AMENDED AND RESTATED NOTE PURCHASE AGREEMENT

 

EXHIBIT 4.2

 

AMENDED AND RESTATED NOTE PURCHASE AGREEMENT

 

dated as of August 1, 2008

 

among

 

ENCOMPASS GROUP AFFILIATES, INC., a Delaware corporation,

as Issuer,

 

and

 

ENCOMPASS GROUP AFFILIATES, INC., a Florida corporation (f/k/a ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.),

CYBER-TEST, INC., VANCE BALDWIN, INC., HUDSON STREET INVESTMENTS, INC.,

SPECTRUCELL, INC. and TRITRONICS, INC.

as Guarantors,

 

THE NOTE PURCHASERS LISTED HEREIN

 

and

 

SANKATY ADVISORS, LLC

as First Lien Collateral Agent for the Senior Notes and

Second Lien Collateral Agent for the Subordinated Notes

 

__________________________________________________________________

 

 

$12,690,355.00 IN AGGREGATE ORIGINAL PRINCIPAL AMOUNT

OF SENIOR SECURED NOTES DUE AUGUST 17, 2012;

$11,734,694.16 IN AGGREGATE ORIGINAL PRINCIPAL AMOUNT

OF SERIES A SENIOR SUBORDINATED NOTES DUE AUGUST 17, 2013; AND

$13,265,306.12 IN AGGREGATE ORIGINAL PRINCIPAL AMOUNT

OF SERIES B SENIOR SUBORDINATED NOTES DUE AUGUST 17, 2013

PLUS ADDITIONAL ISSUANCES AS CONTEMPLATED HEREUNDER

 

__________________________________________________________________

 

 

TABLE OF CONTENTS

			Page
SECTION 1. DEFINITIONS.			- 2 -
	1.1	Certain Defined Terms; Rules of Construction	- 2 -
	1.2	Accounting Terms	- 3 -
SECTION 2. PURCHASE AND SALE OF THE NOTES.			- 3 -
	2.1	Purchase and Sale of the Initial Notes	- 3 -
	2.2	The Initial Closing	- 3 -
	2.3	Payment of Purchase Price for the Initial Notes	- 3 -
	2.4	Purchase and Sale of the Series B Subordinated Notes	- 3 -
	2.5	Additional Issuance	- 3 -
	2.6	Payment of Purchase Price Upon an Additional Issuance	- 5 -
	2.7	The Series B Closing Date	- 5 -
	2.8	Payment of Purchase Price for the Series B Subordinated Notes	- 5 -
	2.9	Use of Proceeds	- 5 -
SECTION 3. TERMS OF THE NOTES			- 5 -
	3.1	Interest on the Notes.	- 5 -
	3.2	Payment of Notes.	- 6 -
	3.3	Prepayment Procedures.	- 8 -
	3.4	Taxes.	- 8 -
	3.5	Manner and Time of Payment.	- 11 -
SECTION 4. REPRESENTATIONS AND WARRANTIES OF NOTE PURCHASERS.			- 11 -
	4.1	Legal Capacity; Due Authorization	- 11 -
	4.2	Restrictions on Transfer	- 11 -
	4.3	Accredited Investor, etc	- 11 -
	4.4	Brokerage Fees, etc	- 11 -
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE NOTE PARTIES.			- 12 -
	5.1	Organization, Good Standing and Qualification	- 12 -
	5.2	Capitalization.	- 12 -
	5.3	Corporate Power and Authorization	- 13 -
	5.4	Valid Issuance of the Notes; Private Placement	- 13 -

 

 

	5.5	Financial Statements and Other Information	- 13 -
	5.6	Consents	- 14 -
	5.7	Litigation	- 14 -
	5.8	Compliance with Laws and Regulations	- 14 -
	5.9	Licenses, Patents, Copyrights, Trademarks and Trade Names	- 14 -
	5.10	Compliance with Other Instruments; No Conflicts	- 14 -
	5.11	Indebtedness	- 15 -
	5.12	Disclosure	- 15 -
	5.13	Title to Property and Assets	- 15 -
	5.14	Tax Liabilities	- 15 -
	5.15	Labor Agreements and Actions	- 16 -
	5.16	[Reserved].	- 16 -
	5.17	Customers and Suppliers	- 16 -
	5.18	Employee Benefit Plans	- 16 -
	5.19	Environmental Matters	- 17 -
	5.20	Margin Security	- 17 -
	5.21	Brokerage Fees, etc	- 17 -
	5.22	Solvency	- 17 -
	5.23	Security Interest	- 17 -
	5.24	Permits; Laws	- 17 -
	5.25	Government Regulation; Margin Stock	- 18 -
	5.26	Anti-Terrorism Laws.	- 18 -
SECTION 6. CLOSING CONDITIONS FOR INITIAL CLOSING			- 19 -
	6.1	Representations and Warranties; No Default	- 19 -
	6.2	Documents Satisfactory; Transactions Consummated	- 19 -
	6.3	Delivery of Documents	- 19 -
	6.4	Due Diligence; No Change in Condition	- 21 -
	6.5	Corporate/Capital Structure	- 22 -
	6.6	Authorizations, Consents and Approvals	- 22 -
	6.7	No Material Adverse Effect	- 22 -
	6.8	Litigation	- 22 -
	6.9	Other Fees and Expenses	- 22 -

 

 

	6.10	No Violation of Regulations T, U or X	- 22 -
	6.11	Perfection of Security	- 22 -
	6.12	Ancillary Documents	- 22 -
	6.13	Existing Indebtedness	- 23 -
	6.14	Employment Agreements	- 23 -
SECTION 6A. CLOSING CONDITIONS FOR SERIES B CLOSING.			- 23 -
	6A.1	Representations and Warranties; No Default	- 23 -
	6A.2	Documents Satisfactory; Transactions Consummated	- 23 -
	6A.3	Delivery of Documents	- 23 -
	6A.4	Due Diligence; No Change in Condition	- 26 -
	6A.5	Corporate/Capital Structure	- 26 -
	6A.6	Authorizations, Consents and Approvals	- 26 -
	6A.7	No Material Adverse Effect	- 26 -
	6A.8	Litigation	- 26 -
	6A.9	Other Fees and Expenses	- 26 -
	6A.10	No Violation of Regulations T, U or X	- 26 -
	6A.11	Perfection of Security	- 27 -
	6A.12	Ancillary Documents	- 27 -
	6A.13	Existing Indebtedness	- 27 -
	6A.14	Employment Agreements	- 27 -
	6A.15	Series E Preferred Stock	- 27 -
SECTION 7. COVENANTS			- 27 -
	7.1	Payment of Obligations	- 27 -
	7.2	Taxes and Other Charges	- 27 -
	7.3	Maintenance of Properties	- 28 -
	7.4	Statutory Compliance	- 28 -
	7.5	Compliance with Material Agreements; Notices of Material Agreements	- 28 -
	7.6	Insurance	- 29 -
	7.7	ERISA	- 29 -
	7.8	Use of Proceeds	- 30 -
	7.9	Further Assurances	- 30 -
	7.10	Environmental Laws	- 30 -

 

 

