustments thereof to reflect
normal continuing operations of the Target
as of the date of acquisition;
"QUALIFIED
IPO" means an initial public offering of the Company's Common
Stock that results in gross proceeds to the
Company of at least US $15,000,000
(net of underwriting discounts and
commissions);
"REGISTRATION RIGHTS" means registration rights granted pursuant to
a
registration rights agreement on terms no
less favorable than those granted to
the holders of the Series C Preferred as
more particularly described in the
Series C PPM;
"RESTATED
CERTIFICATE" means the Amended Certificate of Designations, a
copy of which is attached hereto as Exhibit
H;
"SECURITIES ACT" means the Securities Act of 1933, as amended;
"SERIES A
PREFERRED" means the Series A Convertible Preferred Stock,
$1.00
par value per share, of the Company;
"SERIES B
PREFERRED" means the Series B Convertible Preferred Stock,
$1.00
par value per share, of the Company;
"SERIES C
PREFERRED" means the Series C Convertible Preferred Stock,
$1.00
par value per share, of the Company;
"SERIES C PPM"
means collectively, that certain Confidential Private
Placement Memorandum dated October 14,
2004, as supplemented from time to time
and as attached hereto as Exhibit G;
"SHAREHOLDERS AGREEMENT" means that certain Shareholders Agreement
dated
December 1, 2003, as amended, by and among
the Company and certain of its
shareholders;
5
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"STOCK
PLAN" means the Company's 2003 Stock Incentive Plan duly adopted
by
the Board of Directors and approved by the
holders of the Company's voting
capital stock; and
"SUPER
MAJORITY INTEREST" means the holders of at least 70% of the
then
outstanding aggregate principal amount of
the Notes.
"THIRD
PARTY INDEBTEDNESS LIMIT" means US $15,000,000 in the
aggregate;
provided that in the event (i) there is a
Qualified IPO and (ii) after the
Initial Closing, the Company issues Equity
Securities (other than debt
securities and excluding US $610,442 of
Series C Preferred Stock) resulting in
aggregate gross proceeds of US $25,000,000
to the Company, "Third Party
Indebtedness Limit" shall mean US
$30,000,000 in the aggregate.
2.
PURCHASE AND SALE OF NOTES.
2.1 SALE AND ISSUANCE OF INITIAL NOTE AND MELLON ADDITIONAL
NOTE.
Subject to
the terms and conditions of this Agreement, Mellon HBV
purchased and the Company sold and issued
to Mellon HBV at the Initial Closing
the Initial Note and at the June 27, 2005
Closing the Mellon Additional Note
against (1) payment of the purchase price
in the principal amount set forth
opposite such Purchaser's name on Exhibit A
at each respective Closing, (2)
delivery of executed counterpart signature
pages to the Initial Note and
Original Convertible Note Purchase
Agreement at the Initial Closing and Mellon
Additional Note at the June 27, 2005
Closing, respectively and (3) delivery of a
validly executed IRS Form W-9 at the
Initial Closing. The purchase price of each
of the Initial Note and the Mellon
Additional Note was equal to 100% of the
principal amount of the Initial Note and
the Mellon Additional Note,
respectively.
2.2 SALE AND ISSUANCE OF ADDITIONAL NOTES.
Subject to
the terms and conditions of this Agreement, as of the
Additional Note Closing, the Company shall
issue and sell to Black River and
Black River shall purchase the Additional
Note. The purchase price of the
Additional Note shall be equal to 100% of
the principal amount of the Additional
Note.
2.3 CLOSING; DELIVERY.
(A) The purchase and sale of the Additional Note shall take
place at the offices of Orrick, Herrington
& Sutcliffe LLP, 666 Fifth Avenue,
New York, New York 10103-0001 at 5:00 p.m.,
on August 16, 2005, or at such other
time and place as the Company and Black
River mutually agree upon, orally or in
writing (the "ADDITIONAL NOTE
CLOSING").
(B) At the Additional Note Closing, the Company shall deliver
to Black River counterpart signature pages
to this Agreement together with
counterpart signature pages to the
Additional Note against (1) payment of the
purchase price for the Additional Note by
check payable to the Company or by
wire transfer to a bank
6
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designated by the Company, (2) delivery of
counterpart signature pages to this
Agreement and the Additional Note, and (3)
delivery of a validly completed and
executed IRS Form W-8 BEN or IRS Form W-9,
as applicable, establishing Black
River's exemption from withholding tax,
which forms are attached to this
Agreement as Exhibit F.
