8% SENIOR SECURED NOTE PURCHASE AGREEMENT

 

Exhibit 10.1

 

This 8% Senior Secured Note Purchase Agreement (this “Agreement”) is dated as of May 1, 2006, by and among VendingData Corporation, a Nevada corporation (the “Company”), and Bricoleur Partners, L.P., Bricoleur Enhanced, L.P., BRIC 6, L.P. and Bricoleur Offshore Ltd. (each, including its successors and assigns, a “Lender” and collectively the “Lenders”).

 

RECITALS 

 

A. WHEREAS, the Company and the Lenders are parties to that certain 7% Senior Secured Note Purchase Agreement, dated as of March 29, 2006 (the “Original Agreement”), pursuant to which the Lenders agreed to purchase, and the Company agreed to sell, certain securities of the Company, and the parties intend for this Agreement to supersede and replace the Original Agreement in its entirety

 

B. WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Lender, and each Lender, severally and not jointly, desires to purchase from the Company, an 8% Senior Secured Note (“Note”) in the form of Exhibit A and Common Stock Purchase Warrants (“Warrants”) in the form of Exhibit B attached hereto entitling the Lenders to purchase up to 3,200,000 shares of Common Stock.

 

C. WHEREAS, concurrent with close of the purchase and sale of the Notes and Warrants under this Agreement, the Company will acquire a put option from the Lenders to sell, from time to time, up to $5 million of the Company’s Common Stock to the Lenders pursuant to that certain Securities Put Agreement (“Securities Put Agreement”) of the same date herewith between the Company and Lenders.

 

AGREEMENT

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Lender agree as follows:

 

ARTICLE I.

 

DEFINITIONS

 

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings indicated in this Section 1.1:

 

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Lender, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Lender will be deemed to be an Affiliate of such Lender.

 

 

“Business Day” means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States.

 

“Closing” means the Closing of the purchase and sale of the Notes and Warrants pursuant to Section 2.1.

 

“Closing Date” means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Lenders’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Notes and Warrants have been satisfied or waived.

 

“Commission” means the Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed into.

 

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

“Company Counsel” means Preston Gates & Ellis LLP.

 

“Disclosure Schedules” means the Disclosure Schedules of the Company delivered in connection with the Closing.

 

“Effective Date” means the date that the initial Registration Statement filed by the Company pursuant to the Registration Rights Agreement is first declared effective by the Commission.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).

 

“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

 

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

 

 

“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).

 

“Notes” shall mean the 8% Senior Secured Notes in the form of Exhibit A attached hereto.

 

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated the date hereof, among the Company and the Lenders in the form of Exhibit C attached hereto.

 

“Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale by each Lender of the Warrant Shares.

 

“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Senior Notes” shall mean the Company’s outstanding 10% senior secured convertible notes due February 2008 and outstanding 10% senior secured convertible notes due March 2008.

 

“Shareholder Approval” means such approval as may be required by the applicable rules and regulations of the American Stock Exchange (or any successor entity) from the shareholders of the Company in accordance with Section 14 of the Exchange Act with respect to the Company’s issuance of shares of its Common Stock pursuant to the Securities Put Agreement.

 

“Short Sales” shall include all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock). 

 

 

“Subscription Amount” means, as to each Lender, the aggregate amount to be paid for a Notes and Warrants purchased hereunder as specified below such Lender’s name on the signature page of this Agreement and next to the heading “Subscription Amount”, in United States Dollars and in immediately available funds.

 

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a).

 

“Trading Day” means a day on which the Common Stock is traded on a Trading Market.

 

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the Nasdaq Capital Market, the American Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board.

 

“Transaction Documents” means this Agreement, and the Notes, Warrants, Security Agreement and Registration Rights Agreement and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.

 

ARTICLE II.

 

PURCHASE AND SALE

 

2.1 Closing. Upon the terms and subject to the conditions set forth herein, the Company agrees to sell, and each Lender agrees to purchase, severally and not jointly, a Note and Warrant for the Subscription Amount set forth on each respective Lender’s signature page attached hereto, which in the aggregate shall equal $13,000,000. On the Closing Date (the “Closing Date”), each Lender shall deliver to the Company, via wire transfer or a certified check, immediately available funds equal to its respective Subscription Amount, and the Company shall deliver to such Lender a duly executed Note. Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of Preston Gates Ellis LLP, 1990 Main Street Suite 600, Irvine, California 92614, or such other location as the parties shall mutually agree.