	7.11	[Reserved].	- 30 -
	7.12	Financial Covenants	- 30 -
	7.13	Indebtedness	- 30 -
	7.14	Liens	- 31 -
	7.15	Investments	- 32 -
	7.16	Restricted Payments	- 33 -
	7.17	Mergers, Asset Dispositions and Acquisitions	- 34 -
	7.18	Other Asset Sales	- 35 -
	7.19	Business Activities	- 36 -
	7.20	Guarantees	- 36 -
	7.21	Antilayering	- 36 -
	7.22	Restrictions on Subsidiary Dividends and Other Payments	- 36 -
	7.23	No Non-Wholly Owned Subsidiaries	- 36 -
	7.24	Financial Statements and Reports	- 36 -
	7.25	Books, Records and Inspections; Consultation Rights	- 39 -
	7.26	Transactions with Affiliates and Related Parties	- 39 -
	7.27	Amendment of Certain Documents	- 39 -
	7.28	Observer Rights	- 40 -
	7.29	Competitors	- 40 -
	7.30	Warrants	- 40 -
SECTION 8. EVENTS OF DEFAULT.			- 40 -
	8.1	Payment Default	- 41 -
	8.2	Payment Default on Other Indebtedness	- 41 -
	8.3	Reporting Default	- 41 -
	8.4	Levy	- 41 -
	8.5	Certain Covenants	- 41 -
	8.6	Other Defaults	- 41 -
	8.7	Breach of Representations or Warranties	- 41 -
	8.8	Involuntary Bankruptcy, Appointment of Receiver, etc	- 41 -
	8.9	Voluntary Bankruptcy, Appointment of Receiver, etc	- 42 -
	8.10	Insolvency	- 42 -
	8.11	Judgments and Attachments	- 42 -

 

 

	8.12	Failure of Liens	- 42 -
	8.13	Material Adverse Effect	- 42 -
	8.14	Governmental Action	- 42 -
	8.15	ERISA	- 43 -
	8.16	Business Interruption	- 43 -
SECTION 9. RESTRICTIONS ON TRANSFER; LEGENDS.			- 43 -
	9.1	Assignments.	- 43 -
	9.2	Restrictive Legend.	- 44 -
	9.3	Termination of Restrictions	- 45 -
SECTION 10. GUARANTEE.			- 45 -
	10.1	Guarantee of Note Obligations	- 45 -
	10.2	Continuing Obligation	- 45 -
	10.3	Waivers with Respect to Note Obligations	- 46 -
	10.4	Note Purchasers’ Power to Waive, etc	- 47 -
	10.5	Information Regarding the Issuer, etc	- 48 -
	10.6	Certain Guarantor Representations	- 48 -
	10.7	Subrogation	- 49 -
	10.8	Subordination.	- 49 -
SECTION 11. SUBORDINATION			- 50 -
	11.1	Payment Defaults	- 51 -
	11.2	Non-Payment Defaults	- 51 -
	11.3	Forbearance Periods.	- 51 -
	11.4	Distributions	- 52 -
	11.5	Payments to be Held in Trust	- 53 -
	11.6	Subrogation	- 53 -
	11.7	Reinstatement of Obligations	- 53 -
	11.8	Actions With Respect to the Senior Notes	- 53 -
	11.9	Waiver of Notice of Acceptance	- 54 -
	11.10	Injunctive and Other Relief	- 54 -
	11.11	Application of Provisions.	- 54 -
	11.12	No Modification	- 55 -

 

 

SECTION 12. COLLATERAL AGENT.			- 55 -
	12.1	Collateral Agents’ Authority to Act, etc	- 55 -
	12.2	Collateral Agents’ Resignation	- 55 -
	12.3	Concerning the Collateral Agent.	- 56 -
	12.4	Indemnification	- 57 -
	12.5	Assumption of Collateral Agent’s Rights	- 57 -
SECTION 13. MISCELLANEOUS.			- 57 -
	13.1	Expenses	- 57 -
	13.2	Indemnity	- 58 -
	13.3	[Reserved].	- 59 -
	13.4	Amendments and Waivers	- 59 -
	13.5	Independence of Covenants	- 59 -
	13.6	Notices	- 59 -
	13.7	Survival of Warranties and Certain Agreements.	- 61 -
	13.8	Failure or Indulgence Not Waiver; Remedies Cumulative	- 61 -
	13.9	Severability	- 61 -
	13.10	Heading	- 61 -
	13.11	Applicable Law	- 61 -
	13.12	Successors and Assigns; Subsequent Holders	- 61 -
	13.13	CONSENT TO JURISDICTION AND SERVICE OF PROCESS	- 62 -
	13.14	WAIVER OF JURY TRIAL	- 62 -
	13.15	Counterparts; Effectiveness	- 62 -
	13.16	Confidentiality	- 63 -
	13.17	USA PATRIOT Parent	- 63 -
	13.18	Entirety	- 63 -
	13.19	Joinder	- 63 -
	13.20	Securities Laws	- 64 -

 

 

 

 

AMENDED & RESTATED NOTE PURCHASE AGREEMENT

This AMENDED & RESTATED NOTE PURCHASE AGREEMENT (this “ Agreement ”) is dated as of August 1, 2008 and is entered into by and among Encompass Group Affiliates, Inc., a Delaware corporation, as issuer (“ Company ” or the “ Issuer ”), any Subsidiary of Parent (as defined below) from time to time party hereto (each, a “ Subsidiary ” and collectively, the “ Subsidiaries ”), Advanced Communications Technology, Inc., a Florida corporation (the “ Parent ”), SpectruCell, Inc., a Delaware corporation (“ SpectruCell ”), Hudson Street Investments, Inc., a Delaware corporation (“ Hudson Street ”), Cyber-Test, Inc., a Delaware corporation (“ Cyber-Test ”), Vance Baldwin, Inc., a Florida corporation (“ Vance Baldwin ”), and Tritronics, Inc. (“ Tritronics ”), a Maryland corporation, as guarantors (the Issuer, the Company, Parent, SpectruCell, Hudson Street, Cyber-Test, Vance Baldwin, Tritronics and any subsidiary of Parent that executes a counterpart or joinder of this Agreement together being referred to as the “ Note Parties ”, and each such Person, a “ Note Party ”), Sankaty Advisors, LLC, as First Lien Collateral Agent for the Senior Note Purchasers and Second Lien Collateral Agent for the Subordinated Note Purchasers, and each Senior Note Purchaser and Subordinated Note Purchaser listed on Schedule I and Schedule I(A) attached hereto (together, the “ Note Purchasers ”).

 

RECITALS

WHEREAS, pursuant to a Purchase Agreement dated as of August 17, 2007 (the “ Acquisition Agreement ”), by and among Parent (the “ Seller ”), as seller, ACT-DE LLC, a Delaware limited liability company and the other buyer parties identified on Schedule 1 thereto, as buyer (together, the “ Buyer ”), Buyer acquired a portion of the equity of Parent, and pursuant to a Stock Purchase Agreement, dated as of August 17, 2007, the Issuer acquired all of the issued and outstanding capital stock of Vance Baldwin (the “ Acquired Entity ”) (collectively, the “ Acquisition ”); and

WHEREAS, in order to finance the Acquisition of the Acquired Entity and thereafter to provide working capital to the Note Parties, the Note Parties, Collateral Agents and Note Purchasers executed and delivered the Note Purchase Agreement dated as of August 17, 2007 (the “ Original Note Purchase Agreement ”); and

WHEREAS, pursuant to the Original Note Purchase Agreement, the Note Purchasers agreed to acquire from the Issuer Senior Secured Notes due 2012 (the “ Senior Notes ”) in the aggregate principal amount of $12,690,355.00, in the form attached as Exhibit A hereto, and Senior Subordinated Notes due 2013 (the “ Series A Subordinated Notes ” and, together with the Senior Notes, the “ Initial Notes ”) in the aggregate principal amount of $10,714,286.00, in the form attached as Exhibit B hereto;

WHEREAS, on September 24, 2007, the Note Purchasers agreed to purchase from the Issuer additional Series A Subordinated Notes in the aggregate principal amount of $1,020,408.16; and