3.
REGISTRATION RIGHTS; CORPORATE TRANSACTION.
The
Company hereby agrees that upon conversion of the Notes into
Common
Stock (the "CONVERSION SHARES") it shall
enter into a registration rights
agreement granting the holders of
Conversion Shares Registration Rights and that
the Registration Rights shall survive an
IPO. The Company hereby acknowledges
and agrees that in the event of a Corporate
Transaction, the Purchasers shall be
entitled to receive, prior and in
preference to the holders of any class or
series of capital stock of the Company, an
amount equal to the aggregate
principal amount of the Notes outstanding
at such time plus all accrued but
unpaid interest thereon. The Company and
each Purchaser hereby acknowledge that
the Company has granted registration rights
in the Shareholders Agreement that
are similar to those to be granted to the
Purchasers and the Registration Rights
to be granted to the Purchasers shall work
in conjunction with, and not
adversely effect the registration rights
contained in the Shareholders
Agreement.
4. RIGHT
OF FIRST OFFER.
Subject to
the terms and conditions specified in this Section 4, the
Company hereby grants to each Purchaser a
right of first offer with respect to
future sales by the Company of any Equity
Securities offered prior to the
consummation of an IPO by the Company other
than Excluded Securities. If, prior
to the consummation of an IPO by the
Company, the Company proposes to issue
Equity Securities other than Excluded
Securities, it shall first make an
offering of such Equity Securities to each
Purchaser in accordance with the
following provisions:
4.1 NOTICE OF OFFERING.
The
Company shall deliver a written notice (the "NOTICE") to the
Purchasers stating (a) its bona fide
intention to offer such Equity Securities,
(b) the number of such Equity Securities to
be offered, and (c) the price and
terms, if any, upon which it proposes to
offer such Equity Securities.
4.2 OFFERING PERIOD.
Within 15
calendar days after delivery of the Notice, each Purchaser may
elect to purchase or obtain, at the price
and on the terms specified in the
Notice, up to that portion of such Equity
Securities which equals the proportion
that the number of shares of Equity
Securities then held by such Purchaser bears
to the total number of shares of Equity
Securities then outstanding (assuming
full conversion and exercise of all
convertible or exercisable securities). Such
purchase shall be completed at the same
closing as that of any third party
purchasers or at an additional closing
thereunder. The
7
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Company shall promptly, in writing, inform
each Fully-Exercising Purchaser of
any other Purchasers' failure to purchase
all the Equity Securities available to
such Purchasers. During the ten (10)-day
period commencing after receipt of such
information, each Fully Exercising
Purchaser shall be entitled to obtain that
portion of the Equity Securities for which
Purchasers were entitled to subscribe
but which were not subscribed for by the
Purchasers that is equal to the
proportion that the number of shares of
Equity Securities then held by such
Fully-Exercising Purchaser bears to the
total number of shares of Equity
Securities then outstanding (assuming full
conversion and exercise of all
convertible or exercisable securities).
4.3 EXPIRATION OF OFFERING PERIOD.
The
Company may, during the 90 day period following the expiration of
the
period provided in Section 4.2 hereof,
offer the remaining unsubscribed portion
of Equity Securities to any person or
persons at a price not less than, and upon
terms no more favorable to the offeree than
those specified in the Notice. If
the Company does not enter into an
agreement for the sale of the Equity
Securities within such period, or if such
agreement is not consummated within 60
days of the execution thereof, the right
provided hereunder shall be deemed to
be revived and such Equity Securities shall
not be offered unless first
reoffered to the Purchasers in accordance
herewith.
4.4 ACKNOWLEDGEMENT OF SHAREHOLDER RIGHT OF FIRST OFFER.
The
Company and each of the Purchasers hereby acknowledge and agree
that
the Company has granted rights of first
offer to certain of its shareholders in
the Shareholders Agreement that are similar
to those contained in this Section 4
and that this Section 4 shall work in
conjunction with, and shall not adversely
effect the rights of first offer contained
in, the Shareholders Agreement.