 

2.2 Deliveries.

 

(a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered to Lenders the following:

 

(i) this Agreement duly executed by the Company;

 

(ii) the Notes and Warrants duly executed by the Company;

 

 

(iii) a legal opinion of Company Counsel in the form acceptable to the Lenders in their reasonable discretion;

 

(iv) the Registration Rights Agreement duly executed by the Company;

 

(v) a Security Agreement (“Security Agreement”) in the form of Exhibit D attached hereto duly executed by the Company;

 

(vi) the delivery of the written agreements of the holders of the Senior Notes to convert all indebtedness outstanding under the Senior Notes not to be paid off at the Closing to shares of Common Stock in the form acceptable to the Lenders in their reasonable discretion;

 

(vii) a pay-off statement from Lampe Conway & Co. stating the full amount due and payable as of the Closing Date under that certain Credit Agreement dated October 1, 2005 between the Company, Lampe and Triage Capital Management, L.P.; and

 

(viii) the Securities Put Agreement duly executed by the Company.

 

(b) On or prior to the Closing Date, each Lender shall deliver or cause to be delivered to the Company the following:

 

(i) this Agreement duly executed by such Lender;

 

(ii) such Lender’s Subscription Amount by wire transfer or cashier’s check to the account designated by the Company;

 

(iii) the Registration Rights Agreement duly executed by such Lender; and

 

(iv) the Security Agreement duly executed by such Lender.

 

2.3 Closing Conditions. 

 

(a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

 

(i) the accuracy when made and on the Closing Date of the representations and warranties of Lenders contained herein;

 

(ii) all obligations, covenants and agreements of Lenders required to be performed at or prior to the Closing Date shall have been performed; and

 

(iii) the delivery by the Lenders of the items set forth in Section 2.2(b) of this Agreement.

 

 

(b) The obligations of each Lender hereunder in connection with the Closing are subject to the following conditions being met:

 

(i) the accuracy when made and on the Closing Date of the representations and warranties of the Company contained herein;

 

(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed; and

 

(iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement.

 

ARTICLE III.

 

REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and Warranties of the Company. Except as set forth under the corresponding section of the disclosure schedules delivered to the Lenders concurrently herewith (the “Disclosure Schedules”) which Disclosure Schedules shall be deemed a part hereof, the Company hereby makes the representations and warranties set forth below to each Lender:

 

(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

 

(b) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

 

(c) Authorization; Enforcement. Subject to Shareholder Approval as to the Securities Put Agreement, the Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, its board of directors or its stockholders in connection therewith other than in connection with the Required Approvals. Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(d) No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company, the issuance and sale of the Notes and Warrants and the consummation by the Company of the other transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected.

 

(e) Filings, Consents and Approvals. Except as set forth on Schedule 3.1(e), the Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) filings required pursuant to Section 4.4 of this Agreement, (ii) the filing with the Commission of the Registration Statement, (iii) application(s) to each applicable Trading Market for the listing of the Warrant Shares for trading thereon in the time and manner required thereby, (iv) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws; (v) the filing of a UCC-1 Financing Statement with the Nevada Secretary of State; and (vi) Shareholder Approval of the Securities Put Agreement (collectively, the “Required Approvals”).

 

 

(f) Issuance of Securities. The Notes and Warrants are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Warrant Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and non-assessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its duly authorized capital stock the Warrant Shares issuable pursuant to this Agreement.

 

(g) Capitalization. The capitalization of the Company is as set forth on Schedule 3.1(g). No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as set forth on Schedule 3.1(g), there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Notes and Warrants will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Lenders) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors of the Company or others is required for the issuance and sale of the Notes and Warrants. Except as set forth on Schedule 3.1(g), there are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

 

 

(h) SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the period commencing January 1, 2005 through the date hereof (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. Except as set forth on Schedule 3.1(h), as of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Except as set forth on Schedule 3.1(h), the financial statements of the Company included in the SEC Reports complied in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Except as set forth on Schedule 3.1(h), such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

 

(i) Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report or as set forth on Schedule 3.1(i), (i) there has been no event, occurrence or development that has had or that could reasonably be expected by the Company to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information.