WHEREAS, as of the date hereof, the aggregate principal amounts outstanding of the Senior Notes and the Series A Subordinated Notes are $12,182,741.12 and $11,734,693.87, respectively; and

 

WHEREAS, now Issuer proposes to acquire all the issued and outstanding shares of common stock of Tritronics pursuant to the Stock Purchase Agreement, dated as of August 1, 2008 (the “ Stock Purchase Agreement ”), and Vance Baldwin proposes to enter into a contract to purchase certain products and materials for resale from Philips Consumer Lifestyle (“ Philips ”) and become an authorized OEM distributor for Phillips pursuant to the Spare Parts and Sales Authorization Agreement, dated as of August 1, 2008 (the “ Sales Authorization Agreement ”); and

WHEREAS, the Issuer now desires to issue and sell to the Note Purchasers, and the Note Purchasers have agreed to purchase, subject to the terms and conditions set forth herein, additional Senior Subordinated Notes due 2013 up to the aggregate principal amount of up to $13,265,306.12 (the “ Series B Subordinated Notes ” and, together with the Initial Notes, the “ Notes ”); and

WHEREAS, the parties to the Original Note Purchase Agreement desire to amend and restate the Original Note Purchase Agreement in its entirety as set forth below (the Original Note Purchase Agreement, as amended hereby, and as may be further amended or modified from time to time, together with all other related supplements, agreements, documents and instruments, and all annexes, appendices, exhibits and schedules thereto, being referred to herein as the “ Agreement ”); and

WHEREAS, each of the Parent, SpectruCell, Hudson Street, Cyber-Test, Vance Baldwin, and Tritronics will execute this Agreement as guarantors of the obligations of the Issuer under the Notes; and

WHEREAS, the Note Parties will each execute (i) an Amended and Restated First Lien Security Agreement for the Senior Notes in the form of Exhibit C , pursuant to which each such Note Party will grant a first lien in all of its present and future assets (the “ Collateral ”) to Sankaty Advisors, LLC as collateral agent for the Senior Note Purchasers (the “ First Lien Collateral Agent ”), to secure each such Note Party’s respective obligations with respect to the Senior Notes and (ii) an Amended and Restated Second Lien Security Agreement for the Subordinated Notes in the form of Exhibit D , pursuant to which each such Note Party will grant a second lien in the Collateral to Sankaty Advisors, LLC as collateral agent for the Subordinated Note Purchasers (the “ Second Lien Collateral Agent ” and, together with the First Lien Collateral Agent, the “ Collateral Agents ”), to secure each such Note Party’s respective obligations with respect to the Subordinated Notes;

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Note Parties and the Note Purchasers agree as follows:

SECTION 1.   DEFINITIONS.

1.1   Certain Defined Terms; Rules of Construction . Capitalized terms used in this Agreement have the meanings set forth in Annex I hereto. Except as otherwise explicitly specified to the contrary or unless the context clearly requires otherwise, (a) the capitalized term “Section” refers to sections of this Agreement, (b) the capitalized term “Exhibit” refers to exhibits to this Agreement, (c) the capitalized term “Schedules” refers to schedules to this Agreement, (d) references to a particular Section include all subsections thereof, (e) the word “including” shall be construed as “including without limitation”, (f) references to a particular statute or regulation include all rules and regulations thereunder and any successor statute, regulation or rules, in each case as from time to time in effect, (g) references to a particular Person or entity include such Person’s or entity’s successors and assigns to the extent not prohibited by this Agreement and (h) references to “$”, “cash”, “dollars” or similar references means U.S. dollars, paid in cash or other immediately available funds. References to “the date hereof” mean the date first set forth above.

 

1.2   Accounting Terms . Unless the context otherwise clearly requires, all accounting terms not specifically defined herein shall be construed, all accounting determinations hereunder shall be made and all financial computations required to be delivered pursuant hereto shall be prepared, in accordance with GAAP. If any change in GAAP following June 30, 2006 results in a change in the calculation of the financial covenants or interpretation of related provisions of this Agreement, then the Issuer and the Required Purchasers agree to amend such provisions of this Agreement so as to equitably reflect such changes in GAAP with the desired result that the criteria for evaluating the Note Parties’ financial condition shall be the same after such change in GAAP as if such change had not been made, provided   that , until such time as the financial covenants and the related provisions of this Agreement have been amended in accordance with the provisions of this Section 1.2 , the calculations of financial covenants and the interpretation of any related provisions shall be calculated and interpreted in accordance with GAAP as in effect immediately prior to such change in GAAP.

SECTION 2.   PURCHASE AND SALE OF THE NOTES.

2.1   Purchase and Sale of the Initial Notes . Subject to the terms and conditions of this Agreement and on the basis of the representations and warranties set forth herein, the Issuer hereby agrees to sell to each Note Purchaser, and each such Note Purchaser agrees to purchase from the Issuer, on the Initial Closing Date, a Note in the original principal amount set forth opposite the name of such Note Purchaser on Schedule I for the purchase price set forth thereon. 

2.2   The Initial Closing . The purchase and sale of the Initial Notes will occur at a closing to be held on August 17, 2007, at 10:00 a.m. (Boston time) (the “ Initial Closing Date ”), at the offices of Ropes & Gray LLP, One International Place, Boston, MA 02110, or at such other date, time and/or location as may be agreed upon by the parties hereto. 

2.3   Payment of Purchase Price for the Initial Notes . On the Initial Closing Date, after payment to the Issuer by wire transfer of immediately available funds in the amounts set forth on Schedule I , the Issuer will deliver Notes registered in the names of the Note Purchasers in the amounts set forth on Schedule I . The Initial Notes will be delivered by the Issuer as they are allocated on Schedule I .

2.4   Purchase and Sale of the Series B Subordinated Notes . On the Series B Closing Date, and subject to the terms and conditions of this Agreement and on the basis of the representations and warranties set forth herein, the Issuer agrees to issue and sell to each Note Purchaser listed on Schedule I(A) , and by its acceptance hereof, each such Note Purchaser agrees to purchase from the Issuer at the Series B Closing Date, in one issuance $13,265,306.12 in aggregate original principal amount of Series B Subordinated Notes (the “ Series B Issuance ”). Each Note Purchaser shall purchase from the Issuer on the Series B Closing Date, a Series B Subordinated Note in the original principal amount set forth opposite the name of such Note Purchaser on Schedule I(A) (under the caption “Series B Subordinated Notes”), for the purchase price set forth thereon. The Series B Subordinated Notes shall rank pari   passu to the Series A Subordinated Notes in all respects, including right of payment and priority of security interests. 

2.5   Additional Issuances . During the twenty-four (24) month period following the Initial Closing Date, the Issuer may sell to each Note Purchaser, and each such Note Purchaser agrees to purchase from the Issuer, in one additional issuances (the “ Additional Issuance ”), $510,204.08 of principal amount of Series A Subordinated Notes with aggregate net proceeds from such Additional Issuances of $500,000.00. Any purchase and sale of Series A Subordinated Notes pursuant to this Section 2.5 shall be subject to the following conditions, which conditions may only be waived or amended by the Required Purchasers:

 

 

2.6   Payment of Purchase Price Upon an Additional Issuance . On the Supplemental Closing Date, in consideration of payment to the Issuer by wire transfer of immediately available funds in an amount equal to the purchase price of the Series A Subordinated Notes purchased on the Supplemental Closing Date, the Issuer will deliver Series A Subordinated Notes registered in the names of the Note Purchasers in the principal amount equal to such Note Purchasers pro rata share of the Senior Notes or the Series A Subordinated Subordinated Notes, as the case may be, issued on the Initial Closing Date.