5.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
5.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AS OF EACH
CLOSING.
The
Company hereby represents and warrants to each Purchaser that,
except
as set forth on a Schedule of Exceptions
attached to this Agreement which
exceptions shall be deemed to be
incorporated into these representations and
warranties as if made hereunder, the
following representations are true and
complete as of the date of each Closing,
except as otherwise indicated.
(A) ORGANIZATION, GOOD STANDING AND QUALIFICATION.
The
Company is a corporation duly organized, validly existing and in
good
standing under the laws of the State of
Delaware and has all requisite corporate
power and authority to carry on its
business as presently conducted or proposed
to be conducted. The Company is duly
qualified to transact business and is in
good standing in each jurisdiction in which
the failure so to qualify would have
a Material Adverse Effect.
8
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(B) AUTHORIZATION.
All
corporate action on the part of the Company, its officers,
directors
and holders of Equity Securities necessary
for (i) the authorization, execution
and delivery of this Agreement and the
Notes, (ii) the performance of all
obligations of the Company under this
Agreement and the Notes and (iii) the
authorization, issuance and delivery of the
Notes and the Conversion Shares has
been taken or will be taken prior to the
Closing, and this Agreement and the
Notes, when executed and delivered by the
Company, shall constitute valid and
legally binding obligations of the Company,
enforceable against the Company in
accordance with their respective terms
except (i) as limited by applicable
bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, or
other laws of general application relating
to or affecting the enforcement of
creditors' rights generally, (ii) as
limited by laws relating to the
availability of specific performance,
injunctive relief, or other equitable
remedies, or (iii) to the extent any
indemnification provisions set forth in the
Registration Rights may be limited by
applicable federal or state securities
laws.
(C) VALID ISSUANCE OF COMMON STOCK.
The
Conversion Shares have been duly and validly reserved for
issuance,
and upon issuance in accordance with the
terms of this Agreement, the Notes and
the Restated Certificate, will be duly and
validly issued, fully paid and
nonassessable and free of restrictions on
transfer other than restrictions on
transfer, if any, under this Agreement, the
Registration Rights, and applicable
state and federal securities laws and liens
or encumbrances created by or
imposed by a Purchaser. Based in part upon
the representations of the Purchasers
in Section 6 of this Agreement and subject
to the provisions of Section 5.3(c)
hereof, the Conversion Shares will be
issued in compliance with all applicable
federal and state securities laws.
(D) COMPLIANCE WITH OTHER INSTRUMENTS; NO EVENTS OF DEFAULT.
The
Company is not in violation or default of any provisions of its
Restated Certificate or Bylaws, or of any
instrument, judgment, order, writ, or
decree, or under any note, indenture,
mortgage, lease, agreement, contract or
purchase order to which it is a party or by
which it is bound or of any
provision of state or federal statute, rule
or regulation applicable to the
Company, the violation of which would have
a Material Adverse Effect. The
execution, delivery and performance of this
Agreement, the issuance of the Notes
and the Conversion Shares and the
consummation of the transactions contemplated
hereby or thereby will not result in any
such violation or be in conflict with
or constitute, with or without the passage
of time and giving of notice, either
a default under any such provision,
instrument, judgment, order, writ, decree or
contract or an event which results in the
creation of any lien, charge or
encumbrance upon any assets of the Company
in either case which would have a
Material Adverse Effect. No Event of
Default shall have occurred or occur as a
result of the Company's execution of this
Agreement or the Notes.
9
<PAGE>
(E) DISCLOSURE.
The
Company and the Purchasers have engaged in a due diligence
process,
and in connection with that process the
Company has made available to the
Purchasers all the information reasonably
available to the Company that the
Purchasers have requested for deciding
whether to acquire the Notes (the
"DISCLOSURE MATERIALS"). Assuming the
accuracy of the Purchasers'
representations regarding their
sophistication with respect to investments in
companies similar to the Company and in
light of the due diligence process
mentioned above, neither (i) any
representation or warranty of the Company
contained in this Agreement and the
exhibits attached hereto, any certificate
furnished or to be furnished to the
Purchasers at the Closing, or the Disclosure
Materials (when read together) nor (ii)
during the offering of the Series C
Preferred, the Series C PPM contains any
untrue statement of a material fact or
omits to state a material fact necessary in
order to make the statements
contained herein or therein not misleading
in light of the circumstances under
which they were made.