 

 

(j) Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which materially adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Notes and Warrants. There is no Action that has not been disclosed in the SEC Reports. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

 

(k) Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company, and neither the Company or any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. No executive officer, to the knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(l) Compliance. Neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment.

 

 

(m) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not have or reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

 

(n) Title to Assets. Except as set forth on Schedule 3.1(n), the Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to the business of the Company and the Subsidiaries and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance. The security interest granted by the Company to the Lenders pursuant to the Security Agreement will be senior to any other Liens of the Company.

 

(o) Patents and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or material for use in connection with their respective businesses as described in the SEC Reports (collectively, the “Intellectual Property Rights”). Neither the Company nor any Subsidiary has received a notice (written or otherwise) that the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties.

 

(p) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage at least equal to the Subscription Amount. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

 

 

(q) Transactions With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $60,000 other than (i) for payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) for other employee benefits, including stock option agreements under any stock option plan of the Company.

 

(r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date.

 

(s) Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. Lenders shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents as a result of any action taken by the Company or its Affiliates.

 

(t) Private Placement. Assuming the accuracy of the Lenders representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Notes and Warrants by the Company to the Lenders as contemplated hereby.

 

(u) Investment Company. The Company is not, and is not an Affiliate of, and immediately after the Closing, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act.

 

(v) Registration Rights. Other than each of the Lenders, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.

 

 

(w) Listing and Maintenance Requirements. The Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.

 

(x) Application of Takeover Protections. The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Certificate of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to any Lender as a result of such Lender and the Company fulfilling their obligations or exercising their rights under the Transaction Documents.

 

(y) Disclosure. All disclosure furnished by or on behalf of the Company to Lenders regarding the Company, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, with respect to the representations and warranties made herein are true and correct with respect to such representations and warranties and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

 

(z) No Integrated Offering. Assuming the accuracy of each Lender’s representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Notes and Warrants to be integrated with prior offerings by the Company for purposes of the Securities Act or any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated. 

 

(aa) Tax Status. Except as set forth on Schedule 3.1(aa), and for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary.

 

 

(bb) Acknowledgement Regarding Each Lender’s Purchase. The Company acknowledges and agrees that each Lender is acting solely in the capacity of an arm’s length lender with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that each Lender is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by such Lender or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to each Lender’s purchase of its respective Note and Warrant. The Company further represents to each Lender that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 

3.2 Representations and Warranties of Lenders. Each Lender, for itself and for no other Lender, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:

 

(a) Organization; Authority. Such Lender is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution, delivery and performance by such Lender of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate or similar action on the part of such Lender. Each Transaction Document to which it is a party has been duly executed by such Lender, and when delivered by such Lender in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Lender, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(b) Own Account. Each Lender understands that the Note, Warrant and Warrant Shares are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Note, Warrant and Warrant Shares as principal for its own account and not with a view to or for distributing or reselling such securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such securities (this representation and warranty not limiting each Lender’s right to sell the Warrant Shares pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law. Each Lender is acquiring the Note and Warrant hereunder in the ordinary course of its business.

 

 

(c) Lender Status. At the time such Lender was offered the Note and Warrant, it was, and at the date hereof it is, an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act. Such Lender is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

 

(d) Experience of Lenders. Each Lender, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Note and Warrant, and has so evaluated the merits and risks of such investment. Each Lender is able to bear the economic risk of an investment in the Note and Warrant and, at the present time, is able to afford a complete loss of such investment.

 

(e) General Solicitation. Each Lender is not purchasing the Note and Warrant as a result of any advertisement, article, notice or other communication regarding the Note and Warrant published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

 

(f) Short Sales and Confidentiality Prior To The Date Hereof. Other than the transactions contemplated hereunder or under the Securities Put Agreement and except as separately disclosed by the Lenders to the Company in writing, each Lender has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Lender, engaged in any transaction, including Short Sales, in the securities of the Company since March 15, 2006 (“Discussion Date”). Such Lender has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).

 

(g) Access to Information. Each Lender acknowledges that it has received and had the opportunity to review (i) copies of the SEC Reports, and (ii) the terms of the Securities Put Agreement, and all exhibits thereto. Each Lender further acknowledges that it or its representatives have been afforded (iii) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Notes and Warrants, the merits and risks of investing in the Notes and Warrants, and the terms of the Securities Put Agreement; (iv) access to information about the Company and the Company's financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment in the Notes and Warrants; and (v) the opportunity to obtain such additional information which the Company possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy and completeness of the information contained in the SEC Reports.