2.7   The Series B Closing Date . The purchase and sale of the Series B Subordinated Notes will occur at a closing (the “ Series B Closing Date ”) to be held, at the offices of Ropes & Gray LLP, 1211 Avenue of the Americas, New York, NY 10036, or at such other date, time and/or location as may be agreed upon by the parties hereto.

2.8   Payment of Purchase Price for the Series B Subordinated Notes . On the Series B Closing Date, after payment to the Issuer by wire transfer of immediately available funds in the amounts equal to the purchase prices set forth on Schedule I(A) , the Issuer will deliver the Series B Subordinated Notes registered in the names of the Note Purchasers in accordance with Schedule I(A) .

2.9   Use of Proceeds . The proceeds of the sale by the Issuer of the Notes hereunder shall be used solely to effect the Transactions, to pay fees and expenses in connection with the Transactions and the financing hereunder, for general corporate purposes and to provide working capital to the Note Parties. No portion of the proceeds of the sale of the Notes hereunder shall be used, directly or indirectly, for the purpose of buying or carrying any “margin stock” within the meaning of any regulation, interpretation or ruling of the Board of Governors of the Federal Reserve System, all as from time to time in effect, refunding of any indebtedness incurred for such purpose, or making any investment prohibited by foreign trade regulations. Without limiting the foregoing, the Issuer agrees that in no event shall any proceeds of the sale of the Notes hereunder be used in any manner which might cause the Notes or the application of such proceeds to violate any of Regulations T, U or X of the Board of Governors of the Federal Reserve System or any other regulation of the Board of Governors of the Federal Reserve System, or to violate the Exchange Act, in each case as in effect as of the Closing Date and as of such use of proceeds.

SECTION 3.   TERMS OF THE NOTES

3.1   Interest on the Notes .

 

3.2   Payment of Notes .

3.2.4.1.   Upon any Change of Control, the Note Purchasers shall have the right to require the Issuer to prepay any or all of the Notes then outstanding together with accrued interest thereon and the then Applicable Premium on the amount so prepaid. Such prepayment of the Notes shall be made in accordance with Section 3.2.4.2 .

 

3.2.4.2.   Not later than (i) three (3) Business Days prior to any Change of Control resulting from the issuance or sale by Parent or any of its Subsidiaries of any equity interest or any other Change of Control of which Parent or any of its Subsidiaries has prior knowledge or (ii) three (3) Business Days following any other Change of Control, the Issuer shall deliver to the Note Purchasers a written notice of such Change of Control (a “ Change of Control Notice ”). The Note Purchasers shall have ten (10) Business Days from the date of delivery of the Change of Control Notice to exercise their right to require the Issuer to prepay all or a specified amount of the Notes held by such Note Purchasers pursuant to Section 3.2.4.1 at a purchase price equal to the principal amount of such Notes plus the Applicable Premium thereon by delivering a notice to the Issuer to that effect (the “ Change of Control Prepayment Notice ”). Any prepayment of Notes pursuant to this Section 3.2.4.2 shall be effected on or prior to the later of (x) the occurrence of the Change of Control or (y) five Business Days following delivery of the Change of Control Prepayment Notice.

 

3.3   Prepayment Procedures . 

3.4   Taxes .

 

 

 

3.5   Manner and Time of Payment .

SECTION 4.   REPRESENTATIONS AND WARRANTIES OF NOTE PURCHASERS.

In order to induce the Issuer to enter into this Agreement, each Note Purchaser individually (but not on behalf of any other Note Purchaser) represents and warrants for the benefit of the other Note Purchasers and the Issuer that, as of the Closing Date:

4.1   Legal Capacity; Due Authorization . Such Note Purchaser has full legal capacity, power and authority to execute and deliver this Agreement and to perform its obligations hereunder and that this Agreement has been duly executed and delivered by such Note Purchaser and is the legal, valid and binding obligation of such Note Purchaser enforceable against it in accordance with the terms hereof.

4.2   Restrictions on Transfer . Such Note Purchaser has been advised that the Notes have not been registered under the Securities Act or any state securities laws and, therefore, cannot be resold unless they are registered under the Securities Act and applicable state securities laws or unless an exemption from such registration requirements is available. Such Note Purchaser is aware that the Issuer is not under any obligation to effect any such registration with respect to the Notes or to file for or comply with any exemption from registration. Such Note Purchaser is purchasing the Notes to be acquired by such Note Purchaser hereunder for its own account and not with a view to, or for resale in connection with, the distribution thereof; provided , however , that subject to SECTION 9 of this Agreement, the disposition of such Note Purchaser’s property shall at all times be and remain in its control. 

4.3   Accredited Investor, etc . Such Note Purchaser has such knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of such investment, is able to incur a complete loss of such investment and to bear the economic risk of such investment for an indefinite period of time. Such Note Purchaser is an “accredited investor” as that term is defined in Regulation D under the Securities Act. 

4.4   Brokerage Fees, etc . Each Note Purchaser represents and warrants to each other party to this Agreement that no broker’s, finders’ or placement fee or commission will be payable to any Person alleged to have been retained by such representing and warranting party with respect to any of the transactions contemplated by this Agreement. Each Note Purchaser hereby indemnifies each such other party against, and agrees that it will hold each such party harmless from, any claim, demand or liability, including reasonable attorneys’ fees, for any broker’s, finder’s or placement fee or commission alleged to have been incurred by such indemnifying party. 

 

SECTION 5.   REPRESENTATIONS AND WARRANTIES OF THE NOTE PARTIES.

In order to induce each Note Purchaser to enter into this Agreement and to purchase the Notes to be purchased by such Note Purchaser hereunder, each Note Party jointly and severally represents, warrants and agrees for the benefit of each Note Purchaser that, as of the Closing Date, or, with respect to an Additional Issuance, a Supplemental Closing Date (unless otherwise stated, both before and after giving effect to the issuance of the Notes and the Transactions to occur on or prior to the Series B Closing Date (or Supplemental Closing Date) or in connection with the foregoing) (it being understood and agreed that in relation to any representation or warranty given by any of the Note Parties relating to SpectruCell, Hudson Street, Vance Baldwin or Cyber-Test in relation to any period prior to the closing of the Acquisition or to Tritronics in relation to any period prior to the closing of the Transactions shall be given only to the knowledge of such Note Party (except insofar as SpectruCell, Hudson Street, Vance Baldwin, Cyber-Test or Tritronics gives any such representation or warranty in relation to itself):

5.1   Organization, Good Standing and Qualification . Parent and each of its Subsidiaries (a) is a duly organized and validly existing and (to the extent applicable in its jurisdiction of organization) in good standing under the laws of the jurisdiction of its organization and has the corporate power and authority to own its property and assets and to conduct its business as currently conducted and (b) has duly qualified to do business as currently conducted and (to the extent applicable in its jurisdiction of organization) is in good standing in each jurisdiction where it is required to be so qualified and where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect.

5.2   Capitalization .

 

5.3   Corporate Power and Authorization . Each Note Party has the corporate power and authority to execute, deliver and perform the Note Documents to which it is a party. All action on the part of each Note Party and its officers, directors or partners necessary for the authorization, execution and delivery of this Agreement and the other Note Documents to which it is a party, the performance of all obligations of each Note Party under such agreements and the authorization, issuance and delivery of the Notes being sold hereunder, has been taken or will be taken prior to the Closing, and this Agreement and the other Note Documents to which each Note Party is a party, constitute valid and legally binding obligations of such Note Party, enforceable in accordance with their terms, except to the extent that enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors rights and by equitable principles regardless of whether enforcement is sought in equity or at law. 