5.2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AS OF THE
INITIAL
CLOSING AND THE JUNE 27, 2005 CLOSING.
The
Company hereby represents and warrants to each Purchaser that,
except
as set forth on a Schedule of Exceptions
attached to this Agreement which
exceptions shall be deemed to be
incorporated into these representations and
warranties as if made hereunder, the
following representations are true and
complete as of the date of the Initial
Closing, except as otherwise indicated.
(A) CAPITALIZATION.
The
Company's capitalization consisted, immediately prior to the
Initial
Closing, of:
1) 4,500,000 shares of authorized preferred stock,
consisting of (i) 550,000 shares that have
been designated as Series A
Preferred, of which 535,715 shares are
issued and outstanding immediately prior
to the Initial Closing, (ii) 200,000 shares
that have been designated as Series
B Preferred, all of which are issued and
outstanding immediately prior to the
Initial Closing, (iii) 3,375,000 shares
that have been designated as Series C
Preferred, of which 2,914,947.25 are issued
and outstanding immediately prior to
the Initial Closing and (iv) 375,000 shares
that remain undesignated, none of
which have been issued immediately prior to
the Initial Closing. The rights,
privileges and preferences of the preferred
stock are as stated in the Restated
Certificate. All of the outstanding shares
of preferred stock have been duly
authorized, are fully paid and
nonassessable and were issued in compliance with
all applicable federal and state securities
laws.
2) 20,500,000 shares of Common Stock, 3,106,666 shares
of which were issued and outstanding
immediately prior to the Initial Closing.
All of the outstanding shares of Common
Stock have been duly authorized, are
fully paid
10
<PAGE>
and nonassessable and were issued in
compliance with all applicable federal and
state securities laws.
3) The Company had reserved 2,000,000 shares of Common
Stock for issuance to officers, directors,
employees and consultants of the
Company pursuant to the Stock Plan. Of such
reserved shares of Common Stock, no
shares have been issued pursuant to
restricted stock purchase agreements,
options to purchase 744,500 shares have
been granted and are currently
outstanding, and 1,255,500 shares of Common
Stock remain available for issuance
to officers, directors, employees and
consultants pursuant to the Stock Plan.
4) Except for rights under the Shareholders Agreement,
outstanding options issued pursuant to the
Stock Plan, warrants to purchase
shares of Common Stock set forth on the
Schedule of Exceptions, convertible
promissory notes currently convertible into
263,493 shares of Common Stock and
the authorized preferred stock listed above
there are no outstanding options,
warrants, rights (including conversion or
preemptive rights and rights of first
refusal or similar rights) or agreements,
orally or in writing, for the purchase
or acquisition from the Company of any
Equity Securities. None of the Company's
stock purchase agreements or stock option
documents contains a provision for
acceleration (or lapse of a repurchase
right) upon the occurrence of any event.
The Company has never adjusted or amended
the exercise price of any stock
options previously awarded, whether through
amendment, cancellation, replacement
grant, repricing, or any other means.
5) The list of holders of the Company's Equity
Securities, dated as of February 15, 2005,
provided to counsel to the
Purchasers, was true and correct.
(B) FINANCIAL STATEMENTS.
The
Company has made available to the Purchasers its unaudited
financial
statements (including balance sheet, income
statement and statement of cash
flows) as of December 31, 2004 and its
audited financial statements (including
balance sheet, income statement and
statement of cash flows) for the fiscal year
ended December 31, 2003 (collectively, the
"INITIAL CLOSING FINANCIAL
STATEMENTS"). The Financial Statements have
been prepared in accordance with
generally accepted accounting principals
applied on a consistent basis
throughout the periods indicated, except
that the unaudited Financial Statements
may not contain all footnotes required by
generally accepted accounting
principles. The Financial Statements fairly
present in all material respects the
financial condition of the Company as of
the dates, and for the periods,
indicated therein, subject to normal
year-end audit adjustments. Except as set
forth in the Financial Statements, the
Company has no material liabilities or
obligations, contingent or otherwise, other
than (a) liabilities incurred in the
ordinary cour