 

(h) Restrictions on Notes and Warrants. Each Lender understands that the Notes and Warrants have not been registered under the Securities Act and may not be offered, resold, pledged or otherwise transferred except (a) pursuant to an exemption from registration under the Securities Act or pursuant to an effective registration statement in compliance with Section 5 under the Securities Act, (b) in accordance with all applicable securities laws of the states of the United States and other jurisdictions and (c) the lock-up provisions of Section 4.1(b) below.

 

 

ARTICLE IV.

 

OTHER AGREEMENTS OF THE PARTIES

 

4.1 Transfer Restrictions.

 

(a) The Notes, Warrants and Warrant Shares may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of the Notes, Warrants and Warrant Shares other than pursuant to an effective registration statement or Rule 144, the Company may require the transferor thereof to provide to the Company an opinion of counsel to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred securities under the Securities Act.

 

(b) In addition to transfer restrictions under the Securities Act, the Lenders agree that any Warrant Shares issued upon exercise of the Warrants shall be subject to a lock-up for a period of six months from the date of Closing and during such period shall not be sold, assigned or otherwise disposed of by such Lender except to a Permitted Transferee (as defined below) in accordance with subpart (d) below.

 

(c) Each Lender agrees to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Notes, Warrants and Warrant Shares in the following form:

 

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND ARE “RESTRICTED SECURITIES” AS THAT TERM IS DEFINED IN RULE 144 UNDER THE SECURITIES ACT. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION THEREUNDER, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE REASONABLE SATISFACTION OF COUNSEL TO THE ISSUER. [IN ADDITION, THESE SECURITIES ARE SUBJECT TO A CONTRACTUAL LOCK-UP THE TERMS OF WHICH ARE SET FORTH IN A NOTE PURCHASE AGREEMENT DATED MAY 1, 2006 A COPY OF WHICH IS ON FILE WITH THE COMPANY.]

 

 

(d) Notwithstanding the foregoing, any holder of a Note, Warrant or Warrant Shares may transfer such securities to any Permitted Transferee of such holder who consents in a writing delivered to the Company to be bound by the terms of this Agreement applicable to such securities, subject to the Company’s reasonable determination that such transfer does not require registration of such transferred securities under the Securities Act. With respect to any such holder, a “Permitted Transferee” means the spouse or lineal descendants of such holder, any trust for the benefit of such holder or the benefit of the spouse or lineal descendants of such holder, any corporation or partnership in which such holder, the spouse and the lineal descendants of such holder are the direct and beneficial owners of substantially all of the equity interests (provided such holder, spouse and lineal descendants agree in writing to remain the direct and beneficial owners of all such equity interests), the personal representative of such holder upon such holder’s death for purposes of administration of such holder’s estate or upon such holder’s incompetency for purposes of the protection and management of the assets of such holder; or for any holder that is a partnership, limited liability company, corporation or other entity to (i) a partner or former partner of such partnership, a member or former member of such limited liability company or a shareholder of such corporation, (ii) the estate of any such partner, member or shareholder, or (iii) any other Affiliate of such holder; or for any Lender, to another Lender or an Affiliate of a Lender.

 

4.2 Furnishing of Information. As long as any Lender owns the Warrant or any Warrant Shares, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. As long as any Lender owns the Warrant or any Warrant Shares, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to such Lender and make publicly available in accordance with Rule 144(c) such information as is required for such Lender to sell the Warrant Shares under Rule 144. The Company further covenants that it will take such further action as each Lender may reasonably request, to the extent required from time to time to enable such Lender to sell Warrant Shares without registration under the Securities Act within the requirements of the exemption provided by Rule 144.

 

4.3 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Notes, Warrants or Warrant Shares in a manner that would require the registration under the Securities Act of the sale of the Notes, Warrants and Warrant Shares to any Lender or that would be integrated with the offer or sale of the Notes, Warrants and Warrant Shares for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.