5.4   Valid Issuance of the Notes; Private Placement . The Notes, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly authorized and issued and free of restrictions on transfer, other than restrictions imposed under this Agreement or United States state or federal securities laws. Based in part upon the representations of the Note Purchasers in SECTION 4 , the Notes will be issued in compliance with all applicable United States state or federal securities laws. Assuming the truth and accuracy of the Note Purchasers’ representations set forth in Section 4.3 of this Agreement, the initial offer, sale and issuance of the Notes to the Note Purchasers as contemplated by this Agreement is exempt from the registration requirements of the Securities Act. Neither the Issuer nor any authorized agent acting on their behalf of it will take any action hereafter that would cause the loss of such exemption.

5.5   Financial Statements and Other Information . The Note Purchasers have been furnished copies of the following:

5.5.1.1.   The audited consolidated balance sheets of Parent as of June 30, 2007 and the related audited consolidated statements of operation, changes in stockholders’ deficiency and cash flows, including notes thereto, for the Fiscal Year then ended and the audited balance sheets of Vance Baldwin as of December 31, 2006 and the related audited statements of income and cash flows, including notes thereto, for the Fiscal Year then ended (the “ Audited Financial Statements ”).

5.5.1.2.   The unaudited consolidated balance sheets of Parent as of June 30, 2008 and related statements of operations and cash flows for the Fiscal Year then ended, the unaudited balance sheets of Vance Baldwin as of June 30, 2008 and related statements of operations and cash flows for the interim period from August 17, 2007 to June 30, 2008, and the unaudited balance sheets of Tritronics as of June 30, 2008 and the related statements of income for the twelve month period ended April 30, 2008 and the two-month period ended June 30, 2008 (the “ Unaudited Financial Statements ” and together with the Audited Financial Statements, the “ Financial Statements ”).

5.5.1.3.   A pro forma consolidated balance sheet for Parent and its Subsidiaries (collectively, the “ Pro Forma Balance Sheet ”), the projections for Parent and its Subsidiaries, and the projections for Tritronics and the Philips Division for the four year period ended December 31, 2011, including calculations showing pro forma compliance with the financial covenants provided in this Agreement for such periods (the “ Projections ”). The Projections are based upon estimates and assumptions stated therein, all of which the Issuer believes to be reasonable and fair in light of reasonably foreseeable business conditions and current facts known to it and, as of the Closing Date, reflects the Issuer’s good faith and reasonable estimates of the future financial performance of the Note Parties and of the other information projected therein for the period set forth therein, it being recognized by the Note Purchasers that such projections as they relate to future events are not to be viewed as fact and that actual results during the period or periods covered by such projections may differ from the projected results set forth therein.

 

5.5.1.4.   The Audited Financial Statements of Parent and its Subsidiaries, and Vance Baldwin, have been prepared in accordance with GAAP (except as may be indicated in the notes thereto) and fairly present, in all material respects, the financial position of Parent and its Subsidiaries as of the dates and for the periods specified therein. The Unaudited Financial Statements of Parent and its Subsidiaries, and Vance Baldwin, have been prepared in accordance with GAAP (except for the absence of complete notes thereto) and fairly present, in all material respects, the financial position as of the dates and for the period specified therein (subject to normal year-end adjustments). There are no material liabilities required in accordance with GAAP to be set forth in the Audited and Unaudited Financial Statements and the Pro Forma Balance Sheet that are not so set forth.

5.6   Consents . Except as set forth on Schedule 5.6 , no consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state, provincial or local governmental body is required that has not been obtained, and no consent of any third party is required that has not been obtained in order to avoid any material agreement to which any Note Party is party being in material default or such third party having a right of termination after giving effect to the issuance of the Notes and the consummation of the Acquisition and the other transactions contemplated by this Agreement.

5.7   Litigation . Except as set forth on Schedule 5.7 , no judgments are outstanding against any Note Party, nor is there pending or, to the knowledge of the Issuer, threatened any litigation, contested claim, or governmental proceeding by, against or with respect to any Note Party as of the date of this Agreement. None of such outstanding judgments or pending or threatened litigation is reasonably likely to result in an adverse judgment in excess of $150,000 or, in the case of any shareholder derivative litigation, could not reasonably be expected to have a Material Adverse Effect.

5.8   Compliance with Laws and Regulations . The Note Parties are in compliance with all Legal Requirements relating to the business operations and the assets of such Person, except for violations of Legal Requirements which, in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

5.9   Licenses, Patents, Copyrights, Trademarks and Trade Names . All of the Note Parties’ licenses, registered patents, registered copyrights, registered trademarks, trade names and designs (if any) and all of such Person’s applications for any of the foregoing are set forth on Schedule 5.9 , and such constitutes all of the registered Intellectual Property necessary to the conduct of the Note Party’s business as presently conducted and as proposed to be conducted. There is no action, proceeding, claim or complaint pending or, to the Note Parties’ knowledge, threatened in writing to be brought against any Note Party which might jeopardize any of such Person’s interest in any of the foregoing licenses, patents, copyrights, trademarks, trade names, designs or applications except those which are not, in the aggregate, material to the Note Parties’ financial condition, results of operations or business.

5.10   Compliance with Other Instruments; No Conflicts . No Note Party is in default under any contract, lease or commitment to which such Person is a party or by which such Person is bound except defaults under contracts, leases or commitments which are not, individually or in the aggregate, material to such Person’s financial condition, results of operations or business. Neither the consummation of the Acquisition, nor the consummation of the financing arrangements contemplated hereunder, will constitute or create a default or create a right of termination under the Acquisition Agreement or any Material Agreement.

 

5.11   Indebtedness . Except for the Indebtedness to be issued under this Agreement or as otherwise permitted by Section 7.13 , no Note Party has any other indebtedness, contingent obligations or liabilities, outstanding bonds, letters of credit or acceptances to any other Person or loan commitments from any other Person, other than accounts payable incurred in the ordinary course of business.

5.12   Disclosure . All factual information furnished by or on behalf of Parent and its Subsidiaries in writing to the Note Purchasers or the Collateral Agents (including this Agreement and any exhibits, schedules or certificates made or delivered in connection herewith (other than any proposed budgets and projections)), taken as a whole, are true and correct in all material respects as of the date on which they were dated or certified and do not omit to state a material fact necessary to make the statements herein or therein, when taken as a whole, not misleading in any material respect, in light of the circumstances under which they were made, which has not been corrected or amended prior to the execution of this Agreement.

5.13   Title to Property and Assets . All real estate owned or leased (if any) by any Note Party is set forth on Schedule 5.13 . As of the Closing Date, each Note Party owns or leases all of the real and personal property, including Intellectual Property, required to conduct its business as currently conducted and as proposed to be conducted. As of the Closing Date, each Note Party holds a valid ownership interest in, or has the right to use pursuant to valid leases or other agreements, all of the real and personal property required to conduct such Persons’ business as currently conducted. 

5.14   Tax Liabilities . Parent and its Subsidiaries have filed all material federal, state, provincial and local tax reports and returns required by any law or regulation to be filed by such Person and has either duly paid all taxes, duties and charges indicated to be due on the basis of such returns and reports or has made adequate provision in accordance with GAAP for the payment thereof, and the assessment of any material amount of additional taxes in excess of those paid and reported is not reasonably expected. There are no material unresolved questions or claims concerning any tax liability of Parent, except as described on Schedule 5.14 .

 

5.15   Labor Agreements and Actions . Schedule 5.15 sets forth the names and titles of each officer and director of each Note Party as of the Closing Date, the names and positions of certain additional individuals who are employees of such Persons (such officers and other key employees, collectively, the “ Key Employees ”). The Annual Compensation paid and to be paid to each such Key Employee has been and shall be consistent with the Financial Due Diligence Report of Ernst & Young LLP, dated as of March 30, 2008, provided to the Note Purchasers. Neither the Issuer nor Parent is aware that any Key Employee, or that any group of Key Employees, intends to terminate its employment with Parent or any of its Subsidiaries, as applicable, within one (1) year from the Closing Date. Except as set forth on Schedule 5.15 or as a result of Legal Requirements, the employment of each Key Employee is terminable at the will of Parent or such Subsidiary, as applicable. Parent and its Subsidiaries are not a party to or bound by any currently effective employment contract or deferred compensation arrangement which is not reflected on Schedule 5.15 , and, except as set forth on Schedule 5.15 , Parent and its Subsidiaries are not a party to or bound by any written bonus plan, profit sharing plan, retirement agreement or other employee compensation plan or agreement, nor has any employee of Parent or its Subsidiaries been granted in writing the right to continued employment by such Person or to any material compensation following termination of employment with such Person. Except as set forth on Schedule 5.15 , Parent and its Subsidiaries are not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union and no labor union represents, has requested or, to the knowledge of Parent and its Subsidiaries, is currently seeking to represent any of the employees, representatives or agents of any such Person. Except as set forth on Schedule 5.15 , there are no controversies pending or to the knowledge of Parent and its Subsidiaries threatened between Parent and its Subsidiaries or any of their employees, other than employee grievances arising in the ordinary course of business or which are not, in the aggregate, material to Parent’s and its Subsidiaries’ financial condition, results of operations or business. To the knowledge of Parent and its Subsidiaries, no Key Employee or director is in violation of any term of any employment contract, proprietary information agreement or any other agreement relating to the right of any such individual to be employed by Parent and its Subsidiaries; and to the knowledge of Parent and its Subsidiaries, the continued employment by Parent and its Subsidiaries of the present Key Employees, and the performance of Parent’s or its Subsidiaries’ contracts with such Person’s independent contractors, will not result in any such violation. Each of Parent and its Subsidiaries have complied in all material respects with all applicable state and federal equal employment opportunity laws and with other laws related to employment. 

5.16   [Reserved] . 

5.17   Customers and Suppliers . Except as set forth on Schedule 5.17 , since December 31, 2005 none of the five largest customers or five largest suppliers of each Note Party has canceled, terminated or otherwise materially altered (including any material reduction in the rate or amount of sales to such customers or amounts sold by such suppliers), or notified any Note Party of any intention to do any of the foregoing or otherwise threatened in writing to cancel, terminate or materially alter, its relationship with such Note Party. To the knowledge of Parent and its Subsidiaries, the execution of this Agreement by the Note Parties does not violate or impair any material contracts by and between any Note Party and any of the customers and suppliers listed on Schedule 5.17 , including, without limitation, any contractual change of control provisions. 

5.18   Employee Benefit Plans . No events, including without limitation, any “reportable event” or “prohibited transactions,” as those terms are defined in the Employee Retirement Income Security Act of 1974 as the same may be amended from time to time (“ ERISA ”), have occurred in connection with any type of plan, arrangement, association or fund covered by ERISA in which any personnel of the Note Parties or any of their Affiliates which is under common control with the Note Parties (within the meaning of applicable provisions of the Code) participate (“ Benefit Plans ”) which would have a Material Adverse Effect. The Benefit Plans are in material compliance with all applicable provisions of ERISA and the Code and meet the minimum funding standards of ERISA and the Code where applicable.

 

5.19   Environmental Matters . Except as disclosed on Schedule 5.19 or to the extent that it could not reasonably be expected to have a Material Adverse Effect, (a) no Note Party has received any notice to the effect, or has any knowledge, that any Real Property or its operations are not in compliance with any of the requirements of applicable federal, state, provincial and local environmental, health and safety statutes and regulations (“ Environmental Laws ”) or are the subject of any federal, state or provincial investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment; (b) to the knowledge of the Note Parties, there have been no releases of Hazardous Substances at, on or under any Real Property; (c) there are no underground storage tanks, active or abandoned, including without limitation petroleum storage tanks, on or under any Real Property; (d) no Note Party has directly transported or directly arranged for the transportation of any hazardous material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA or on any similar state list or which is the subject of federal, state, provincial or local enforcement actions or other investigations which may lead to claims against such Person for any remedial work, damage to natural resources or personal injury, including without limitation, claims under CERCLA or any analogous legislation; and (e) no conditions exist at, on or under any Real Property which, with the giving of notice, would rise to any liability under any Environmental Laws.

5.20   Margin Security . No Note Party is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin securities and none of the loans advanced hereunder shall be used for the purpose of purchasing or carrying any margin securities or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase any margin securities or for any other purpose not permitted by Regulations T, U or X of the Board of Governors of the Federal Reserve System.

5.21   Brokerage Fees, etc . Except as set forth on Schedule 5.21 , no broker’s, finders’ or placement fee or commission will be payable to any Person retained by or on behalf of HIG Capital or any Note Party or any representative of any such Person, with respect to any of the transactions contemplated by this Agreement. Each Note Party hereby jointly and severally indemnifies each Note Purchaser against and agrees that such Person will hold each such party harmless from any claim, demand or liability, including reasonable attorneys’ fees, for any broker’s, finder’s or placement fee or commission incurred by such indemnifying party or HIG Capital or a representative of such Person.

5.22   Solvency . After giving effect to the Transactions on the Series B Closing Date, the saleable going-concern value of the Note Parties’ total assets at a fair valuation in the ordinary course, and at a present fair saleable value, is greater than the amount of the Note Parties total obligations to all Persons   (taking into account, as applicable, rights of contribution, subrogation and indemnity with regard to obligations shared with others).   Parent and its Subsidiaries will not be rendered insolvent (as defined in Section 101(32) of the United States Bankruptcy Code) or left with unreasonably small assets with which to conduct its business by the execution or delivery of this Agreement or of any of the other Documents or by the transactions contemplated hereunder or thereunder.

5.23   Security Interest . Each of the Collateral Documents creates and grants to the First Lien Collateral Agent and the Second Lien Collateral Agent, for its own benefit and for the benefit of the Note Purchasers, a legal, valid and binding Lien in the Collateral identified therein, and upon the recordation of the Mortgages and the filing of UCC financing statements in the jurisdictions listed on Schedule 5.23 hereto and the recording or filing required under any similar law of any foreign jurisdiction, such Lien shall be a perfected security interest (superior and prior to the rights of all other Persons other than to the extent specified in Section 12 and subject only to the Permitted Encumbrances) on those assets in which a Lien can be perfected by such filing. 

5.24   Permits; Laws . Each Note Party has all material permits, licenses and any similar authority necessary for the conduct of such Person’s business as presently conducted and as proposed to be conducted, and no Note Party is in default in any material respect under any of such franchises, permits, licenses or other similar authority. 

 

5.25   Government Regulation; Margin Stock . Neither the Issuer nor any Person controlling the Issuer or under common control with the Issuer, is subject to any applicable provision under the Federal Power Act, the Investment Company Act, the Interstate Commerce Act, or under any other statute or regulation which limits the incurring by the Issuer of debt as contemplated by this Agreement.

5.26   Anti-Terrorism Laws . 

(a)   General .

To the knowledge of the Note Parties, after reasonable inquiry, none of Parent nor any of its Subsidiaries nor any direct or indirect investor in any Note Party, is in violation of any Anti-Terrorism Law or engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.

(b)   Executive Order No. 13224 .