 

 

4.4 Securities Laws Disclosure; Publicity. The Company shall, within one Trading Day of the Closing Date, issue a press release disclosing the material terms of the transactions contemplated hereby, and shall file a Current Report on Form 8-K which shall attach the Transaction Documents thereto by the fourth Business Day following the Closing Date. The press release and Form 8-K shall be acceptable to the Lenders in their reasonable discretion. The Lenders shall not issue any such press release or otherwise make any such public statement without the prior consent of the Company. The Company shall not publicly disclose the name of the Lenders, or include the name of any Lender in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Lender, except (i) as required by federal securities law in connection with (A) any registration statement contemplated by the Registration Rights Agreement and (B) the filing of final Transaction Documents (including signature pages thereto) with the Commission and (ii) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide such Lender with prior notice of such disclosure permitted under this subclause (ii).

 

4.5 Use of Proceeds. The Company shall use the net proceeds from the sale of the Notes and Warrants hereunder as set forth on Schedule 4.5 of the Disclosure Schedule.

 

4.6 Listing of Common Stock. The Company hereby agrees to use best efforts to maintain the listing of the Common Stock on a Trading Market, and as soon as reasonably practicable following the Closing to list all of the Warrant Shares on such Trading Market. The Company further agrees, if the Company applies to have the Common Stock traded on any other Trading Market, it will include in such application all of the Warrant Shares, and will take such other action as is necessary to cause all of the Warrant Shares to be listed on such other Trading Market as promptly as possible. The Company will take all action reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Trading Market.

 

4.7 Short Sales and Confidentiality After The Date Hereof. Each Lender covenants that neither it nor any Affiliate acting on its behalf or pursuant to any understanding with it will engage in any transactions, including any Short Sales, in the securities of the Company during the period commencing at the Discussion Time and ending at the time that the transactions contemplated by this Agreement are first publicly announced as described in Section 4.4. Each Lender covenants that neither it nor any Affiliate acting on its behalf or pursuant to any understanding with it will engage in any Short Sales in the securities of the Company during the period commencing at the Discussion Time and ending on the Effective Date (“Black-out Termination Date”). Each Lender covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company as described in Section 4.4, such Lender will maintain the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Each Lender understands and acknowledges that the Commission currently takes the position that coverage of short sales of shares of the Common Stock “against the box” prior to the Effective Date of the Registration Statement with the Warrant Shares is a violation of Section 5 of the Securities Act, as set forth in Item 65, Section A, of the Manual of Publicly Available Telephone Interpretations, dated July 1997, compiled by the Office of Chief Counsel, Division of Corporation Finance. Notwithstanding the foregoing, each Lender makes no representation, warranty or covenant hereby that it will not engage in Short Sales in the securities of the Company after the Black-out Termination Date.

 

4.8 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Notes and Warrants as required under Regulation D and to provide a copy thereof, promptly upon request of the Lenders. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Notes and Warrants for, sale to Lenders at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Lender.

 

4.9 Dividends and Redemptions. The Company shall not declare or pay any dividend or make any distribution on its capital stock or purchase, redeem (by direct payment, sinking fund or otherwise) or otherwise acquire or retire for value any of its capital stock, except that this restriction shall not apply to the repurchase of shares of Common Stock from any employee of the Company upon the cessation of his or her employment if such purchase is at the Company’s option and is at a price no greater than the price originally paid for these shares by the employee. Notwithstanding the foregoing, nothing in this Agreement shall prohibit the Company from conducting any dividend, asset distribution, spin-off or share repurchase under any arrangement with Dolphin Products Pty Ltd.

 

4.10 Indebtedness. The Company will not create, incur, issue, assume, guarantee or otherwise become liable for, any indebtedness that is senior to or pari passu with the Notes.

 

4.11 Debt Service. The Company agrees that as long as any principal balance remains outstanding under the Notes, 50% of the net proceeds from all of the following will be used to reduce the principal balance of the Notes: (i) sales of the Company’s assets (other than sales of inventory in the ordinary course of business); (ii) amounts received by the Company pursuant to settlement agreements or similar arrangements relating to litigation (excluding amounts awarded to reimburse the Company for costs); and (iii) sales of equity securities of the Company for cash consideration after the Closing Date (excluding proceeds received from (x) the sale of the first 1,000,000 shares of Common Stock or Common Stock Equivalents, calculated in the aggregate, issued after the Closing Date in a private placement transaction or series of transactions, (y) the exercise of warrants and options outstanding on the Closing Date, and (z) the exercise of options issued after the Closing Date to the Company’s employees and directors). Payments made pursuant to this Section 4.11 shall be applied dollar for dollar against scheduled principal payments on the Notes. Notwithstanding the foregoing, the Company shall not be required to apply such amounts to the Notes unless the net proceeds received by the Company with respect to the transaction in question equals or exceeds $50,000.

 

4.12 Reduction in Number of Warrants. If at any time prior to the first anniversary of the Closing Date, the aggregate outstanding principal balance of the Notes is reduced to $7,000,000 or less, the parties agree that 800,000 Warrants, in the aggregate, will be cancelled. If the principal balance under the Notes is reduced to $7,000,000 or less by the second anniversary of the Closing Date, 400,000 Warrants will be cancelled; and if the principal balance of the Notes is reduced to $7,000,000 or less by the third anniversary of the Closing Date, 200,000 Warrants will be cancelled. The cancellation of Warrants pursuant to this Section 4.12 shall be effected (i) pro rata among all Lenders based on the number of Warrants issued to the Lenders at the Closing, and (ii) automatically and immediately upon the Company’s delivery of payment or other effective reduction of principal amount of the Notes without need of any other notice by or action on the part of any party.

 

 

ARTICLE V.

 

MISCELLANEOUS

 

5.1 Termination.  This Agreement may be terminated by any Lender, as to such Lender’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Lenders, or the Company by written notice to the other parties, if the Closing has not been consummated on or before __________, 2006, provided, however, that no such termination will affect the right of any party to sue for any breach by the other party (or parties).

 

5.2 Fees and Expenses. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement; provided that the Company shall, following the Closing, reimburse the reasonable legal fees and expenses of counsel for the Lenders, which shall not exceed for all transactions contemplated by this Agreement $25,000. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of the Notes, Warrants or Warrant Shares to the Lenders.

 

5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede and replace in their entirety all prior agreements and understandings, oral or written, with respect to such matters, including specifically the Original Agreement, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

5.4 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2^nd Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows:

If to the Company:	VendingData Corporation
	6830 Spencer Street
	Las Vegas, NV 89119
	Facsimile: 702 ###-###-####
	Attn: Mark R. Newburg, President
	Chief Executive Officer

If to the Lenders:	c/o Bricoleur Capital Management, LLC
	12230 El Camino Real, Suite 100
	San Diego, CA 92130
	Facsimile: 858 ###-###-####
	Attn: Robert Poole

 

or such other address as either party may provide to the other in writing.

5.5 Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

 

5.6 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. Neither the Company nor the Lenders may assign this Agreement or any rights or obligations hereunder without the prior written consent of each the other party (other than by merger), except that any Lender may assign its rights and obligations hereunder, including any Notes, Warrants or Warrant Shares, to a Permitted Transferee without the Company’s prior written consent.

 

5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

 

5.9 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of California, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the San Diego, California. The parties hereby waive all rights to a trial by jury. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

 

5.10 Survival. The representations and warranties contained herein shall survive the Closing and the delivery of the Notes and Warrants.

 

5.11 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

5.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Lender exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Lender may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

 

5.14 Replacement of Securities. If any certificate or instrument evidencing the Notes, Warrants or Warrant Shares is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement security.

 

5.15 Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto.

 

 

IN WITNESS WHEREOF, the parties hereto have caused this 8% Senior Secured Note Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

 

By:      /s/ Mark R. Newburg                        

           Mark R. Newburg,

President and Chief Executive Officer

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR LENDERS FOLLOWS]

By: Bricoleur Capital Management, LLC,

Its General Partner

By:     /s/ Robert Poole               

Robert Poole, Member of

Management Board

Subscription Amount: $0

By: Bricoleur Capital Management, LLC,

Its General Partner

By:     /s/ Robert Poole                       

Robert Poole, Member of

Management Board

Subscription Amount: $6,000,000

By: Bricoleur Capital Management, LLC,

Its General Partner

By:     /s/ Robert Poole               

Robert Poole, Member of

Management Board

Subscription Amount: $0

By: Bricoleur Capital Management, LLC,

Its Investment Adviser

By:     /s/ Robert Poole                       

Robert Poole, Member of

Management Board

Subscription Amount: $7,000,000