To the knowledge of the Note Parties, after reasonable inquiry, neither Parent, nor any of its Subsidiaries nor any direct or indirect investor in any Note Party, or their respective agents acting or benefiting in any capacity in connection with the transactions hereunder, is any of the following (each a “ Blocked Person ”):

(i)   a Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order No. 13224;

(ii)   a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order No. 13224;

(iii)   a Person or entity with which any Note Purchaser is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law;

(iv)   a Person or entity that commits, threatens or conspires to commit or supports “terrorism” as defined in the Executive Order No. 13224;

(v)   a Person or entity that is named as a “specially designated national” on the most current list published by the U.S. Treasury Department Office of Foreign Asset Control at its official website or any replacement website or other replacement official publication of such list, or

(vi)   a person or entity who is affiliated or associated with a person or entity listed above.

To the best knowledge of the Note Parties, after reasonable inquiry, neither Parent nor any of its Subsidiaries or to the knowledge of the Note Parties, any of its or their agents acting in any capacity in connection with the transactions hereunder (i) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, or (ii) deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order No. 13224.

 

SECTION 6.   CLOSING CONDITIONS FOR INITIAL CLOSING. 

The obligation of each Note Purchaser to purchase and pay for the Notes provided for hereunder is subject to the satisfaction or waiver by the Note Purchasers of the following conditions, each as of the Initial Closing Date:

6.1   Representations and Warranties; No Default . All representations and warranties of the Note Parties contained in this Agreement shall be true and correct in all material respects, and there shall exist no Default or Event of Default under any of the Note Documents or any other material agreement to which any Note Party is a party as of the Initial Closing Date, after giving effect to the transactions contemplated hereby. 

6.2   Documents Satisfactory; Transactions Consummated . The proceeds from the issuance of the Notes shall be used for the purposes set forth in Section 2.9 . The Acquisition shall be consummated, without giving effect to any waivers, modifications or amendments other than such as have been reflected in a written amendment or letter agreement that has been provided to the Note Purchasers in final and fully executed form prior to the Initial Closing Date.  

6.3   Delivery of Documents . The Note Purchasers shall have received the following items, each of which shall be in form and substance reasonably satisfactory to the Note Purchasers and, unless otherwise noted, dated the Closing Date:

 

 

6.4   Due Diligence; No Change in Condition . The Note Purchasers shall be satisfied in their sole and absolute discretion with the results of their legal, business, accounting and tax due diligence reviews of Parent and its Subsidiaries and there shall be no change from a legal, business, accounting or tax perspective from the time of such due diligence reviews until the Closing Date. 

 

6.5   Corporate/Capital Structure . The Note Purchasers shall be satisfied with the ownership, corporate and legal structure and capitalization of Parent and its Subsidiaries, including, without limitation, the terms and conditions of any Capital Stock, options, warrants or other securities issued by Parent and each of its Subsidiaries and any agreements related thereto, and the management of Parent and each of its Subsidiaries shall be acceptable to the Note Purchasers. 

6.6   Authorizations, Consents and Approvals . Each Note Party shall have received any and all necessary authorizations, consents and approvals (if any) and shall have made any and all filings and shall have satisfied all applicable waiting periods necessary in connection with the consummation of the transactions contemplated by this Agreement and the other Note Documents. 

6.7   No Material Adverse Effect . Nothing shall have occurred (and the Note Purchasers shall not be aware of any facts or conditions not previously known) which the Note Purchasers shall, in their sole discretion, determine has or could be reasonably expected to have, a Material Adverse Effect or that would result in the Note Parties incurring non-ordinary course costs or damages exceeding the sum of $150,000. 

6.8   Litigation . There shall exist no action, suit, investigation, litigation or proceeding affecting Parent or any of its Subsidiaries or any of its properties pending or, to any Note Parties’ knowledge threatened, before any court, governmental agency or arbitrator that, in the determination of the Note Purchasers, (i) could reasonably be expected to have a Material Adverse Effect, or (ii) purports to affect the legality, validity or enforceability of this Agreement, the Notes, or any other Note Document or the consummation of the transactions contemplated hereby and thereby. No order, judgment or decree of any court, arbitrator or governmental body shall enjoin or restrain the Note Purchasers from acquiring the Notes or from making the loans evidenced by the Notes.

6.9   Other Fees and Expenses . On the Closing Date, all reasonable expenses of the Collateral Agents and the Note Purchasers (including, without limitation, reasonable legal fees and expenses) incurred in connection with the negotiation and execution of this Agreement and the other Note Documents shall have been paid by the Issuer.

6.10   No Violation of Regulations T, U or X . The issuance of the Notes shall not violate Regulations T, U or X of the Board of Governors of the Federal Reserve Board.

6.11   Perfection of Security . Each Note Party shall have duly authorized, executed, acknowledged and delivered such security agreements, notices, financing statements, and other instruments as the Note Purchasers may have reasonably requested in order to perfect the Liens purported or required pursuant to this Agreement, the Security Agreements or any other Note Document to be created in the Collateral and shall have paid or arranged to pay all filing or recording fees or taxes required to be paid in connection with the filing, registration or recordation thereof, including any recording, mortgage, documentary, transfer or intangible taxes. 

6.12   Ancillary Documents . Each applicable Note Party shall have duly authorized, executed and delivered such other certificates, instruments, agreements and other documents and papers reasonably requested by the Note Purchasers in connection with the transactions contemplated hereby in form and substance satisfactory to the Note Purchasers.

 

6.13   Existing Indebtedness . After giving effect to the transactions contemplated by this Agreement, none of the Note Parties shall have outstanding any Indebtedness, other than Indebtedness under the Notes and the Indebtedness disclosed on Schedule 6.13 hereto.

6.14   Employment Agreements . The Note Purchasers shall be satisfied in their sole and absolute discretion with the Key Employee Employment Agreements.

SECTION 6A. CLOSING CONDITIONS FOR SERIES B CLOSING.

The obligation of each Note Purchaser to purchase and pay for the Notes provided for hereunder is subject to the satisfaction or waiver by the Note Purchasers of the following conditions, each as of the Series B Closing Date:

6A.1.   Representations and Warranties; No Default . All representations and warranties of the Note Parties contained in this Agreement shall be true and correct in all material respects, and there shall exist no Default or Event of Default under any of the Note Documents or any other material agreement to which any Note Party is a party as of the Series B Closing Date, after giving effect to the transactions contemplated hereby.

6A.2   Documents Satisfactory; Transactions Consummated . The proceeds from the issuance of the Notes shall be used for the purposes set forth in Section 2.9 . The Transactions shall be consummated, without giving effect to any waivers, modifications or amendments other than such as have been reflected in a written amendment or letter agreement that has been provided to the Note Purchasers in final and fully executed form prior to the Series B Closing Date.

6A.3   Delivery of Documents . The Note Purchasers shall have received the following items, each of which shall be in form and substance reasonably satisfactory to the Note Purchasers and, unless otherwise noted, dated the Series B Closing Date:

 

 

 

6A.4.   Due Diligence; No Change in Condition . The Note Purchasers shall be satisfied in their sole and absolute discretion with the results of their legal, business, accounting and tax due diligence reviews of Parent and its Subsidiaries and there shall be no change from a legal, business, accounting or tax perspective from the time of such due diligence reviews until the Series B Closing Date.

6A.5.   Corporate/Capital Structure . The Note Purchasers shall be satisfied with the ownership, corporate and legal structure and capitalization of Parent and its Subsidiaries, including, without limitation, the terms and conditions of any Capital Stock, options, warrants or other securities issued by Parent and each of its Subsidiaries and any agreements related thereto, and the management of Parent and each of its Subsidiaries shall be acceptable to the Note Purchasers.

6A.6.   Authorizations, Consents and Approvals . Each Note Party shall have received any and all necessary authorizations, consents and approvals (if any) and shall have made any and all filings and shall have satisfied all applicable waiting periods necessary in connection with the consummation of the transactions contemplated by this Agreement and the other Note Documents.

6A.7.   No Material Adverse Effect . Nothing shall have occurred (and the Note Purchasers shall not be aware of any facts or conditions not previously known) which the Note Purchasers shall, in their sole discretion, determine has or could be reasonably expected to have, a Material Adverse Effect or that would result in the Note Parties incurring non-ordinary course costs or damages exceeding the sum of $150,000.

6A.8.   Litigation . There shall exist no action, suit, investigation, litigation or proceeding affecting Parent or any of its Subsidiaries or any of its properties pending or, to any Note Parties’ knowledge threatened, before any court, governmental agency or arbitrator that, in the determination of the Note Purchasers, (i) could reasonably be expected to have a Material Adverse Effect, or (ii) purports to affect the legality, validity or enforceability of this Agreement, the Notes, or any other Note Document or the consummation of the transactions contemplated hereby and thereby. No order, judgment or decree of any court, arbitrator or governmental body shall enjoin or restrain the Note Purchasers from acquiring the Notes or from making the loans evidenced by the Notes.

6A.9.   Other Fees and Expenses . On the Series B Closing Date, all reasonable expenses of the Collateral Agents and the Note Purchasers (including, without limitation, reasonable legal fees and expenses) incurred in connection with the negotiation and execution of this Agreement and the other Note Documents shall have been paid by the Issuer.

6A.10.   No Violation of Regulations T, U or X . The issuance of the Notes shall not violate Regulations T, U or X of the Board of Governors of the Federal Reserve Board.

 

6A.11.   Perfection of Security . Each Note Party shall have duly authorized, executed, acknowledged and delivered such security agreements, notices, financing statements, and other instruments as the Note Purchasers may have reasonably requested in order to perfect the Liens purported or required pursuant to this Agreement, the Security Agreements or any other Note Document to be created in the Collateral and shall have paid or arranged to pay all filing or recording fees or taxes required to be paid in connection with the filing, registration or recordation thereof, including any recording, mortgage, documentary, transfer or intangible taxes.

6A.12.   Ancillary Documents . Each applicable Note Party shall have duly authorized, executed and delivered such other certificates, instruments, agreements and other documents and papers reasonably requested by the Note Purchasers in connection with the transactions contemplated hereby in form and substance satisfactory to the Note Purchasers.

6A.13.   Existing Indebtedness . After giving effect to the transactions contemplated by this Agreement, none of the Note Parties shall have outstanding any Indebtedness, other than Indebtedness under the Notes and the Indebtedness disclosed on Schedule 6.13 hereto.

6A.14.   Employment Agreements . The Note Purchasers shall be satisfied in their sole and absolute discretion with the Key Employee Employment Agreements.

6A.15.   Series E Preferred Stock . ACT-DE LLC shall have paid $3,500,000 for the newly issued Series E Preferred Stock pursuant to the Purchase Agreement, dated as of the date hereof, among ACT-DE LLC, the buyer parties signatory thereto and Parent.

SECTION 7.   COVENANTS

The Note Parties covenant and agree, for the benefit of the Note Purchasers, that until payment in full of the Note Obligations:

7.1   Payment of Obligations . The Issuer will duly and punctually pay the principal, interest and any other amounts owing under this Agreement and the Notes when due under the terms of this Agreement, and each Note Party will observe and comply with all other requirements applicable to it pursuant to this Agreement and the other Documents.

7.2   Taxes and Other Charges . Each Note Party shall, and shall cause each of its Subsidiaries to, duly pay and discharge, or cause to be paid and discharged, before the same becomes in arrears, all taxes, assessments and other governmental charges imposed upon such Person and its properties, sales or activities, or upon the income or profits therefrom except where failure to pay and discharge such amounts could not reasonably be expected to involve an amount greater than $100,000 in the aggregate at any one time outstanding, and duly pay and discharge all claims for labor, materials or supplies which if unpaid might by law become a Lien upon any of its property, prior to its becoming such a Lien; provided , however , that, to the extent permitted under applicable law, any such tax, assessment, charge or claim need not be paid if the validity or amount thereof shall at the time be contested in good faith by appropriate proceedings and if such Person shall, in accordance with GAAP, have set aside on its books adequate reserves with respect thereto; and provided , further , that each Note Party shall, and shall cause each of its Subsidiaries to, pay or bond, or cause to be paid or bonded, all such taxes, assessments, charges or other governmental claims immediately upon the commencement of proceedings to foreclose any Lien which may have attached as security therefor (except to the extent such proceedings have been dismissed or stayed).

 

7.3   Maintenance of Properties . Each Note Party shall, and shall cause each of its Subsidiaries to: 

7.4   Statutory Compliance . Each Note Party shall comply in all material respects with all valid Legal Requirements applicable to it, except where (a) non-compliance shall not have more than a de   minimus effect on any Note Party or (b) (x) compliance therewith shall at the time be contested in good faith by appropriate proceedings and (y) failure so to comply with the provisions being contested has not resulted, and could not, in the aggregate, reasonably be expected to cause a Material Adverse Effect.

7.5   Compliance with Material Agreements; Notices of Material Agreements . Each Note Party shall comply in all material respects with all Material Agreements (to the extent not in violation of the other provisions of this Agreement) to which it is a party. Without the prior written consent of the Required Purchasers, no Material Agreement shall be amended, modified, waived or terminated in any manner materially adverse to the interests of the Note Purchasers. The Note Parties shall provide to the Note Purchasers, promptly following the execution thereof, notice of the entry by any Note Party of any new Material Agreement following the Closing or of any material amendments or notices under any Material Agreement (excluding purchase orders and other ordinary course communications, but including any notices of default or intent to terminate any such Material Agreement), and shall provide to the Note Purchasers copies of any such new Material Agreement, material amendment or notice within 5 Business Days of any request therefore by a Note Purchaser or either Collateral Agent. 

 

7.6   Insurance . Each Note Party shall, and shall cause each of its Subsidiaries to, at all times from and after the Closing Date, maintain in full force and effect insurance with reputable and solvent insurance carriers in such amounts, covering such risks and liabilities and with such deductibles or self-insured retentions as are in accordance with normal industry practice in each such entity’s business. 

7.7   ERISA   Each Note Party shall, and shall cause its Subsidiaries to:

 

7.8   Use of Proceeds . The Issuer shall use the proceeds of the Notes only for the purposes set forth in Section 2.9 . 

7.9   Further Assurances . Each Note Party shall promptly inform the Note Purchasers of the creation or acquisition of any direct or indirect Subsidiary and cause each such direct or indirect Subsidiary to execute a joinder of this Agreement as a Guarantor and to execute the Security Agreements (in each case to the extent it is legally able to do so) and to take such other actions as are reasonably requested to perfect liens in favor of the Collateral Agents in any assets of such Subsidiary. 

7.10   Environmental Laws . Each Note Party shall comply, and cause each of its Subsidiaries to comply, in all material respects with the provisions of all Environmental Laws, and shall keep its owned properties and the properties of its Subsidiaries free of any Lien imposed pursuant to any Environmental Law. No Note Party shall cause or suffer or permit, or suffer or permit any of its Subsidiaries to cause or suffer or permit, the property of such Person to be used for the generation, production, processing, handling, storage, transporting or disposal of any Hazardous Substance, except in material compliance with Environmental Laws.

7.11   [ Reserved ].

7.12   Financial Covenants . The Note Parties will comply with the covenants set forth on Schedule 7.12 . 

7.13   Indebtedness . Parent will not, and will not permit any of its Subsidiaries to, create, assume, incur or in any manner be or become liable in respect of or permit to exist any Indebtedness except the following: