Schedule 13D

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J+ZWT0imPmq7SeTNbx2zdrwv4a0GSewhS3l/f6tWlmKgj+qKl3/5tQxMRs2JYzPG RKI9aL51Tf1GRWjppojDog== 0000950144-07-008172.txt : 20070827 0000950144-07-008172.hdr.sgml : 20070827 20070824184228 ACCESSION NUMBER: 0000950144-07-008172 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20070827 DATE AS OF CHANGE: 20070824 GROUP MEMBERS: ANTHONY TAMER GROUP MEMBERS: H.I.G. - ACT, LTD. GROUP MEMBERS: H.I.G. - CAPITAL PARTNERS III, L.P. GROUP MEMBERS: H.I.G. - GPII, INC. GROUP MEMBERS: H.I.G. ADVISORS III, L.L.C. GROUP MEMBERS: H.I.G. ASSOCIATES III, L.P. GROUP MEMBERS: H.I.G. INVESTMENT GROUP III, L.P. GROUP MEMBERS: SAMI W. MNAYMNEH SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED COMMUNICATIONS TECHNOLOGIES INC CENTRAL INDEX KEY: 0001100820 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 650738251 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-57623 FILM NUMBER: 071079332 BUSINESS ADDRESS: STREET 1: 420 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10170 BUSINESS PHONE: 646-227-1600 MAIL ADDRESS: STREET 1: 420 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10170 FORMER COMPANY: FORMER CONFORMED NAME: SMART INVESTMENT COM INC DATE OF NAME CHANGE: 19991209 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ACT-DE LLC CENTRAL INDEX KEY: 0001410544 IRS NUMBER: 260685800 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: C/O H.I.G. CAPITAL LLC STREET 2: 855 BOYLSTON STREET, 11TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 617-262-8455 MAIL ADDRESS: STREET 1: C/O H.I.G. CAPITAL LLC STREET 2: 855 BOYLSTON STREET, 11TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 SC 13D 1 g09144sc13d.htm SCHEDULE 13D Schedule 13D


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13D

Under the Securities Exchange Act of 1934
(Amendment No. )*

ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.

(Name of Issuer)

Common Stock, $0.01 par value

(Title of Class of Securities)

007511108

(CUSIP Number)

Neil Townsend, Esq.
399 Park Avenue
New York, NY 10022-4689
Phone: 212-705-7722

(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)

August 17, 2007

(Date of Event Which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. o

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See §240.13d-7 for other parties to whom copies are to be sent.

* The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).


CUSIP No.		007511108		Page		2		of		19

NAMES OF REPORTING PERSONS:

ACT-DE LLC

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY):

26-0685800

CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS):

(a) o

(b) þ

SEC USE ONLY:

SOURCE OF FUNDS (SEE INSTRUCTIONS):

CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e):

CITIZENSHIP OR PLACE OF ORGANIZATION:

Delaware

SOLE VOTING POWER:

NUMBER OF

SHARED VOTING POWER:

BENEFICIALLY

OWNED BY

913.79*

EACH

SOLE DISPOSITIVE POWER:

REPORTING

PERSON

WITH

SHARED DISPOSITIVE POWER:

913.79*

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:

913.79*

CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS):

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):

72.65%*

TYPE OF REPORTING PERSON (SEE INSTRUCTIONS):

* Represents shares of Series C Preferred Stock that are convertible into 78,399,417,171.49 shares of Common Stock (with the percentage ownership calculated using the number of outstanding shares of Common Stock after giving effect to the conversion of all shares of Preferred Stock, but before dilution for stock options to be issued to management in connection with the recapitalization described in Item 4 herein) representing approximately 72.65% of the outstanding shares of Common Stock, which percentage is based on 4,997,711,570 shares of Common Stock which were outstanding as of May 1, 2007 as reported in the Company’s Form 10-Q filed with the Securities and Exchange Commission on June 20, 2007, and an aggregate of 102,921,634,323 shares of Common Stock which will be (a) be issued to senior officers in connection with the Recapitalization, and (b) issued upon conversion of the Series C Preferred Stock, Series A-2 Preferred Stock and Series D Preferred Stock. The percentage ownership is subject to downward adjustment in the event the conversion rate is, pursuant to the terms of the Series C Preferred Stock, adjusted because the return, or deemed return, per share of Series C Preferred Stock has met certain targets.


CUSIP No.		007511108		Page		3		of		19

NAMES OF REPORTING PERSONS:

H.I.G. - ACT, LTD.

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY):

Applied For

CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS):

(a) o

(b) þ

SEC USE ONLY:

SOURCE OF FUNDS (SEE INSTRUCTIONS):

CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e):

CITIZENSHIP OR PLACE OF ORGANIZATION:

Cayman Islands

SOLE VOTING POWER:

NUMBER OF

SHARED VOTING POWER:

BENEFICIALLY

OWNED BY

913.79*

EACH

SOLE DISPOSITIVE POWER:

REPORTING

PERSON

WITH

SHARED DISPOSITIVE POWER:

913.79*

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:

913.79*

CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS):

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):

72.65%*

TYPE OF REPORTING PERSON (SEE INSTRUCTIONS):


CUSIP No.		007511108		Page		4		of		19

NAMES OF REPORTING PERSONS:

H.I.G. INVESTMENT GROUP III, L.P.

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY):

80-0134969

CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS):

(a) o

(b) þ

SEC USE ONLY:

SOURCE OF FUNDS (SEE INSTRUCTIONS):

CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e):

CITIZENSHIP OR PLACE OF ORGANIZATION:

Cayman Islands

SOLE VOTING POWER:

NUMBER OF

SHARED VOTING POWER:

BENEFICIALLY

OWNED BY

913.79*

EACH

SOLE DISPOSITIVE POWER:

REPORTING

PERSON

WITH

SHARED DISPOSITIVE POWER:

913.79*

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:

913.79*

CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS):

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):

72.65%*

TYPE OF REPORTING PERSON (SEE INSTRUCTIONS):


CUSIP No.		007511108		Page		5		of		19

NAMES OF REPORTING PERSONS:

H.I.G. ASSOCIATES III, L.P.

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY):

90-0265798

CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS):

(a) o

(b) þ

SEC USE ONLY:

SOURCE OF FUNDS (SEE INSTRUCTIONS):

CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e):

CITIZENSHIP OR PLACE OF ORGANIZATION:

Cayman Islands

SOLE VOTING POWER:

NUMBER OF

SHARED VOTING POWER:

BENEFICIALLY

OWNED BY

913.79*

EACH

SOLE DISPOSITIVE POWER:

REPORTING

PERSON

WITH

SHARED DISPOSITIVE POWER:

913.79*

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:

913.79*

CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS):

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):

72.65%*

TYPE OF REPORTING PERSON (SEE INSTRUCTIONS):


CUSIP No.		007511108		Page		6		of		19

NAMES OF REPORTING PERSONS:

H.I.G.- CAPITAL PARTNERS III, L.P.

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY):

11-366742

CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS):

(a) o

(b) þ

SEC USE ONLY:

SOURCE OF FUNDS (SEE INSTRUCTIONS):

CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e):

CITIZENSHIP OR PLACE OF ORGANIZATION:

Delaware

SOLE VOTING POWER:

NUMBER OF

SHARED VOTING POWER:

BENEFICIALLY

OWNED BY

913.79*

EACH

SOLE DISPOSITIVE POWER:

REPORTING

PERSON

WITH

SHARED DISPOSITIVE POWER:

913.79*

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:

913.79*

CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS):

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):

72.65%*

TYPE OF REPORTING PERSON (SEE INSTRUCTIONS):


CUSIP No.		007511108		Page		7		of		19

NAMES OF REPORTING PERSONS:

H.I.G. ADVISORS III, L.L.C.

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY):

55-0809387

CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS):

(a) o

(b) þ

SEC USE ONLY:

SOURCE OF FUNDS (SEE INSTRUCTIONS):

CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e):

CITIZENSHIP OR PLACE OF ORGANIZATION:

Delaware

SOLE VOTING POWER:

NUMBER OF

SHARED VOTING POWER:

BENEFICIALLY

OWNED BY

913.79*

EACH

SOLE DISPOSITIVE POWER:

REPORTING

PERSON

WITH

SHARED DISPOSITIVE POWER:

913.79*

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:

913.79*

CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS):

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):

72.65%*

TYPE OF REPORTING PERSON (SEE INSTRUCTIONS):


CUSIP No.		007511108		Page		8		of		19

NAMES OF REPORTING PERSONS:

H.I.G.-GPII, INC.

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY):

65-0863795

CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS):

(a) o

(b) þ

SEC USE ONLY:

SOURCE OF FUNDS (SEE INSTRUCTIONS):

CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e):

CITIZENSHIP OR PLACE OF ORGANIZATION:

Delaware

SOLE VOTING POWER:

NUMBER OF

SHARED VOTING POWER:

BENEFICIALLY

OWNED BY

913.79*

EACH

SOLE DISPOSITIVE POWER:

REPORTING

PERSON

WITH

SHARED DISPOSITIVE POWER:

913.79*

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:

913.79*

CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS):

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):

72.65%*

TYPE OF REPORTING PERSON (SEE INSTRUCTIONS):


CUSIP No.		007511108		Page		9		of		19

NAMES OF REPORTING PERSONS:

ANTHONY TAMER

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY):

CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS):

(a) o

(b) þ

SEC USE ONLY:

SOURCE OF FUNDS (SEE INSTRUCTIONS):

N/A

CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e):

CITIZENSHIP OR PLACE OF ORGANIZATION:

United States of America

SOLE VOTING POWER:

NUMBER OF

SHARED VOTING POWER:

BENEFICIALLY

OWNED BY

913.79*

EACH

SOLE DISPOSITIVE POWER:

REPORTING

PERSON

WITH

SHARED DISPOSITIVE POWER:

913.79*

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:

913.79*

CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS):

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):

72.65%*

TYPE OF REPORTING PERSON (SEE INSTRUCTIONS):


CUSIP No.		007511108		Page		10		of		19

NAMES OF REPORTING PERSONS:

SAMI W. MNAYMNEH

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY):

CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS):

(a) o

(b) þ

SEC USE ONLY:

SOURCE OF FUNDS (SEE INSTRUCTIONS):

N/A

CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e):

CITIZENSHIP OR PLACE OF ORGANIZATION:

United States of America

SOLE VOTING POWER:

NUMBER OF

SHARED VOTING POWER:

BENEFICIALLY

OWNED BY

913.79*

EACH

SOLE DISPOSITIVE POWER:

REPORTING

PERSON

WITH

SHARED DISPOSITIVE POWER:

913.79*

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:

913.79*

CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS):

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):

72.65%*

TYPE OF REPORTING PERSON (SEE INSTRUCTIONS):


CUSIP No.		007511108		Page		11		of		19

Item 1. Security and Issuer

This statement on Schedule 13D (the “Schedule 13D”) relates to the Common Stock, par value $0.01 per share (the “Common Stock”) and the Series C Preferred Stock, par value $0.01 per share (the “Series C Preferred Stock”) of Advanced Communications Technologies, Inc., a Florida corporation (the “Issuer”), and is being filed pursuant to Rule 13d-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Issuer has its principal executive offices at 420 Lexington Avenue, New York, New York 10170.

Item 2. Identity and Background

(a) This Schedule 13D is being filed by (i) ACT-DE LLC, a Delaware limited liability company (“ACT LLC”), (ii) H.I.G. — ACT, Ltd., a Cayman Islands corporation (“HIG ACT”) and the sole member of ACT LLC, (iii) H.I.G. Capital Partners III, L.P., a Delaware limited partnership (“HIG CP III”) and a shareholder of HIG ACT, (iv) H.I.G. Advisors III, L.L.C. a Delaware limited liability company (“HIG LLC”) and the general partner of HIG CP III, (v) H.I.G. Investment Group III, L.P., a Cayman Islands limited partnership (“HIG IG III”) and a shareholder of HIG ACT, (vi) H.I.G. Associates III, L.P., a Cayman Islands limited partnership (“HIG Associates”) and the general partner of HIG IG III, (vii) H.I.G.-GPII, Inc., a Delaware corporation (“HIG GP”), the manager of HIG LLC and the general partner of HIG Associates, and (viii) Messrs. Mnaymneh and Tamer, each a Co-President of HIG GP (ACT LLC, HIG ACT, HIG CP III, HIG LLC, HIG IG III, HIG Associates, HIG GP, and Messrs. Mnaymneh and Tamer collectively being referred to as the “Reporting Persons”). The agreement among the Reporting Persons to file this Schedule 13D jointly in accordance with Rule 13d-1(k) of the Exchange Act is attached hereto as Exhibit 1.

(b) The address of the principal business and principal office of each of the Reporting Persons (except HIG ACT, HIG Associates and HIG IG III) is c/o H.IG. Capital L.L.C., 855 Boylston Street, 11th Floor, Boston MA 02116. The address of the principal business and principal office of each of HIG ACT, HIG Associates and HIG IG III is PO Box 309, Ugland House, South Church Street, Georgetown, Grand Cayman Cayman Islands.

(c) The principal business of ACT LLC is as a holding company. The principal business of HIG ACT is as a holding company. The principal business of HIG CP III is that of making private equity and related investments. The principal business of HIG LLC is acting as the general partner of HIG CP III. The principal business of HIG IG III is that of making private equity and related investments. The principal business of HIG Associates is acting as general partner to HIG IG III. The principal business of HIG GP is managing certain private equity funds, including HIG CP III and HIG IG III. The principal business of each of Mr. Mnaymneh and Mr. Tamer is acting as a Co-President of HIG GP.

(d) During the last five years, none of the Reporting Persons have been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors).

(e) During the last five years, none of the Reporting Persons have been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such


CUSIP No.		007511108		Page		12		of		19

proceeding was or is subject to a judgment, decree, or final order enjoining future violations of, or prohibiting or mandating activity subject to, federal or state securities laws or finding any violations with respect to such laws.

(f) HIG CP III is a limited partnership organized under the laws of the State of Delaware. HIG IG III is a limited partnership organized under the laws of the Cayman Islands. HIG Associates is a limited partnership organized under the laws of the Cayman Islands. HIG LLC and ACT LLC are each limited liability companies organized under the laws of the State of Delaware. HIG ACT is a corporation organized under the laws of the Cayman Islands. HIG GP is a corporation organized under the laws of the State of Delaware. Messrs. Mnaymneh and Tamer are citizens of the United States of America.

Item 3. Source and Amount of Funds or Other Consideration

On August 17, 2007, ACT LLC and the Issuer entered into a Purchase Agreement (a copy of which is attached hereto as Exhibit 2 and hereinafter referred to as the “Purchase Agreement”), pursuant to which ACT LLC agreed to purchase shares of Series C Preferred Stock. At the closing of the transaction on August 17, 2007 (the “Closing Date”), the Issuer sold 913.79 shares of Series C Preferred Stock to ACT LLC for an aggregate purchase price of $5,756,896.55, or $6,300 per share. All of the funds required to acquire the shares of Series C Preferred Stock were obtained from capital contributions from HIG ACT. All of the funds provided by HIG ACT to ACT LLC were obtained from capital contributions from HIG CP III and HIG IP III. HIG CP III and HIG IP III provided the capital contributions from working capital.

Item 4. Purpose of Transaction

Pursuant to the Purchase Agreement, ACT LLC agreed to purchase 913.79 shares of Series C Preferred Stock. As contemplated by the Purchase Agreement, the Issuer and ACT LLC entered into a number of definitive agreements (the “Definitive Agreements”). ACT LLC’s purchase of the Series C Preferred Stock and entry into the Definitive Agreements was consummated in connection with a recapitalization of the Issuer that resulted in ACT LLC owning approximately 72.65% of the ownership interest in the Issuer post-closing.

On or about August 17, 2007 (the “Closing Date”), the Issuer entered into a series of transactions to effect a recapitalization (the “Recapitalization”) which, among other transactions, included the following:

	•		ACT LLC’s purchase of the Series C Preferred Stock;

	•		the acquisition of a new operating subsidiary, Vance Baldwin, Inc.; and

	•		the issuance of $23.7 million in senior and subordinated notes pursuant to a Note Purchase Agreement, for which Sankaty Advisors, LLC is the agent.

In connection with the Recapitalization, the holders of the Issuer’s Series A Convertible Preferred Stock, par value $.01 per share, Series A-1 Convertible Preferred Stock, par value $.01


CUSIP No.		007511108		Page		13		of		19

per share, and Series B Convertible Preferred Stock, par value $.01 per share, exchanged such stock for the newly designated Series A-2 Convertible Preferred Stock, par value $.01 per share (the “Exchange”). In the Exchange, the existing preferred stockholders provided a full release of any claims against the Company, but were not required to provide any other consideration other than the surrender of their outstanding shares of preferred stock. In connection with the Recapitalization, the Company also paid off outstanding debts to certain creditors with an aggregate payment of approximately $3,600,000 in cash. One creditor received a convertible promissory note in addition to a cash payment. Certain of the creditors purchased shares of the Series A-2 Convertible Preferred Stock from one of the stockholders receiving such stock pursuant to the Exchange.

The terms of the Series C Preferred Stock and the Definitive Agreements are described below.

Series C Preferred

The Series C Preferred ranks senior to the Common Stock and all other currently designated series of preferred stock of the Issuer. Dividends accrue cumulatively on a daily basis during each quarter on the Series C Preferred at a rate per annum of 12% of the Series C Preference Amount (as defined below). Dividends accrue from the date of issuance through the date of liquidation, dissolution or winding up of the Company or through the date of conversion. The right to dividends on the Series C Preferred will extinguish upon conversion of the Series C Preferred. So long as any shares of Series C Preferred are outstanding, no dividends may be paid or distributions made on the Common Stock or any class of preferred stock ranking junior to the Series C Preferred (collectively, “Junior Stock”) until all accrued but unpaid dividends, if any, on the Series C Preferred have been paid, unless:

•		the Company obtains the written consent of the holders of a majority of the outstanding shares of the Series C Preferred; or

•		the Company enters into an agreement with any officer, employee or director of the Company pursuant to which the Company is entitled or required to repurchase shares of Common Stock or any preferred stock (or options therefore) from such officer, employee or director.

In the event of the liquidation, dissolution or winding up of the Company, the holders of each share of Series C Preferred will be entitled to receive payment per share (the “Series C Liquidation Value”) equal to the greater of (i) $6,300 (the “Series C Preference Amount”) plus all accrued and unpaid dividends thereon or (ii) the Assumed Conversion Amount (as defined below). The Series C Liquidation Value will be paid before any payment or distribution of the assets of the Company, or proceeds therefrom, to the holders of shares of any Junior Stock. The “Assumed Conversion Amount” will mean the total amount of proceeds that would be payable to the holder of a share of Series C Preferred upon the liquidation, dissolution or winding up of the Company if, immediately prior to such event, each outstanding share of Series C Preferred were deemed to be converted into a number of shares of Common Stock at the applicable “Series C Conversion Rate.”


CUSIP No.		007511108		Page		14		of		19

Pursuant to the formula for determining the Series C Conversion Rate currently contemplated in the Certificate of Designation for the Series C Preferred, the holders of the Series C Preferred, in the aggregate, will be entitled to receive shares of Common Stock equal to 79.5% of (A) the number of issued and outstanding shares of Common Stock on the date hereof, plus (B) the total number of shares of Common Stock issuable upon conversion of all of the shares of Series A-2 Preferred, Series C Preferred and Series D Preferred outstanding on the date hereof, plus (C) 80,000,000 shares of restricted Common Stock issuable to management upon the effective filing of the Charter Amendment (as defined below) plus (D) any shares of Common Stock issued pursuant to the Issuer’s convertible indebtedness (collectively, the “Outstanding Amount”). The foregoing conversion rate will be subject to further adjustment (downward to a floor of 72.5% of the Outstanding Amount) if the return, or deemed return, per share of Series C Preferred meets certain targets (as further described in the Certificate of Designation for the Series C Preferred). In the event that the number of shares of outstanding Common Stock is changed by any stock dividend, stock split, reclassification or recapitalization at any time shares of Series C Preferred are outstanding, the Series C Conversion Rate will be proportionately adjusted.

The shares of Series C Preferred will be convertible into shares of Common Stock following shareholder approval and the requisite state filing of a charter amendment (the “Charter Amendment”) that increases the number of authorized shares of Common Stock to an amount sufficient for the conversion of Series C Preferred into Common Stock at the Series C Conversion Rate. Shareholder approval will be needed to effect the charter amendment. The Board of Directors anticipates taking action to organize a stockholder meeting for this purpose promptly after the Closing Date. The Series C Preferred will be automatically converted into Common Stock at the applicable Series C Conversion Rate in the event that the holders of at least 50% of the outstanding Series C Preferred elect such conversion; otherwise, a holder of Series C may elect to convert some or all of such holder’s shares of Series C Preferred at the applicable Series C Conversion Rate at any time following the effectiveness of the charter amendment discussed above.

The holders of Series C Preferred will be entitled to vote with the holders of Common Stock together as a single class on all matters submitted for a vote of the holders of Common Stock that do not require a separate class vote of the holders of Common Stock under the Company’s Certificate of Incorporation or applicable law or regulations. Each share of Series C Preferred will entitle the holder thereof to such number of votes per share equal to the initial Series C Conversion rate (79.5% of the Outstanding Amount, in the aggregate). In addition, the consent of the holders of at least a majority of the outstanding shares of Series C Preferred, voting as a class, will be required to, among other actions by the Company or any of its subsidiaries, (i) amend the Company’s Articles of Incorporation or the Certificate of Designation relating to the Series C Preferred if such action would adversely affect the rights and preferences of the Series C Preferred, (ii) authorize, issue or sell new securities other than pursuant to an equity incentive plan, (iii) authorize any liquidation, merger or sale of assets involving $500,000 or more in assets of the Company; (iv) incur debt in excess of $100,000; or (v) commence any material litigation.


CUSIP No.		007511108		Page		15		of		19

The foregoing description of the terms of the Series C Preferred is qualified in its entirety by the Certificate of Designation for the Series C Preferred, which is attached hereto, as Exhibit 3.

Stockholder and Registration Rights Agreements

On the Closing Date, the Issuer and ACT LLC also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) and a Stockholders Agreement (the “Series C Stockholders Agreement”). Subject to customary terms and conditions set forth in the Registration Rights Agreement, the Company has agreed that ACT LLC will have certain demand registration rights with respect to shares of Common Stock that it may hold, subject to certain limitations, and that ACT LLC and certain other stockholders, including the holders of the Issuer’s Series D Preferred Stock, will have piggy-back registration rights with respect to shares of Common Stock that they may hold. The Company is required to use its best efforts to effect the registration and sale of shares pursuant to a request under this agreement as expeditiously as possible upon demand and is responsible for all registration expenses.

Pursuant to the Stockholders Agreement, Randall Prouty, Dr. Michael Finch and Jonathan J. Lichtman resigned as members of the Company’s Board of Directors, with the Board then consisting of seven members: Wayne Danson, the Chief Executive Officer of the Company, three independent persons designated by ACT LLC, and two other persons designated by ACT LLC and one individual who was an independent director of the Company prior to the recapitalization. ACT LLC has designated the following individuals to the Board: John R. Black and William J. Nolan, who are not deemed independent, and John G. Ball, Thomas R. Ketteler and Gerald E. Wedren, who are deemed independent. The pre-recapitalization director remaining on the Board is Wilbank J. Roche.

The parties to the Stockholders Agreement also agreed to certain other voting arrangements in favor of actions taken by ACT LLC. This agreement also contains transfer restrictions with respect to Series C Preferred, limited rights of first refusal in favor of ACT LLC and other investors on any transfer of any preferred stock by the Company, a right of first refusal in favor of ACT LLC on certain transfers of preferred stock by ACT LLC, “tag along” rights permitting certain other investors to participate in certain sales by ACT LLC of its Series C Preferred, and an agreement by the parties to vote in favor of a sale of the Company if approved by ACT LLC, subject in each case to certain conditions.

The foregoing description of the terms of the Registration Rights Agreement and the Stockholders Agreement is qualified in its entirety by the Registration Rights Agreement and the Stockholders Agreement, each of which is attached hereto, as Exhibit 4 and Exhibit 5, respectively.

Item 5. Interest in Securities of the Issuer

(a) ACT LLC is the direct record owner of 913.79 shares of Series C Preferred Stock. Each share of Series C Preferred Stock is automatically convertible, subject to adjustment pursuant to the


CUSIP No.		007511108		Page		16		of		19

terms of the Certificate of Designation, into 78,399,417,171.49 shares of Common Stock following shareholder approval and the requisite state filing of the Charter Amendment. Accordingly, as of August 17, 2007, ACT LLC may be deemed to beneficially own an aggregate of 78,399,417,171.49 shares of Common Stock that are issuable upon the automatic conversion of the Series C Preferred Stock, representing approximately 72.65% of the outstanding shares of Common Stock, which percentage is based on 4,997,711,570 shares of Common Stock which were outstanding as of May 1, 2007 as reported in the Company’s Form 10-Q filed with the Securities and Exchange Commission on June 20, 2007, and an aggregate of 102,921,634,323 shares of Common Stock which will be (a) be issued to senior officers in connection with the Recapitalization, and (b) issued upon conversion of the Series C Preferred Stock, Series A-2 Preferred Stock and Series D Preferred Stock. Due to their respective relationships with ACT LLC and each other, each of the Reporting Persons may be deemed to beneficially own, in the aggregate, 78,399,417,171.49 shares of the Issuer’s Common Stock that are issuable upon the automatic conversion of the Series C Preferred Stock. Except for ACT LLC each Reporting Person disclaims beneficial ownership of all shares of the Common Stock except to the extent of any indirect pecuniary interest therein.

(b) Each of the Reporting Persons is deemed to share with ACT LLC the power to vote or to direct the vote and to dispose or to direct the disposition of 78,399,417,171.49 shares of the Issuer’s Common Stock.

(c) Except for the transactions described in Items 3 and 4 above, no other transactions in shares of the Issuer’s Common Stock or Series C Preferred Stock were effected by the Reporting Persons or any persons set forth on Schedule I or in Item 2(e) hereto during the sixty days before the date of this Schedule 13D.

(d) Except as set forth in this Item 5, no person other than each respective record owner referred to herein of the shares of Series C Preferred Stock is known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, such securities.

(e) Not applicable.

Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer

Pursuant to Rule 13d-1(k) promulgated under the Exchange Act, the Reporting Persons have entered into an agreement, attached hereto as Exhibit 1, with respect to the joint filing of this statement and any amendment or amendments hereto.

The Purchase Agreement is described in Item 3 and Item 4 above, such summary being incorporated in this Item 6 by reference. The summary of the Purchase Agreement in this Schedule 13D is qualified in its entirety by reference to the Purchase Agreement, which is attached hereto, as Exhibit 2.

The Certificate of Designation is described in Item 4 above, such summary being incorporated in this Item 6 by reference. The summary of the Certificate of Designation in this Schedule 13D is


CUSIP No.		007511108		Page		17		of		19

qualified in its entirety by reference to the Certificate of Designation, which is attached hereto, as Exhibit 3.

The Registration Rights Agreement is described in Item 4 above, such summary being incorporated in this Item 6 by reference. The summary of the Registration Rights Agreement in this Schedule 13D is qualified in its entirety by reference to the Registration Rights Agreement, which is attached hereto, as Exhibit 4.

The Stockholder Agreement is described in Item 4 above, such summary being incorporated in this Item 6 by reference. The summary of the Stockholder Agreement in this Schedule 13D is qualified in its entirety by reference to the Stockholder Agreement, which is attached hereto, as Exhibit 5.

Except as described herein, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Item 2 above or between such persons and any other person with respect to any securities of the Issuer.

In addition, the Reporting Person, subject to applicable legal requirements, may in the future acquire additional securities of the Issuer or dispose of some or all of the Reporting Person’s current holdings of the Series C Preferred Stock and Common Stock.

Item 7. Material to Be Filed as Exhibits


Exhibit 1		Joint Filing Agreement, dated August 23, 2007, among the Reporting Persons, relating to the filing of a joint statement on Schedule 13D.

Exhibit 2		Purchase Agreement, dated August 17, 2007, by and between ACT LLC, the other purchasers party thereto and Advanced Communications Technologies, Inc.

Exhibit 3		Certificate of Designation of the Series C Preferred Stock of Advanced Communications Technologies, Inc.

Exhibit 4		Registration Rights Agreement, dated August 17, 2007, between the Investors from time to time signatory thereto and Advanced Communications Technologies, Inc.

Exhibit 5		Stockholders Agreement, dated August 17, 2007, between ACT LLC, the other stockholders party thereto and Advanced Communications Technologies, Inc.


CUSIP No.		007511108		Page		18		of		19

SIGNATURE

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.


ACT-DE LLC By: H.I.G. — ACT, LTD., its sole member
By:	/s/ Richard Siegel
	Name:	Richard Siegel
	Title:	Authorized Signatory

H.I.G. — ACT, LTD.
By:	/s/ Richard Siegel
	Name:	Richard Siegel
	Title:	Authorized Signatory



H.I.G. INVESTMENT GROUP III, L.P. By: H.I.G. Associates III, L.P., its general partner By: H.I.G.-GPII, Inc., its general partner



By:	/s/ Richard Siegel
	Name:	Richard Siegel
	Title:	Authorized Signatory

H.I.G. CAPITAL PARTNERS III, L.P. By: HIG Advisors III, LLC, its general partner By: H.I.G.-GPII, Inc., its sole member
By:	/s/ Richard Siegel
	Name:	Richard Siegel
	Title:	Authorized Signatory


CUSIP No.		007511108		Page		19		of		19


H.I.G. ASSOCIATES III, L.P. By: H.I.G.-GPII, Inc., its general partner
By:	/s/ Richard Siegel
	Name:	Richard Siegel
	Title:	Authorized Signatory

H.I.G. ADVISORS III, L.L.C. By: H.I.G.-GPII, Inc., its sole member
By:	/s/ Richard Siegel
	Name:	Richard Siegel
	Title:	Authorized Signatory

H.I.G.-GPII, Inc.
By:	/s/ Richard Siegel
	Name:	Richard Siegel
	Title:	Authorized Signatory


/s/ Anthony Tamer
Anthony Tamer



/s/ Sami W. Mnaymneh
Sami W. Mnaymneh

EX-99.1 2 g09144exv99w1.htm EX-99.1 JOINT FILING AGREEMENT Ex-99.1 Joint Filing Agreement

EXHIBIT 1

JOINT REPORTING AGREEMENT

In consideration of the mutual covenants herein contained, pursuant to Rule 13d-1(k)(1), each of the parties hereto represents to and agrees with the other parties as follows:

1. Such party is eligible to file a statement or statements on Schedule 13G pertaining to the Common Stock, $0.01 par value per share, of Advanced Communications Technologies, Inc., a Florida corporation, to which this Joint Reporting Agreement is an exhibit, for filing of the information contained herein.

2. Such party is responsible for the timely filing of such statement and any amendments thereto, and for the completeness and accuracy of the information concerning such party contained therein, PROVIDED that no such party is responsible for the completeness or accuracy of the information concerning any other party making the filing, unless such party knows or has reason to believe that such information is inaccurate.

3. Such party agrees that such statement is being filed by and on behalf of each of the parties identified herein, and that any amendment thereto will be filed on behalf of each such party. Each party hereby constitutes and appoints ACT-DE LLC as his or its true and lawful attorney-in-fact to (a) execute on behalf of the undersigned all forms and other documents to be filed with the Securities and Exchange Commission (the “SEC”), any stock exchange and any similar authority amending or otherwise with respect to the Schedule 13G to which this Joint Reporting Agreement is an exhibit and (b) do and perform any and all acts for and on behalf of the undersigned which may be necessary or desirable to timely file such forms and documents with the SEC, any stock exchange and any other similar authority.

This Joint Reporting Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original instrument, but all of such counterparts together shall constitute but one agreement.

[signature pages follow]


ACT-DE LLC By: H.I.G. — ACT, LTD., its sole member
By:	/s/ Richard Siegel
	Name:	Richard Siegel
	Title:	Authorized Signatory

H.I.G. — ACT, LTD.
By:	/s/ Richard Siegel
	Name:	Richard Siegel
	Title:	Authorized Signatory

H.I.G. INVESTMENT GROUP III, L.P. By: H.I.G. Associates III, L.P., its general partner By: H.I.G.-GPII, Inc., its general partner
By:	/s/ Richard Siegel
	Name:	Richard Siegel
	Title:	Authorized Signatory

H.I.G. CAPITAL PARTNERS III, L.P. By: H.I.G. Advisors III, LLC, its general partner By: H.I.G.-GPII, Inc., its sole member
By:	/s/ Richard Siegel
	Name:	Richard Siegel
	Title:	Authorized Signatory

H.I.G. ASSOCIATES III, L.P. By: H.I.G.-GPII, Inc., its general partner
By:	/s/ Richard Siegel
	Name:	Richard Siegel
	Title:	Authorized Signatory

H.I.G. ADVISORS III, L.L.C By: H.I.G.-GPII, Inc., its sole member
By:	/s/ Richard Siegel
	Name:	Richard Siegel
	Title:	Authorized Signatory

H.I.G.-GPII, Inc.
By:	/s/ Richard Siegel
	Name:	Richard Siegel
	Title:	Authorized Signatory


/s/ Tony Tamer
Tony Tamer



/s/ Sami W. Mnaymneh
Sami W. Mnaymneh

EX-99.2 3 g09144exv99w2.htm EX-99.2 PURCHASE AGREEMENT Ex-99.2 Purchase Agreement

EXHIBIT 2

PURCHASE AGREEMENT

THIS PURCHASE AGREEMENT (the “Agreement”) is dated as of August 17, 2007, by and among ACT-DE LLC, a Delaware limited liability company (“HIG”), the other “Buyer” parties identified on Schedule 1 hereto (collectively with HIG, the “Buyers”), and ADVANCED COMMUNICATIONS TECHNOLOGIES, INC., a Florida corporation (the “Company”).

RECITALS:

The parties have reached an agreement pursuant to which the Buyers shall make an investment in the Company, and the Company shall issue and sell to the Buyer shares of Series C Convertible Preferred Stock, par value $0.01 per share (the “Series C Preferred Stock”), all in accordance with the terms hereof.

AGREEMENT:

NOW, THEREFORE, in consideration of the mutual premises herein set forth and certain other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. ISSUANCE OF SHARES AND RELATED TRANSACTIONS.

1.1. Issuance of Shares. At Closing (as defined below), subject to the terms, restrictions and conditions of this Agreement, the Buyers shall purchase from the Company, and the Company shall sell, issue and deliver to the Buyers an aggregate 1,000 shares of Series C Preferred Stock (the “Buyer Stock”) to be purchased by each Buyer as set forth on Schedule 1 hereto, which shall have the rights and designations set forth in the Certificate of Designation attached hereto as Exhibit A (the “Certificate of Designation”). The Buyer Stock shall be sold by the Company to the Buyers free and clear of all liens, claims, pledges, mortgages, restrictions, obligations, security interests and encumbrances of any kind, nature and description (collectively, “Encumbrances”).

1.2. Purchase Price. The aggregate purchase price (the “Purchase Price”) for the Buyer Stock shall be $6,300,000 and shall be paid by the Buyers to the Company in immediately available funds on the Closing Date (as set forth in Section 1.3 hereof).

1.3. Closing. The parties to this Agreement shall consummate the transactions contemplated by this Agreement at a closing (the “Closing”) to be held no later than August 21, 2007. The date of Closing is referred to herein as the “Closing Date.” The Closing shall take place at the offices of counsel to HIG, or at such other place as may be mutually agreed upon by the Buyers and the Company. At the Closing:

(a) The Company shall deliver to the Buyers a filed copy of the Certificate of Designation certified by the Florida Department of State.

(b) The Company shall deliver to each Buyer certificates representing the Buyer Stock (as set forth on Schedule 1), free and clear of any Encumbrances.

(c) The Buyers shall pay to the Seller the Purchase Price by wire transfer of immediately available funds to an account to be designated by the Purchaser.

(d) The Buyers, the Company and certain other stockholders of the Company shall execute and deliver the Stockholder Agreement and Registration Rights Agreement attached hereto as Exhibits B-1 and B-2 (the “Investor Rights Agreements”).

(e) The Company shall have delivered to the Buyers (i) filed copies of the Certificates of Designations attached as Exhibits C-1, C-2 and C-3 (for the Company’s newly designated Series A-2 Convertible Preferred Stock and Series D Convertible Preferred Stock, and collectively with the Series C Preferred Stock, the “Preferred Stock”) certified by the Florida Department of State and (ii) evidence reasonably satisfactory to the Buyer confirming that the transactions contemplated by the Exchange Agreements have been completed in accordance with the terms of the “Exchange Agreements” identified on Schedule 1.3(e) hereto.

Jon Lichtman, Randall Prouty and Dr. Michael Finch shall resign as members of the Board of Directors of the Company and the Board of Directors of the Company shall adopt resolutions increasing the number of Directors to seven (7) and electing John Black, William Nolan, J.G. (Pete) Ball, Gerald E. Wedren and Thomas R. Kettteler to serve as Directors, effective immediately following the Closing after giving effect to the transactions set forth in this Section 1.3.

(f) The Board of Directors of the Company shall have adopted an amendment to the By-laws of the Company, in a form reasonably satisfactory to HIG, confirming the voting rights of the Preferred Stock.

2. ADDITIONAL COVENANTS.

2.1. Public Announcements. The parties will consult with each other before issuing any press releases or otherwise making any public statement with respect to this Agreement or any of the transactions contemplated hereby and no party will issue any such press release or make any such public statement without the prior written consent of the other party, except as may be required by law or by the rules and regulations of any governmental authority or securities exchange.

2.2. Access and Inspection, Etc. The Company shall allow the Buyers and their authorized representatives full access during normal business hours from and after the date hereof and prior to the Closing Date to all of the properties, books, contracts, commitments and records of the Company for the purpose of making such investigations as the Buyers may reasonably request in connection with the transactions contemplated hereby, and shall cause the Company to furnish any Buyer with such information concerning its affairs as such Buyer may reasonably request. The Company has caused and shall cause its personnel to assist the Buyers in making such investigation and shall use their best efforts to cause the counsel, accountants and other non-employee representatives of the Company to be reasonably available to Buyers for such purposes.

2.3. Further Assurances. The parties shall deliver any and all other instruments or documents required to be delivered pursuant to, or necessary or proper in order to give effect to, the provisions of this Agreement, including, without limitation, to issue the Buyer Stock and to consummate the transactions contemplated by this Agreement.

2.4. Notification. Each party to this Agreement shall promptly notify the other parties in writing of the occurrence, or threatened occurrence, of any event that would constitute a breach or violation of this Agreement by any party or that would cause any representation or warranty made by the notifying party in this Agreement to be false or misleading in any respect. The Company will promptly notify the Buyers of any event that could have a material adverse effect on the business, assets, financial condition or prospects of the Company. The Company shall have the right to update the Schedules to this Agreement immediately prior to Closing; provided, that if such update discloses any breach of a representation, warranty, covenant or obligation of the Company, then the Buyers shall have the right to then exercise its available rights and remedies hereunder.

3. REPRESENTATIONS, COVENANTS AND WARRANTIES OF THE COMPANY.

To induce Buyers to enter into this Agreement and to consummate the transactions contemplated hereby, the Company represents and warrants to and covenants with the Buyers, as of the Closing, as follows:

3.1. Organization; Compliance. The Company and each Subsidiary (as defined below) is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. The Company and each Subsidiary is: (a) entitled to own or lease its properties and to carry on its business in all material respects as and in the places where such business is now conducted, and (b) duly licensed and qualified in all jurisdictions where the character of the property owned by it or the nature of the business transacted by it makes such license or qualification necessary.

3.2. Capitalization and Related Matters.

(a) The Company has an authorized capital consisting of 5,000,000,000 shares of Common Stock and 25,000 shares of Preferred Stock, of which 4,997,711,570 shares of Common Stock and 15,950 shares of Preferred Stock are issued and outstanding as of the date hereof (after giving effect to the transactions contemplated hereby) as set forth on Schedule 3.2(a) hereto. All of the outstanding shares of the Company’s capital stock are, and immediately after the Closing will be, validly issued and outstanding, fully paid and non-assessable. No such stock (i) was issued in violation of the preemptive rights of any shareholder or (ii) is held as treasury stock. All of the outstanding capital stock of the Company was issued in compliance with all applicable federal and state securities or “blue sky” laws and regulations.

(b) Except as set forth on Schedule 3.2 hereto, there are no outstanding securities convertible into Common Stock or any other capital stock of the Company nor any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of

any character relating to, such capital stock or securities convertible into such capital stock (collectively, “Securities Rights”). Except as set forth on Schedule 3.2 hereto the Company (i) is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any of its capital stock; or (ii) has no liability for dividends or other distributions declared or accrued, but unpaid, with respect to any capital stock.

(c) Except as set forth on Schedule 3.2, the Company is not a party to any agreement, understanding or arrangement, direct or indirect, relating to any class or series of the Company’s capital stock, including, without limitation, any voting agreement, restriction on resale, shareholder agreement or registration rights agreement.

3.3. Subsidiaries and Investments.

(a) Schedule 3.3(a) sets forth, with respect to each Subsidiary (as defined below), (i) its name, (ii) the jurisdiction of its organization, the number of its authorized shares or other equity interests, (iii) the number of its outstanding shares or other equity interests of each class or series and (iv) the name of the owner and the number and percentage of outstanding shares or other equity interests of each class or series of such Subsidiary owned of record and, if different, owned beneficially by the Company and any other person. All of the outstanding capital stock and other equity interests of each of the Subsidiaries is validly issued, fully paid and nonassessable and was issued in compliance with all applicable federal and state securities or “blue sky” laws and regulations. There are no Securities Rights relating to any shares of capital stock, other equity interests or other securities of any of the Subsidiaries. The Company and the Subsidiaries have good, marketable and exclusive title to the shares or other equity interests disclosed on Schedule 3.3(a) as being owned by each of them, free and clear of all Encumbrances. All rights and powers to vote such shares or other equity interests are held exclusively by the Company, directly or indirectly through one or more of the Subsidiaries, as the case may be. For the purposes hereof, a “Subsidiary” means any corporation, limited liability company, partnership, joint venture or other entity in which the Company owns, directly or indirectly, more than 50% of the outstanding voting securities or equity interests.

(b) Except as disclosed on Schedule 3.3(a), the Company does not own, nor since January 1, 2004 has it ever owned, any equity interest in any corporation, limited liability company, partnership, joint venture or other entity.

3.4. Execution; No Inconsistent Agreements; Etc.

(a) This Agreement is a valid and binding agreement of the Company, enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy or similar laws affecting the enforcement of creditors’ rights generally, and the availability of equitable remedies.

(b) The execution and delivery of this Agreement by the Company does not, and the consummation of the transactions contemplated hereby will not, constitute a breach or violation of the charter or bylaws of the Company, or a default under any of the terms, conditions or provisions of (or an act or omission that would give rise to any right of termination, cancellation or acceleration under) any note, bond, mortgage, lease, indenture, agreement or obligation to which the Company is a party, pursuant to which the Company otherwise receives benefits, or to which any of the properties of the Company is subject.

3.5. Corporate Records. The statutory records, including the stock register and minute books of the Company, fully reflect all issuances, transfers and redemptions of its capital stock, correctly show and will correctly show the total number of shares of its capital stock issued and outstanding on the Closing Date, the charter or other organizational documents and all amendments thereto, and bylaws as amended and currently in force. Copies of all such materials have been previously delivered to the Buyers by or on behalf of the Company.

3.6. Financial Statements; SEC Reporting.

(a) Schedule 3.6(a) contains (i) the consolidated audited balance sheet of the Company and the Subsidiaries, and the consolidated audited profit and loss statement of the Company and the Subsidiaries for the fiscal year ended June 30, 2006 as reported on the Company’s Form 10K/A and (ii) the consolidated unaudited balance sheet of the Company and the Subsidiaries as of March 31, 2007 and the consolidated unaudited profit and loss statement of the Company and the Subsidiaries for the nine months ended March 31, 2007 (the balance sheet as of March 31, 2007 is hereinafter referred to as the “Company Balance Sheet”). All the foregoing financial statements are referred to herein collectively as the “Company Financial Statements.”

(b) The Company Financial Statements have been and will be prepared in accordance with U.S. GAAP, applied on a consistent basis (except that the unaudited statements do not contain all the disclosures required by GAAP), and fairly reflect and will reflect in all material respects the financial condition of the Company and the Subsidiaries as of the dates thereof and the results of the operations of the Company and the Subsidiaries for the periods then ended. The Company and its Subsidiaries (i) make and keep and, for all periods covered by the Company Financial Statements, have made and kept books, records and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company and its Subsidiaries, and (ii) maintain and, for all periods covered by the Financial Statements, have maintained a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP. The Company’s and its Subsidiaries’ auditors have not notified the Company or any of its Subsidiaries of any deficiencies in the design or operation of the Company’s or any of its Subsidiaries’ internal controls in connection with its audits of the Company Financial Statements.

(c) Except as set forth on Schedule 3.6(c), since January 1, 2004, the Company has timely filed all reports, schedules, forms, statements and other documents (the “SEC Reports”) required to be filed by it with the United States Securities and Exchange Commission (the “Commission”) pursuant to reporting requirements under the Exchange Act of 1934, as amended (the “Exchange Act”). Except as set forth on Schedule 3.6(c), as of their respective dates, the SEC Reports complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder. The SEC Reports, as of their respective dates, did not contain any untrue statement of material fact or omit any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

3.7. Liabilities. Neither the Company nor any Subsidiary has any material debt, liability or obligation of any kind, whether accrued, absolute, contingent or otherwise, except: (a) those reflected on the Company Balance Sheet, including the notes thereto, and (b) liabilities incurred in the ordinary course of business and in connection with the transactions contemplated by this Agreement, including the acquisition of Vance Baldwin, Inc., since the date of the Company Balance Sheet, none of which have had or will have a material adverse effect on the financial condition of the Company or any Subsidiary.

3.8. Absence of Changes. Except as described in Schedule 3.8 and in the other Schedules to this Agreement, from the date of the Company Balance Sheet to the date of this Agreement:

(a) there has not been any adverse change in the business, assets, liabilities, results of operations or financial condition of the Company or any Subsidiary or in each of their relationships with suppliers, customers, employees, lessors or others other than changes in the ordinary course of business, none of which, singularly or in the aggregate, have had or will have a material adverse effect on the business, properties or financial condition of the Company or any Subsidiary, except for the incurrence of additional accrued expenses in connection with the transactions contemplated by this Agreement, including the acquisition of Vance Baldwin, Inc. (all of which have been paid as of the date hereof); and

(b) the Company and each Subsidiary has complied with the covenants and restrictions set forth in Section 5 to the same extent as if this Agreement had been executed on, and had been in effect since, the date of the Company Balance Sheet.

3.9. Title to Properties. The Company and each Subsidiary has good and marketable title to all of its properties and assets, real and personal, including, but not limited to, those reflected in the Company Balance Sheet (except as since sold or otherwise disposed of in the ordinary course of business, or as expressly provided for in this Agreement), free and clear of all Encumbrances of any kind or character except: (a) those securing liabilities of the Company or any Subsidiary incurred in the ordinary course (with respect to which no material default exists); and (b) imperfections of title and Encumbrances, if any, which, in the aggregate (i) are not substantial in amount; (ii) do not detract from the value of the property subject thereto or impair the operations of the Company or any Subsidiary; and (iii) do not have a material adverse effect on the business, properties or assets of the Company or any Subsidiary.

3.10. Compliance With Law. The business and activities of the Company and each Subsidiary has at all times since July 31, 2002 been conducted in accordance with its charter and bylaws (or other governing documents) and any applicable law, regulation, ordinance, order, License (defined below), permit, rule, injunction or other restriction or ruling of any court or administrative or governmental agency, ministry, or body, including, without limitation, the Exchange Act, the Securities Act of 1933, the Sarbanes-Oxley Act of 2002 and the rules and regulations of the Commission promulgated under those Acts, except where the failure to do so would not result in a material adverse effect on the Company or any Subsidiary.

3.11. Taxes. The Company and each Subsidiary has duly filed all material federal, state, local and foreign tax returns and reports, and all returns and reports of all other governmental units having jurisdiction with respect to taxes imposed on it or on its income, properties, sales, franchises, operations or employee benefit plans or trusts, all such returns were complete and accurate when filed, and all taxes and assessments payable by the Company or any Subsidiary have been paid to the extent that such taxes have become due. All taxes accrued or payable by the Company or any Subsidiary for all periods through June 30, 2006 have been accrued or paid in full, whether or not due and payable and whether or not disputed. The Company and each Subsidiary has withheld proper and accurate amounts from its employees for all periods in full compliance with the tax withholding provisions of applicable foreign, federal, state and local tax laws. There are no waivers or agreements by the Company or any Subsidiary for the extension of time for the assessment of any taxes. The tax returns of the Company and each Subsidiary have never, since July 31, 2002, been examined by any authority or other administrative body or court of any state or country. There are not now any examinations of the income tax returns of the Company or any Subsidiary pending, or to the Company’s knowledge any proposed deficiencies or assessments against the Company or any Subsidiary of additional taxes of any kind. The Company and each Subsidiary shall duly and timely prepare and file all material federal, state, local and foreign tax returns and reports for 2006, and all returns and reports of all other governmental units having jurisdiction with respect to taxes imposed on the Company or on its income, properties, sales, franchises, operations or employee benefit plans or trusts, and all such returns will be complete and accurate when filed.

3.12. Real Properties. Neither the Company nor any Subsidiary has an interest in any real property, except for the Leases (as defined below).

3.13. Leases of Real Property. All leases pursuant to which the Company or any Subsidiary is lessee or lessor of any real property (the “Leases”) are listed on Schedule 3.13 and are valid and enforceable in accordance with their terms. There is not under any of such Leases (a) any material default or any claimed material default by the Company or any Subsidiary or any event of default or event which with notice or lapse of time, or both, would constitute a material default by the Company or any Subsidiary and in respect to which the Company or such Subsidiary has not taken adequate steps to prevent a default on its part from occurring or (b) to the knowledge of the Company, any material default by any lessee of the Company or any Subsidiary or any event of default or event which with notice or lapse of time, or both, would constitute a material default by any such lessee. The copies of the Leases heretofore furnished to Buyers are true, correct and complete, and such Leases have not been modified in any respect since the date they were so furnished, and are in full force and effect in accordance with their terms. The Company and each Subsidiary is lawfully in possession of all real properties of which it is a lessee (the “Leased Properties”).

3.14. Contingencies. Except as disclosed on Schedule 3.14, there are no actions, suits, claims or proceedings pending, or to the knowledge of the Company threatened against, by or affecting, the Company or any Subsidiary in any court or before any arbitrator or governmental agency that may have a material adverse effect on the Company or any Subsidiary or which could materially and adversely affect the right or ability of the Company to consummate the transactions contemplated hereby. To the knowledge of the Company, there is

no valid basis upon which any such action, suit, claim, or proceeding may be commenced or asserted against it. There are no unsatisfied judgments against the Company or any Subsidiary and no consent decrees or similar agreements to which the Company or any Subsidiary is subject and which could have a material adverse effect on the Company or any Subsidiary.

3.15. Products Liability; Warranties; Insurance. Neither the Company nor any Subsidiary has incurred any unpaid loss, damage, liability, fine, penalty, cost or expense (each, a “Liability”) that is not fully covered by insurance relating to any product manufactured, distributed or sold by the Company or any Subsidiary prior to the Closing, pursuant to a claim or potential claim that such products are or were defective or improperly designed or manufactured or are in breach of any express or implied product warranty.

3.16. Intellectual Property Rights.

(a) The Company and each Subsidiary owns and possesses all right, title and interest in and to, or has a valid license to use, all of its Proprietary Rights (as defined below) necessary for the operation of its business as presently conducted and none of such Proprietary Rights have been abandoned;

(b) No claim by any third party contesting the validity, enforceability, use or ownership of any such Proprietary Rights has been made, is currently outstanding or, to the knowledge of the Company, is threatened, and to the knowledge of the Company there is no reasonable basis for any such claim.

(c) Neither the Company, any Subsidiary nor any registered agent of any of the foregoing has received any notice of, nor is the Company aware of any reasonable basis for an allegation of, any infringement or misappropriation by, or conflict with, any third party with respect to such Proprietary Rights, nor has the Company, any Subsidiary or any registered agent of any of them received any claim of infringement or misappropriation of or other conflict with any Proprietary Rights of any third party.

(d) Neither the Company nor any Subsidiary has infringed, misappropriated or otherwise violated any Proprietary Rights of any third parties, and the Company is not aware of any infringement, misappropriation or conflict which will occur as a result of the continued operation of the Company or any Subsidiary as presently operated and as contemplated to be operated or as a result of the consummation of the transactions contemplated hereby.

(e) All employees who have contributed to or participated in the conception and/or development of all or any part of the Proprietary Rights which are not licensed to the Company or a Subsidiary from a third party either (i) have been party to a “work-for-hire” arrangement or agreement with the Company or the Subsidiary, in accordance with applicable federal and state law, that has accorded the Company or the Subsidiary full, effective, exclusive, and original ownership of all tangible and intangible property thereby arising or (ii) have executed appropriate instruments of assignment in favor of the Company or the Subsidiary as assignee that have conveyed to the Company or the Subsidiary full, effective and exclusive ownership of all tangible and intangible property thereby arising.

(f) The consummation of the transactions contemplated by this Agreement will not adversely affect the right of the Company or any Subsidiary to continue to use the Proprietary Rights. To the extent that the registration of any Proprietary Right is required by law, such Proprietary Right has been duly and validly registered or filed, and any fees that are necessary to maintain in force any Proprietary Rights or registrations thereof have been paid. Schedule 3.16(f) sets forth a list and description of the copyrights, trademarks, service marks, trade dress, trade names and domain names used or held by the Company or any Subsidiary and, where appropriate, the date, serial or registration number, and place of any registration thereof.

(g) As used herein, the term “Proprietary Rights” means all proprietary information of the Company or any Subsidiary, as the case may be, including all patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice), all trademarks, service marks, trade dress, trade names, corporate names, domain names, copyrights, all trade secrets, confidential information, ideas, formulae, compositions, know-how, processes and techniques, drawings, specifications, designs, logos, plans, improvements, proposals, technical and computer data, documentation and software, financial, business and marketing plans, and related information and all other proprietary, industrial or intellectual property rights relating to the business of the Company or any Subsidiary.

3.17. Material Contracts. Schedule 3.17 contains a complete list of all contracts of the Company and its Subsidiaries that (i) involve consideration in excess of the equivalent of $50,000, (ii) have a term of one year or more, (iii) is a collective bargaining or similar agreement, (iv) is a tax sharing or similar agreement or (iv) materially restricts a Company from engaging in any business activity anywhere in the world (the “Material Contracts”). Except as disclosed on Schedule 3.17, (a) the Company or the applicable Subsidiary has performed all material obligations to be performed by them under all such contracts, and is not in material default thereof, (b) no condition exists or has occurred which with the giving of notice or the lapse of time, or both, would constitute a material default by the Company or the Subsidiary or accelerate the maturity of, or otherwise modify, any such contract, and (c) all such contracts are in full force and effect. No material default by any other party to any of such contracts is known or claimed by the Company or any Subsidiary to exist.

3.18. Employee Benefit Matters.

(a) Except as disclosed on Schedule 3.18, the Company and the Subsidiaries do not provide, nor are any of them obligated to provide, directly or indirectly, any benefits for employees other than salaries, sales commissions and bonuses, including, but not limited to, any pension, profit sharing, stock option, retirement, bonus, hospitalization, insurance, severance, vacation or other employee benefits (including any housing or social fund contributions) under any practice, agreement or understanding.

(b) Each employee benefit plan maintained by or on behalf of the Company, any Subsidiary or any other party (including any terminated pension plans) which covers or covered any employees or former employees of the Company or any Subsidiary (collectively, the “Employee Benefit Plan”) is listed on Schedule 3.18. The Company has delivered to Buyers true and complete copies of all such plans and any related documents. With respect to each such plan

(a) no litigation, administrative or other proceeding or claim is pending, or to the knowledge of the Company, threatened or anticipated involving such plan; (b) there are no outstanding requests for information by participants or beneficiaries of such plan; and (c) such plan has been administered in compliance in all material respects with all applicable laws and regulations.

(c) The Company, or the applicable Subsidiary, has timely made payment in full of all contributions to all of the Employee Benefit Plans which the Company, or the applicable Subsidiary, was obligated to make prior to the date hereof; and there are no contributions declared or payable by the Company, or the applicable Subsidiary, to any Employee Benefit Plan which, as of the date hereof, have not been paid in full.

3.19. Possession of Franchises, Licenses, Etc. The Company and each Subsidiary (a) possesses all material franchises, certificates, licenses, permits and other authorizations (collectively, the “Licenses”) from governmental authorities, political subdivisions or regulatory authorities that are necessary for the ownership, maintenance and operation of its business in the manner presently conducted; (b) is not in violation of any provisions thereof, except to the extent that such violations, in the aggregate would not have a material adverse effect on the Company; and (c) has maintained and amended, as necessary, all Licenses and duly completed all filings and notifications in connection therewith.

3.20. Environmental Matters. Except as set forth on Schedule 3.20, (i) neither the Company nor any Subsidiary is in violation, in any material respect, of any Environmental Law (as defined below); (ii) the Company and each Subsidiary has received all permits and approvals with respect to emissions into the environment and the proper collection, storage, transport, distribution or disposal of Wastes (as defined below) and other materials required for the operation of its business at present operating levels; and (iii) neither the Company nor any Subsidiary is liable or responsible for any material clean up, fines, liability or expense arising under any Environmental Law, as a result of the disposal of Wastes or other materials in or on the property of the Company (whether owned or leased), or in or on any other property, including property no longer owned, leased or used by the Company or any Subsidiary. As used herein, (a) “Environmental Laws” means, collectively, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended, any other “Superfund” or “Superlien” law or any other federal, or applicable state or local statute, law, ordinance, code, rule, regulation, order or decree (foreign or domestic) regulating, relating to, or imposing liability or standards of conduct concerning, Wastes, or the environment; and (b) “Wastes” means and includes any hazardous, toxic or dangerous waste, liquid, substance or material (including petroleum products and derivatives), the generation, handling, storage, disposal, treatment or emission of which is subject to any Environmental Law.

3.21. Agreements and Transactions with Related Parties. Except as disclosed on Schedule 3.21, neither the Company nor any Subsidiary is, and since the date of the Company Balance Sheet has not been, a party to any contract, agreement, lease or transaction with, or any other commitment to, (a) a shareholder, (b) any person related by blood, adoption or marriage to shareholder, (c) any director or officer of the Company or any Subsidiary, (d) any corporation or

other entity in which any of the foregoing parties has, directly or indirectly, at least five percent (5%) beneficial interest in the capital stock or other type of equity interest in such corporation or other entity, or (e) any partnership in which any such party is a general partner or a limited partner having a five percent (5%) or more interest therein (any or all of the foregoing being herein referred to as a “Related Party” and collectively as the “Related Parties”). Without limiting the generality of the foregoing, except as set forth on Schedule 3.21, (a) no Related Party, directly or indirectly, owns or controls any assets or properties which are or have since the date of the Company Balance Sheet been used in the business of the Company or any Subsidiary and (b) no Related Party, directly or indirectly, engages in or has any significant interest in or connection with any business: (i) which is or which within the last two (2) years has been a competitor, customer or supplier of, or has done business with, the Company or any Subsidiary or (ii) which as of the date hereof sells or distributes products or provides services which are similar or related to the products or services of the Company or any Subsidiary.

3.22. Business Practices. Except as set forth in Schedule 3.22, neither the Company nor any Subsidiary has, at any time, directly or indirectly, made any contributions or payment, or provided any compensation or benefit of any kind, to any municipal, county, state, federal or foreign governmental officer or official, or any other person charged with similar public or quasi-public duties, or any candidate for political office. The Company’s and the Subsidiaries’ books, accounts and records (including, without limitation, customer files, product packaging and invoices) accurately describe and reflect, in all material respects, the nature and amount of the Company’s products, purchases, sales and other transactions. Without limiting the generality of the foregoing, neither the Company nor any Subsidiary has engaged, directly or indirectly, in: (a) the practice known as “double-invoicing” or the use or issuance of pro-forma or dummy invoices; or (b) the incorrect or misleading labeling, marketing or sale of refurbished goods as new goods.

3.23. Shareholder Matters. None of the transactions or matters contemplated by this Agreement require the approval of the Company’s shareholders, other than the requirement for shareholder approval of an increase in authorized common stock sufficient for issuance upon conversion of the Buyer Stock.

3.24. Full Disclosure. No representation or warranty of the Company contained in this Agreement, and none of the statements or information concerning the Company or any of its Subsidiaries contained in this Agreement and the Schedules, when taken together as a whole, contains or will contain any untrue statement of a material fact nor will such representations, warranties, covenants or statements taken as a whole omit a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

4. REPRESENTATIONS AND WARRANTIES OF BUYER.

To induce the Company to enter into this Agreement and to consummate the transactions contemplated hereby, each Buyer represents and warrants, severally and not jointly, to and covenants with the Company as follows:

4.1. Organization. The Buyer is a corporation, limited liability company or limited partnership duly organized, validly existing and in good standing under the laws of its jurisdiction. The Buyer has all requisite power and authority to execute, deliver and carry out the terms of this Agreement and the consummation of the transactions contemplated herein.

4.2. Execution; No Inconsistent Agreements; Etc.

(a) The execution and delivery of this Agreement and the performance of the transactions contemplated hereby have been duly and validly authorized and approved by the Buyer and this Agreement is a valid and binding agreement of the Buyer, enforceable against the Buyer in accordance with its terms, except as such enforcement may be limited by bankruptcy or similar laws affecting the enforcement of creditors’ rights generally, and the availability of equitable remedies.

(b) The execution and delivery of this Agreement by the Buyer does not, and the consummation of the transactions contemplated hereby will not, constitute a breach or violation of the charter or bylaws of the Buyer, or a default under any of the terms, conditions or provisions of (or an act or omission that would give rise to any right of termination, cancellation or acceleration under) any material note, bond, mortgage, lease, indenture, agreement or obligation to which the Buyer is a party, pursuant to which any of them otherwise receive benefits, or by which any of their properties may be bound.

4.3. Investment Representations.

(a) The Buyer is purchasing the Series C Preferred Stock for investment purposes and not with a view to the sale or distribution, by public or private sale or other disposition, and the Buyer has no present intention of selling, granting any participation in or otherwise distributing or disposing of any of the Series C Preferred Stock.

(b) The Buyer has been offered the opportunity to ask questions of, and receive answers from the Company’s management, and the Buyer has been given full and complete access to all available information and data relating to the business and assets of the Company and has obtained such additional information about the Company as the Buyer has deemed necessary in order to evaluate the opportunities, both financial and otherwise, with respect to the Company and, except as set forth herein, has not relied on any representation, warranty or other statement concerning the Company and its evaluation of the decision to consummate the transactions contemplated herein. In its judgment, the Buyer is sufficiently familiar with the Company to enable the Buyer to proceed with the transactions contemplated hereby.

(c) The Buyer is an “accredited investor,” as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”).

(d) The Buyer is a sophisticated investor familiar with the type of risks inherent in the acquisition of securities such as the shares of the Company and the Buyer’s financial position is such that the Buyer can afford to retain its shares of Company Series C Preferred Stock for an indefinite period of time without realizing any direct or indirect cash return on its investment.

5. RESERVED.

6. CONDITIONS TO OBLIGATIONS OF ALL PARTIES.

The obligation of Buyers and the Company to consummate the transactions contemplated by this Agreement are subject to the satisfaction, on or before the Closing, of each of the following conditions; any or all of which may be waived in whole or in part by the joint agreement of Buyers and the Company:

6.1. Absence of Actions. No action or proceeding shall have been brought or threatened before any court or administrative agency to prevent the consummation or to seek damages in a material amount by reason of the transactions contemplated hereby, and no governmental authority shall have asserted that the within transactions (or any other pending transaction involving Buyers or the Company when considered in light of the effect of the within transactions) shall constitute a violation of law or give rise to material liability on the part of the Company or the Buyers.

6.2. Governmental Consents. All applicable notices, approvals and consents to or from all governmental authorities and self regulatory organizations that are required to be made or obtained in connection with the consummation of the transactions contemplated by this Agreement, shall have been made or obtained.

7. CONDITIONS TO OBLIGATIONS OF THE BUYER.

All obligations of the Buyers to consummate the transactions contemplated by this Agreement are subject to the fulfillment and satisfaction of each and every of the following conditions on or prior to the Closing, any or all of which may be waived in whole or in part by Buyers:

7.1. Representations and Warranties. The representations and warranties contained in Section 3 of this Agreement and in any certificate, instrument, schedule, agreement or other writing delivered by or on behalf of the Company in connection with the transactions contemplated by this Agreement shall be true, correct and complete in all material respects (except for representations and warranties which are by their terms qualified by materiality, which shall be true, correct and complete in all respects) as of the date when made and shall be deemed to be made again at and as of the Closing Date and shall be true, correct and complete at and as of the Closing Date in all material respects (except for representations and warranties which are by their terms qualified by materiality, which shall be true, correct and complete in all respects).

7.2. Compliance with Agreements and Conditions. The Company shall have performed and complied with all material agreements and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date.

7.3. Absence of Material Adverse Changes. No material adverse change in the business, assets, financial condition, or prospects of the Company and its Subsidiaries (taken as a whole) shall have occurred, no substantial part of the assets of the Company or any Subsidiary not substantially covered by insurance shall have been destroyed due to fire or other casualty, and no event shall have occurred which has had or could reasonably be expected to have a material adverse effect on the business, assets, financial condition or prospects of the Company and its Subsidiaries (taken as a whole).

7.4. Closing Covenants. The Company shall have taken all of the actions required to be taken by it at or prior to the Closing pursuant to Section 1.3 herein.

7.5. Certificates of Designation; Exchange Agreements. The Company shall have delivered to the Buyers (i) filed copies of the Certificates of Designations attached as Exhibits C-1, C-2 and C-3 (for the Company’s newly designated Series A-2 Convertible Preferred Stock, Series D Convertible Preferred Stock and Series C Preferred Stock) certified by the Florida Department of State and (ii) evidence reasonably satisfactory to the Buyers confirming that the transactions contemplated by the Exchange Agreements have been completed in accordance with the terms of the Exchange Agreements.

7.6. Vance Acquisition. The Company (or one of its wholly owned Subsidiaries) shall have entered into definitive purchase agreements, in form and substance satisfactory to the Buyers, with the shareholder of Vance Baldwin Electronics, Inc. pursuant to which the Company (or one of its wholly owned Subsidiaries) will purchase all of the capital stock of such entities substantially simultaneously with the Closing.

7.7. HIG Agreements. The Company shall have executed and delivered the Management Agreement and the Investment Advisory Agreement with H.I.G. Capital L.L.C, and such agreements shall be in full force and effect.

7.8. Proceedings and Documents Satisfactory. The Company shall have delivered to the Buyers such other documents and instruments as the Buyers deem reasonably necessary or desirable to consummate the transactions contemplated hereby. All proceedings in connection with the transactions contemplated by this Agreement and all certificates and documents delivered to the Buyers in connection with the transactions contemplated by this Agreement shall be satisfactory in all reasonable respects to the Buyers, and the Buyers shall have received the originals or certified or other copies of all such records and documents as the Buyers may reasonably request. The Buyers shall have completed its due diligence investigation of the Company and shall be satisfied, in its sole discretion, with the results of such investigation.

8. CONDITIONS TO OBLIGATIONS OF THE COMPANY.

All of the obligations of the Company to consummate the transactions contemplated by this Agreement are subject to the fulfillment and satisfaction of each and every of the following conditions on or prior to the Closing, any or all of which may be waived in whole or in part by the Company:

8.1. Representations and Warranties. The representations and warranties contained in Section 4 of this Agreement and in any certificate, instrument, schedule, agreement or other writing delivered by or on behalf of Buyers in connection with the transactions contemplated by this Agreement shall be true and correct in all material respects (except for representations and warranties which are by their terms qualified by materiality, which shall be true, correct and complete in all respects) when made and shall be deemed to be made again at and as of the Closing Date and shall be true at and as of the Closing Date in all material respects (except for representations and warranties which are by their terms qualified by materiality, which shall be true, correct and complete in all respects).

8.2. Compliance with Agreements and Conditions. The Buyers shall have performed and complied with all material agreements and conditions required by this Agreement to be performed or complied with by the Buyers prior to or on the Closing Date.

9. INDEMNITY.

9.1. Indemnification by the Company. The Company shall defend, indemnify and hold harmless the Buyers, each of their direct and indirect parent corporations, subsidiaries and affiliates, and each of their officers, members, directors, employees, attorneys and agents (hereinafter collectively called “Buyer Indemnitees”) against and in respect of any and all loss, damage, liability, fine, penalty, cost and expense, including reasonable attorneys’ fees and amounts paid in settlement (collectively, “Buyer Losses”), suffered or incurred by any Buyer Indemnitee by reason of, or arising out of:

(a) any misrepresentation, breach of warranty or breach or nonfulfillment of any covenant, obligation or agreement of the Company contained in this Agreement or in any certificate, schedule, instrument or document delivered to the Buyers by or on behalf of the Company pursuant to the provisions of this Agreement (without regard to materiality thresholds contained therein); and

(b) any action instituted against a Buyer or a Buyer Indemnitee relating to any of the transactions contemplated by this Agreement (unless such action is based upon a breach of the Buyer’s representations, warranties or covenants under this Agreement or any violations by the Buyer of state or federal securities laws or any conduct by Buyer which constitutes fraud or willful misconduct).

9.2. Defense of Claims.

(a) A Buyer Indemnitee seeking indemnification hereunder: (i) shall provide the Company written notice of any claim or action by a third party for which the Company may be liable under the terms of this Agreement, within thirty (30) days after such claim or action arises and is known to the Buyer Indemnitee, and (ii) shall give the Company a reasonable opportunity to participate in any proceedings and to settle or defend any such claim or action. The expenses of all proceedings, contests or lawsuits with respect to such claims or actions shall be borne by the Company. If the Company wishes to assume the defense of such claim or action, the Company shall give written notice to the Buyer Indemnitee within ten (10) days after notice from the Buyer Indemnitee of such claim or action, and the Company shall thereafter assume the

defense of any such claim or liability, through counsel reasonably satisfactory to the Buyer Indemnitee, provided that the Buyer Indemnitee may participate in such defense at their own expense, and the Company shall, in any event, have the right to control the defense of the claim or action. The failure of the Buyer Indemnitee to give any notice required by this Section shall not affect any of such party’s rights under this Section or otherwise, except and to the extent that such failure is actually prejudicial to the rights or obligations of the Company.

(b) If the Company shall not assume the defense of, or if after so assuming it shall fail to defend, any such claim or action, the Buyer Indemnitee may defend against any such claim or action in such manner as they may deem appropriate and the Buyer Indemnitee may settle such claim or litigation on such terms as they may deem appropriate but subject to the Company’s approval, such approval not to be unreasonably withheld; provided, however, that any such settlement shall be deemed approved by the Company if the Company fails to object thereto, by written notice to the Buyer Indemnitee, within fifteen (15) days after the Company’s receipt of a written summary of such settlement. The Company shall promptly reimburse the Buyer Indemnitee for the amount of all expenses, legal and otherwise, incurred by the Buyer Indemnitee in connection with the defense and settlement of such claim or action.

(c) If a non-appealable judgment is rendered against any Buyer Indemnitee in any action covered by the indemnification hereunder, or any lien attaches to any of the assets of any of the Buyer Indemnitees, the Company shall immediately upon such entry or attachment pay such judgment in full or discharge such lien unless, at the expense and direction of the Company, an appeal is taken under which the execution of the judgment or satisfaction of the lien is stayed. If and when a final judgment is rendered in any such action, the Company shall forthwith pay such judgment or discharge such lien before any Buyer Indemnitee is compelled to do so.

9.3. Waiver. The failure of any Buyer Indemnitee to give any notice or to take any action hereunder shall not be deemed a waiver of any of the rights of such Buyer Indemnitee hereunder, except to the extent that the Company is actually prejudiced by such failure. The Company hereby acknowledges and agrees that the Buyer Indemnitees are third party beneficiaries of this Agreement for purposes of this Section 9.

10. RESERVED.

11. DEFINED TERMS

11.1. Definitions. Definitions for the terms listed below can be found in the following sections:


Defined Term		Section Reference
Agreement		Recitals
Buyers		Recitals
Company		Recitals
Series C Preferred Stock		Recitals
Buyer Stock		1.1
Certificate of Designation		1.1


Defined Term		Section Reference
Encumbrances		1.1
Purchase Price		1.2
Closing		1.3
Closing Date		1.3
Investor Rights Agreements		1.3(d)
Preferred Stock		1.3(e)
Exchange Agreements		1.3(e)
Securities Rights		3.2(b)
Subsidiary		3.3(a)
Company Balance Sheet		3.6(a)
Company Financial Statements		3.6(a)
SEC Reports		3.6(c)
Commission		3.6(c)
Exchange Act		3.6(c)
Leases		3.13
Leased Properties		3.13
Liability		3.15
Proprietary Rights		3.16(g)
Material Contracts		3.17
Employee Benefit Plan		3.18(b)
Licenses		3.19
Environmental Laws		3.20
Wastes		3.20
Related Party		3.21
Securities Act		4.3(c)
Buyer Indemnitees		9.1
Buyer Losses		9.1

12. MISCELLANEOUS.

12.1. Notices.

(a) All notices, requests, demands, or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon receipt if delivered in person or by facsimile, or upon the expiration of one (1) days after the date sent, if sent by federal express (or similar overnight courier service) to the parties at the following addresses:

(i) If to a Buyer other than HIG, the address set forth on Schedule 1 hereto. If to HIG:

c/o H.I.G. Capital Management, Inc.
855 Boylston Street, 11^th Floor
Boston, MA 02116
Attention: John Black, William Nolan
Telephone: 617-262-8455
Telecopy: 617-262-1505

with a copy to:

Bingham McCutchen LLP
399 Park Avenue
New York, NY 10022
Attention: Neil W. Townsend, Esq.
Telephone: 212-705-7722
Telecopy: 212-702-3644

(ii) If to the Company:

Advanced Communications Technologies, Inc.
420 Lexington Avenue, Suite 2739
New York, New York 10170
Attention: Wayne Danson
Telephone: (646) 227-1600
Facsimile: (646) 227-1666

With a copy to:

Eckert Seamans Cherin & Melott, LLC
Two Liberty Place
50 South 16th Street, 21st Floor
Philadelphia, PA 19102
Attention: Gary A. Miller
Telephone: (215) 851-8472
Facsimile: (215) 851-8383

(b) Notices may also be given in any other manner permitted by law, effective upon actual receipt. Any party may change the address to which notices, requests, demands or other communications to such party shall be delivered or mailed by giving notice thereof to the other parties hereto in the manner provided herein.

12.2. Survival. The representations, warranties, agreements and indemnifications of the parties contained in this Agreement or in any writing delivered pursuant to the provisions of this Agreement shall survive any investigation heretofore or hereafter made by the parties and the consummation of the transactions contemplated herein and shall continue in full force and effect after the Closing.

12.3. Counterparts; Interpretation. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. This Agreement supersedes all prior discussions and agreements between the parties with respect to the subject matter hereof, and this Agreement contains the sole and entire agreement among the parties with respect to the matters covered hereby. All Schedules hereto shall be deemed a part of this Agreement. This Agreement shall not be altered or amended except by an instrument in writing signed by or on behalf of all of the parties hereto. No ambiguity in any provision hereof shall be construed against a party by reason of the fact it was drafted by such party or its counsel. For purposes of this Agreement: “herein”, “hereby”, “hereunder”, “herewith”, “hereafter” and “hereinafter” refer to this Agreement in its entirety, and not to any particular subsection or paragraph. References to “including” means including without limiting the generality of any description preceding such term. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the parties hereto any rights or remedies under or by reason of this Agreement.

12.4. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York without regard to the principles of conflict of laws. The parties further agree that any action between them shall be heard exclusively in the Borough of Manhattan, New York, New York, and expressly consent to the jurisdiction and venue of the state and federal courts therein, for the adjudication of any civil action asserted pursuant to this paragraph. Each party hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of any such action in the forum selected hereby.

12.5. Successors and Assigns; Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, legal representatives, and successors; provided, however, that the Company may not assign this Agreement or any rights hereunder, in whole or in part.

12.6. Partial Invalidity and Severability. All rights and restrictions contained herein may be exercised and shall be applicable and binding only to the extent that they do not violate any applicable laws and are intended to be limited to the extent necessary to render this Agreement legal, valid and enforceable. If any terms of this Agreement not essential to the commercial purpose of this Agreement shall be held to be illegal, invalid or unenforceable by a court of competent jurisdiction, it is the intention of the parties that the remaining terms hereof shall constitute their agreement with respect to the subject matter hereof and all such remaining terms shall remain in full force and effect. To the extent legally permissible, any illegal, invalid or unenforceable provision of this Agreement shall be replaced by a valid provision which will implement the commercial purpose of the illegal, invalid or unenforceable provision.

12.7. Waiver. Any term or condition of this Agreement may be waived at any time by the party which is entitled to the benefit thereof, but only if such waiver is evidenced by a writing signed by such party. No failure on the part of a party hereto to exercise, and no delay

in exercising, any right, power or remedy created hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or remedy by any such party preclude any other future exercise thereof or the exercise of any other right, power or remedy. No waiver by any party hereto to any breach of or default in any term or condition of this Agreement shall constitute a waiver of or assent to any succeeding breach of or default in the same or any other term or condition hereof.

12.8. Headings. The headings as to contents of particular paragraphs of this Agreement are inserted for convenience only and shall not be construed as a part of this Agreement or as a limitation on the scope of any terms or provisions of this Agreement.

12.9. Expenses. At the Closing, the Company shall reimburse the Buyers for up to $3,000,000 in fees and expenses of the Buyers incurred in connection with its due diligence investigation of the Company and Vance (and certain other potential targets) prior to the Closing and the negotiation of this Agreement and the transactions contemplated hereby (including, without limitation, the fees, expenses and disbursements of the Buyers’ legal, accounting and other professional advisors). The Company shall also promptly reimburse the Buyers for or pay any and all costs and expenses (including, without limitation, the fees, expenses and disbursements of the Buyers’ legal, accounting and other professional advisors) incurred by the Buyers in connection with (A) the waiver of, enforcement of, or the preservation of any rights under, this Agreement or the Company’s Articles of Incorporation or other governing documents; (B) any stamp and other taxes (other than income taxes) payable with respect to this Agreement or the Buyer Shares; and (C) any filing required by applicable law, rule or regulation with any governmental authority or self regulatory organization with respect to a Buyer’s purchase or holding of the Buyer Stock. Without duplication of any other obligation of the Company to reimburse a Buyer for expenses, the Company shall reimburse each Buyer and its representatives for all reasonable travel expenses incurred in connection with attending any management meeting or any board meetings or board committee meetings. Any fees and expenses to be paid pursuant to this Section 12.9 (other than those to be paid or reimbursed at the Closing) shall be paid or reimbursed within five (5) business days of having been invoiced for such amounts. The Company 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.

12.10. Finder’s Fees. The Buyers represent to the Company that no broker, agent, finder or other party has been retained by it in connection with the transactions contemplated hereby and that no other fee or commission has been agreed by the Buyers to be paid for or on account of the transactions contemplated hereby. The Company represents to the Buyer that, other than Janney Montgomery Scott (the fees and expenses of whom shall be paid by the Company), no broker, agent, finder or other party has been retained by the Company in connection with the transactions contemplated hereby and that no other fee or commission has been agreed by the Company to be paid for or on account of the transactions contemplated hereby.

12.11. Gender. Where the context requires, the use of the singular form herein shall include the plural, the use of the plural shall include the singular, and the use of any gender shall include any and all genders.

12.12. Acceptance by Fax. This Agreement shall be accepted, effective and binding, for all purposes, when the parties shall have signed and transmitted to each other, by telecopier, email or otherwise, copies of the signature pages hereto.

12.13. Charter Amendment. Promptly following the date hereof, the Company shall use all reasonable commercial efforts to cause the Articles of Incorporation of the Company to be amended in order to increase the authorized number of shares of Common Stock to an amount reasonably sufficient for the conversion of Series C Preferred Stock into Common Stock, including the recommendation and submission of a proposal to the stockholders of the Company for the approval of such amendment.

12.14. NO JURY TRIAL. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY DOCUMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES’ ACCEPTANCE OF THIS AGREEMENT.

IN WITNESS WHEREOF, the parties have executed this Agreement or caused this Agreement to be duly executed by their duly authorized officers as of the day and year first above written.


COMPANY: ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
By:	/s/ Wayne Danson
	Name:	Wayne Danson
	Title:	Chief Executive Officer


BUYERS: ACT-DE LLC
By:	/s/ William Nolan
	Name:	William Nolan
	Title:	Executive Vice President


PROSPECT HARBOR CREDIT PARTNERS, L.P.
By:	/s/ Stuart Davies
	Name:	Stuart Davies
	Title:	Managing Director


SANKATY CREDIT OPPORTUNITIES II, L.P.
By:	/s/ Stuart Davies
	Name:	Stuart Davies
	Title:	Managing Director


SANKATY CREDIT OPPORTUNITIES III, L.P.
By:	/s/ Stuart Davies
	Name:	Stuart Davies
	Title:	Managing Director


RGIP, LLC
By:	/s/ R.B. Malt
	Name:	R. B. Malt
	Title:	Managing Member

Schedule 1


*Buyer*	*Shares*		*Purchase Price ($)*
ACT-DE LLC		913.79		5,756,897
Prospect Harbor Credit Partners, L.P.		8.93		56,250
Sankaty Credit Opportunities II, L.P.		17.64		111,098
Sankaty Credit Opportunities III, L.P.		58.78		370,325
RGIP, LLC		0.86		5,430

		1,000		6,300,000

EX-99.3 4 g09144exv99w3.htm EX-99.3 CERTIFICATE OF DESIGNATION Ex-99.3 Certificate of Designation

EXHIBIT 3

CERTIFICATE OF DESIGNATION OF THE SERIES C PREFERRED STOCK
(PAR VALUE $0.01 PER SHARE)

ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.

The undersigned, a duly authorized officer of Advanced Communications Technologies, Inc., a Florida corporation (the “Company”), in accordance with the provisions of Section 607.0602 of the Florida Business Corporation Act, does hereby certify that the following resolution was duly adopted by the Board of Directors by unanimous written consent pursuant to Section 607.0821 of the Florida Business Corporation Act on August 17, 2007:

RESOLVED, that the Board has determined that it is in the best interests of the Company to provide for the designation and issuance of Series C Preferred Stock, par value of $0.01 per share (the “Series C Preferred Stock”), to consist of up to 1,000 shares, and hereby fixes the powers, designations, preferences and relative other special rights of the shares of such Series C Preferred Stock as follows:

SECTION 1

DESIGNATION AND RANK

1.1 Designation. This resolution shall provide for a series of preferred stock, the designation of which shall be “Series C Preferred Stock”, par value $0.01 per share. The number of authorized shares constituting the Series C Preferred Stock is 1,000. The Series C Preferred Stock will have the liquidation preferences set forth in Section 3.1 below.

1.2 Rank. With respect to the payment of dividends and other distributions on the capital stock of the Company, including distribution of the assets of the Company upon Liquidation (as defined below), the Series C Preferred Stock shall be senior to the common stock of the Company, no par value per share (the “Common Stock”), and, except for any series of preferred stock that is designated by the Board of Directors after the date hereof as senior to the Series C Preferred Stock (“Senior Stock”) or as pari passu with the Series C Preferred Stock (the “Pari Passu Stock”) and is consented to pursuant to Section 5.2 below, senior to all other series of preferred stock (collectively with the Common Stock, the “Junior Stock”).

SECTION 2

DIVIDEND RIGHTS

2.1 Series C Dividends. Dividends on each outstanding share of Series C Preferred Stock shall accrue cumulatively on a daily basis during each fiscal quarter of the Company at the rate of 12% per annum on the Series C Preference Amount (as defined below). Such dividends shall accrue from and including the date of issuance of such share of Series C Preferred Stock to and including the date on which the Series C Liquidation Value (as defined below) of such share is paid, whether or not such dividends have been declared and whether or not there are funds of the Company legally available for the payment of dividends. Except for any repurchases of Common Stock pursuant to a Management Repurchase Agreement (as defined below) or other distributions that have been approved by a majority of the holders of the outstanding Series C Preferred Stock, no dividends or other distributions will be paid, declared or set apart with respect to any Junior Stock without the prior written consent of the holders of a majority of the then outstanding shares of Series C Preferred Stock unless all accrued but unpaid dividends on the Series C Preferred Stock shall have been paid in cash. “Management Repurchase Agreement” means any agreement from time to time entered into between the Company and any officer, employee or director of the Company entitling or requiring the Company to repurchase any shares of Preferred Stock, Common Stock, or options therefor, from such officer, employee or director. Upon conversion of any share of Series C Preferred Stock, all rights to accrued and unpaid dividends in respect thereof shall terminate.

SECTION 3

LIQUIDATION RIGHTS

3.1 Liquidation Preference.

(a) Upon any Liquidation (as defined below), and subject to the rights of any Senior Stock or Pari Passu Stock, before any distribution or payment shall be made to any of the holders of Junior Stock, the holders of Series C Preferred Stock shall be entitled to receive out of the assets of the Company, whether such assets are capital, surplus or earnings, an amount per share of Series C Preferred Stock (the “Series C Liquidation Value”) equal to the greater of (i) $6,300 (the “Series C Preference Amount”) plus all accrued and unpaid dividends thereon and (ii) the Assumed Conversion Amount (as defined in paragraph (b) below). Thereafter, no further distributions shall be made to the holders of Series C Preferred Stock in respect of such shares.

(b) For purposes hereof:

(i) “Liquidation” means (A) a liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, (B) a consolidation or merger of the Company with or into any other person(s), entity or entities in which less than a majority of the outstanding voting power of the surviving person(s), entity or entities is held by persons or entities who were shareholders of the Company prior to such event or (C) a sale or other disposition (whether in a single transaction or a series of related transactions) of substantially all of the assets of the Company.

(ii) “Assumed Conversion Amount” means the total amount of proceeds that would be payable to the holder of a share of Series C Preferred Stock on a Liquidation if immediately prior to such Liquidation each outstanding share of Series C Preferred Stock were deemed to be converted into a number of shares of Common Stock at the applicable Series C Conversion Rate determined pursuant to Section 4 below.

3.2 Pro Rata Distribution. If, upon any Liquidation, the assets of the Company shall be insufficient to pay the Series C Liquidation Value in full to all holders of Series C Preferred Stock, then the entire net assets of the Corporation shall be distributed among the holders of the Series C Preferred Stock and any Pari Passu Stock, ratably in proportion to the full amounts to which they would otherwise be respectively entitled and such distributions may be made in cash or in property taken at its fair value (as determined in good faith by the Company’s Board of Directors), or both, at the election of the Company’s Board of Directors.

SECTION 4

CONVERSION

4.1 Charter Amendment. Promptly following the date hereof, the Company shall use all reasonable commercial efforts (a) to cause the Articles of Incorporation of the Company (the “Charter Amendment”) to be amended in order to increase the authorized number of shares of Common Stock to an amount reasonably sufficient for the conversion of Series C Preferred Stock into Common Stock at the First Series C Conversion Rate, including the recommendation and submission of a proposal to the shareholders of the Company for the approval of such amendment, (b) to at all times thereafter reserve for conversion of the Series C Preferred Stock such number of authorized but unissued shares of Common Stock and (c) to not issue such reserved shares of Common Stock for any other purpose.

4.2 Series C Conversion. Upon the approval of the Charter Amendment and the effective filing thereof with the Florida Department of State, each share of Series C Preferred Stock shall be convertible into a number of shares of Common Stock equal to the Series C Conversion Rate as follows:

(a) At any time on or following the issuance of the Series C Preferred Stock, a holder of Series C Preferred Stock may elect to convert any or all of his, her or its shares of Series C Preferred Stock into shares of Common Stock at the Series C Conversion Rate.

(b) Each share of Series C Preferred Stock shall automatically be converted into shares of Common Stock at the Series C Conversion Rate immediately upon the election of the holder or holders of at least 50% of the then outstanding shares of Series C Preferred Stock.

The term “Series C Conversion Rate” means either (i) the First Series C Conversion Rate or (ii) the applicable Adjusted Series C Conversion Rate, as determined pursuant to Section 4.3 below.

4.3 Series C Conversion Rate.

(a) The Series C Conversion Rate for any given conversion (or deemed conversion) of Series C Preferred Stock shall be the First Series C Conversion Rate (as defined below) in all cases other than as set forth in items (i), (ii) and (iii) below, in which cases the applicable Adjusted Series C Conversion Rate (as defined below) shall apply:

(i) Any conversion (or deemed conversion) of Series C Preferred Stock that occurs on or prior to August 17, 2010, if the Conversion Value would be more than 5 times the Base Value.

(ii) Any conversion (or deemed conversion) of Series C Preferred Stock that occurs after August 17, 2010, but on or before August 17, 2012, if the Conversion Value would be more than 6 times the Base Value.

(iii) Any conversion (or deemed conversion) of Series C Preferred Stock pursuant to Section 4.2 above that occurs after August 17, 2012, if the Conversion Value would be more than 7 times the Base Value.

(b) For purposes hereof:

(i) The term “First Series C Conversion Rate” means, at any time of determination, a number of shares equal to the First Series C Conversion Amount divided by 1,000.

(ii) The term “First Series C Conversion Amount” means an amount determined at such time equal to (A) the product of (x) .795 multiplied by (y) the Base Share Amount plus the Issued Note Shares divided by (B) one (1) minus .795.

(iii) The term “Second Series C Conversion Rate” means, at any time of determination, a number of shares equal to the Second Series C Conversion Amount divided by 1,000.

(iv) The term “Second Series C Conversion Amount” means an amount determined at such time equal to (A) the product of (x) .725 multiplied by (y) the Base Share Amount plus the Issued Note Shares divided by (B) one (1) minus .725.

(v) The term “Third Series C Conversion Rate” means, at any time of determination, a number of shares equal to the Third Series C Conversion Amount divided by 1,000.

(vi) The term “Third Series C Conversion Amount” means an amount determined at such time equal to (A) the product of (x) .725 multiplied by (y) the Adjusted Base Share Amount plus the Issued Note Shares divided by (B) one (1) minus .725.

(vii) The term “Issued Note Shares” means, at the time of any conversion, the total number of shares of Common Stock that are then issued and outstanding pursuant to the Subordinated Convertible Promissory Notes, in the aggregate principal amount of $1,206,046 (and convertible into an aggregate of 2,010,243,333 shares of Common Stock), issued by the Company on the date hereof.

(viii) The term “Base Share Amount” means the sum of the following amounts (A) the number of issued and outstanding shares of Common Stock on the date hereof, plus (B) the total number of shares of Common Stock issuable upon conversion of all of the shares of Series A-2 Preferred Stock outstanding on the date hereof, plus (C) 80,000,000 (representing shares of restricted Common Stock to be issued to certain members of management upon the effective filing of the Charter Amendment with the Florida Department of State) plus (D) the total number of shares of Common Stock issuable upon conversion of all of the shares of Series D Preferred Stock outstanding on the date hereof (using the Initial Series D Conversion Rate, as defined in the Certificate of Designation for the Series D Preferred Stock), in each case, determined assuming that the Charter Amendment has been duly approved and effectively filed with the Florida Department of State.

(ix) The term “Adjusted Base Share Amount” means the sum of the following amounts (A) the number of issued and outstanding shares of Common Stock on the date hereof, plus (B) the total number of shares of Common Stock issuable upon conversion of all of the shares of Series A-2 Preferred Stock outstanding on the date hereof, plus (C) 80,000,000 (representing shares of restricted Common Stock to be issued to certain members of management upon the effective filing of the Charter Amendment with the Florida Department of State) plus (D) the total number of shares of Common Stock issuable upon conversion of all of the shares of Series D Preferred Stock outstanding on the date hereof (using the Adjusted Series D Conversion Rate, as defined in the Certificate of Designation for the Series D Preferred Stock), in each case, determined assuming that the Charter Amendment has been duly approved and effectively filed with the Florida Department of State.

(x) The term “Adjusted Series C Conversion Rate” means:

(A) in the case of a conversion or deemed conversion of Series C Preferred Stock where the Series D Preferred Stock is also converted into Common Stock, or was previously converted into Common Stock in connection with a conversion of the Series C Preferred Stock in which the Adjusted Series C Conversion Rate was used, an amount equal to the Third Series C Conversion Rate; or

(B) in the case of any other conversion or deemed conversion of Series C Preferred Stock to which the Adjusted Series C Conversion Rate applies, an amount equal to the Second Series C Conversion Rate.

(xi) The term “Base Value” means:

(A) In the case of a conversion or deemed conversion described in Section 4.3(b)(x)(A) above, a dollar amount equal to (x) $6,300,000 divided by (y) the Second Series C Conversion Amount.

(B) In the case of a conversion or deemed conversion described in Section 4.3(b)(x)(B) above, a dollar amount equal to (x) $6,300,000 divided by (y) the Third Series C Conversion Amount.

(xii) The term “Conversion Value” means (a) in the case of a conversion (or deemed conversion) in connection with a Liquidation, the value of the net proceeds payable per share of Common Stock upon such Liquidation (calculated assuming that the applicable Adjusted Series C Conversion Rate was used), (b) in the case of a conversion (or deemed conversion) in connection with a negotiated third party sale of the Common Stock to be issued upon such conversion, the price per share of Common Stock to be paid to such holder in such sale (calculated assuming that the applicable Adjusted Series C Conversion Rate was used) or (c) in the case of any other conversion (or deemed conversion), (i) the average final closing price per share for the ten (10) trading days immediately preceding the date of the conversion (as reported by Bloomberg L.P., or any organization succeeding to its function of reporting prices) or (ii) if the shares of Common Stock are not then publicly traded on a national quotation system, the fair market value of a share of Common Stock (calculated assuming that the applicable Adjusted Series C Conversion Rate was used) determined, at the sole election of the holder(s) of the Series C Preferred Stock electing to convert, by any of the following methods: (A) by a valuation or appraisal (as of a date within six (6) months prior to the date of the election to convert) prepared by an independent accounting firm or investment bank selected by the Board in good faith and paid for by the Company, (B) by any valuation or appraisal prepared by or for the Company as of a date within six (6) months prior to the date of the election to convert (copies of such valuations and appraisals shall be made available to any holder of Series C Preferred Stock promptly upon written request) or (C) by written agreement between the Company and the holder(s) of the Series C Preferred Stock then electing to convert. In the case of subpart (A) above, the Company shall cause such valuation or appraisal to be prepared promptly upon the request of a holder of Series C Preferred Stock.

(xiii) The term “Series D Preferred Stock” means the Series D Preferred Stock of the Company, par value $.01 per share.

4.4 Other Adjustments. The Series C Conversion Rate, and the provisions of Section 4.3(a), shall be adjusted from time to time in the event of any stock split involving the Common Stock, reclassification of the Common Stock or recapitalization involving Common Stock. The holders of the Series C Preferred Stock shall thereafter be entitled to receive, and (if applicable) provision shall be made therefor in any agreement or other instrument relating to such stock split, reclassification or recapitalization, upon conversion of the Series C Preferred Stock, the kind and number of shares of Common Stock or other securities or property (including cash) to which such holders of Series C Preferred Stock would have been entitled if they had held the number of shares of Common Stock into which the Series C Preferred Stock was convertible immediately prior to such reclassification or recapitalization; and in any such case appropriate adjustment shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of the Series C Preferred Stock, so that the provisions set forth herein shall thereafter be applicable, in the reasonable discretion of the Board, in relation to any shares, other securities, or property thereafter receivable upon conversion of the Series C Preferred Stock. An adjustment made pursuant to this subparagraph shall become effective at the time at which such stock split, reclassification or recapitalization becomes effective.

(a) Procedures for Conversion. In order to exercise conversion rights pursuant to Section 4.2 above, the electing holder(s) of the Series C Preferred Stock shall deliver an irrevocable written notice of such exercise to the Company, at its principal office (which notice shall include such information as may be reasonably necessary to determine the Conversion Value). The holder of any shares of Series C Preferred Stock shall, upon any conversion of such Series C Preferred Stock in accordance with this Section 4, surrender certificates representing the Series C Preferred Stock to the Company, at its principal office, and specify the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. In case such holder shall specify a name or names other than that of such holder, such notice shall be accompanied by payment of all transfer taxes (if transfer is to a person or entity other than the holder thereof) payable upon the issuance of shares of Common Stock in such name or names. As promptly as practicable, and, if applicable, after payment of all transfer taxes (if transfer is to a person or entity other than the holder thereof), the Company shall deliver or cause to be delivered certificates representing the number of validly issued, fully paid and nonassessable shares of Common Stock to which the holder of the Series C Preferred Stock so converted shall be entitled. Such conversion, to the extent permitted by law, shall be deemed to have been effected as of the date of receipt by the Company of any notice of conversion pursuant hereto. Upon any conversion of shares of Series C Preferred Stock, such shares shall cease to constitute shares of Series C Preferred Stock and shall represent only a right to receive shares of Common Stock into which they have been converted.

SECTION 5

VOTING RIGHTS

5.1 Series C Voting Rights. The holder of each share of Series C Preferred Stock will be entitled to vote on all matters submitted to the shareholders of the Company. Each share of Series C Preferred Stock will entitle the holder thereof to such number of votes per share equal to the First Series C Conversion Rate (determined assuming that the Charter Amendment has been duly approved and effectively filed with the Florida Department of State). Except as otherwise provided herein, including, without limitation, in Section 5.2 hereof, or as required by applicable law, the holders of shares of Series C Preferred Stock shall have the right to vote together with the holders of Common Stock and other shares of the Company’s common and preferred stock that, by their terms, vote with the Common Stock, as a single class, and not by separate class or series, on all matters submitted to a vote or consent of shareholders.

5.2 Series C Consent Rights. The Company shall not, and shall cause each Subsidiary (as defined below) not to, without the affirmative vote or written consent of the holders of a majority of the outstanding Series C Preferred Stock:

(a) amend its Articles of Incorporation or by-laws (i) to increase or decrease the size of the Board of Directors, (ii) to increase or decrease the authorized number of shares of Common Stock or any series of preferred stock or (iii) in any manner that adversely affects the holders of the Series C Preferred Stock;

(b) authorize, designate, issue or sell any shares of capital stock or options, warrants or other securities of the Company or any Subsidiary, other than the granting of stock options and other awards to directors, officers, agents, employees or consultants of the Company or its Subsidiaries pursuant to an equity incentive plan that has been approved or consented to by the holders of a majority of the Series C Preferred Stock;

(c) authorize or effect any liquidation, dissolution or winding-up of the Company or any of its Subsidiaries, any merger or consolidation of the Company or any of its Subsidiaries with or into any other entity, or any sale, license as licensor, lease as lessor, or other transfer or disposal of the assets of the Company or any of its Subsidiaries or any portion of the assets of the Company or any of its Subsidiaries with an aggregate value totaling greater than $500,000 in any transaction or series of related transactions;

(d) incur or otherwise become liable in respect of any indebtedness for borrowed money or any other indebtedness, contingent or otherwise, including, without limitation, capital lease obligations, in excess of $100,000 in the aggregate at any one time outstanding, but excluding (i) trade payables incurred in the ordinary course of business, (ii) lines of credit provided by suppliers and (iii) lines of credit provided by financing sources approved by the Board of Directors;

(e) engage in any material line of business other than that in which the Company and its Subsidiaries are engaged on the date of filing hereof or which is reasonably incident thereto;

(f) consummate any acquisition of, or make any equity or debt investment in, any other entity after the date hereof for a purchase price or equity or debt investment amount in excess of $500,000;

(g) grant any lease or license to any material asset(s) of the Company or any Subsidiary other than in the ordinary course of the business of the Company or such Subsidiary;

(h) enter into any contract, arrangement or transaction with an affiliate of the Company unless such contract, arrangement or transaction is on terms that are no less favorable to the Company than those the Company would have been reasonably likely to obtain as the result of arms-length negotiations with an unrelated third party;

(i) commence or settle any material litigation, claim, action or other proceeding involving the Company or any Subsidiary;

(j) take any other action that violates the Company’s obligations hereunder with respect to the holders of Series C Preferred Stock; or

(k) obligate itself to do any of the foregoing.

For the purposes hereof, a “Subsidiary” means any corporation, limited liability company, partnership, joint venture or other entity in which the Company owns, directly or indirectly, more than 50% of the outstanding voting securities or equity interests.

SECTION 6

MISCELLANEOUS

6.1 Headings of Subdivisions. The headings of the various Sections hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof.

6.2 Severability of Provisions. If any right, preference or limitation of the Series C Preferred Stock set forth herein (as this resolution may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other rights, preferences and limitations set forth in this resolution (as so amended), which can be given effect without the invalid, unlawful or unenforceable right, preference or limitation shall, nevertheless, remain in full force and effect, and no right, preference or limitation herein set forth shall be deemed dependent upon any other such right, preference or limitation unless so expressed herein.

[Remainder of page intentionally left blank.]

IN WITNESS WHEREOF, the Company has caused this Certificate of Designation to be signed, under penalties of perjury, by Wayne Danson, its President.


Dated: August 16, 2007	ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
	By:	/s/ Wayne Danson
		Wayne Danson, CEO

EX-99.4 5 g09144exv99w4.htm EX-99.4 REGISTRATION RIGHTS AGREEMENT Ex-99.4 Registration Rights Agreement

EXHIBIT 4

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of August 17, 2007, is among (a) Advanced Communications Technologies, Inc., a Florida corporation (the “Company”), (b) ACT-DE LLC, a Delaware limited liability company (the “HIG Investor”), (c) the Persons listed on Schedule 1 hereto as “Sankaty Investors” (the “Sankaty Investors and, collectively, with the HIG Investor, the “Investors”), (d) the Persons listed on Schedule 1 hereto as “Other Investors” (collectively, the “Other Investors”), and (e) any other Person who becomes a party to this Agreement by executing an Instrument of Accession (“Instrument of Accession”) in the form attached hereto as Schedule 2. The Investors, the Other Investors, and each other Person who becomes a party hereto as aforesaid are referred to collectively herein as the “Holders” and each individually as a “Holder”.

This Agreement is made in connection with the Stock Purchase Agreement and the Stockholder Agreements. In order to induce each Holder that is a party to the Stock Purchase Agreement and the Stockholder Agreements, the Company has agreed to provide the registration rights set forth in this Agreement.

The parties hereby agree as follows:

1. Definitions. As used herein, the following terms have the following meanings:

“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with, such Person.

“Agreement” has the meaning specified in the Preamble hereto.

“Commission” means the Securities and Exchange Commission.

“Common Stock” means (a) the Common Stock of the Company, no par value per share, and (b) any shares of any other class of capital stock of the Company hereafter issued which are either (i) not preferred as to dividends or assets over any class of stock of the Company, (ii) not subject to redemption pursuant to the terms thereof, or (iii) issued to the holders of shares of Common Stock upon any reclassification thereof.

“Company” has the meaning specified in the Preamble hereto.

“Convertible Note” means the Subordinated Convertible Promissory Note, in the aggregate principal amount of $1,000,000 (and convertible into an aggregate of 1,666,666,666.67 shares of Common Stock), issued by the Company to Fred Baldwin (“Baldwin”) on the date hereof.

“Convertible Note Shares” means shares of Common Stock issued pursuant to the Convertible Note.

“Demand Registration” has the meaning specified in Section 2(a) hereof.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“HIG Investor” has the meaning specified in the Preamble hereto.

“Holder” means one of the Holders identified in the introductory paragraph to this Agreement or such other Person to whom such Holder shall have assigned or transferred such Holder’s Registrable Securities in accordance with the Stockholder Agreement and Section 12(g) of this Agreement.

“Indemnified Party” has the meaning specified in Section 8(c) hereof.

“Indemnifying Party” has the meaning specified in Section 8(c) hereof.

“Instrument of Accession” has the meaning specified in the Preamble hereto.

“Investors” has the meaning specified in the Preamble hereof.

“Investor Registrable Securities” means, at any time, all of the then issued and outstanding (a) shares of Common Stock issued or issuable to the Investors upon conversion of any shares of Preferred Stock held by the Investors, (b) shares of Common Stock purchased by or issued from time to time to the Investors, (c) shares of any class of Common Stock into which such shares of Common Stock have been converted and (d) shares of Common Stock issued with respect to such shares by way of stock dividend or stock split or in connection with any merger, consolidation, recapitalization or other reorganization affecting the Common Stock. Investor Registrable Securities will continue to be Investor Registrable Securities in the hands of any Holder and each Holder thereof will succeed to the rights and obligations of a Holder of Investor Registrable Securities hereunder, provided that shares of Investor Registrable Securities will cease to be Investor Registrable Securities when transferred (i) to the Company, (ii) to a holder of Other Registrable Securities or (iii) pursuant to a Public Sale.

“Investor Stockholders” means each of the Investors, for so long as such Investor holds Investor Registrable Securities and any other Person to whom Investor Registrable Securities are assigned or transferred in accordance with Section 12(g) of this Agreement (other than an assignment or transfer (i) to the Company, (ii) to a holder of Other Registrable Securities or (iii) pursuant to a Public Sale) for so long as such Person holds any Investor Registrable Securities.

“Material Transaction” means any material transaction in which the Company or any of its Subsidiaries proposes to engage or is engaged, including a purchase or sale of assets or securities, financing, merger, consolidation or any other transaction

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that would require disclosure pursuant to the Exchange Act, and with respect to which the Company’s board of directors has reasonably determined that compliance with this Agreement may be expected to either materially interfere with the Company’s ability to consummate such transaction or require the Company to disclose material, non-public information prior to such time as it would otherwise be required to be disclosed.

“Other Investors” has the meaning specified in the Preamble hereto.

“Other Registrable Securities” means, at any time, all of the then issued and outstanding (a) shares of Common Stock purchased by or issued from time to time to any Other Investor or Holder other than any Investor Stockholder (including, without limitation, shares of Common Stock issued or issuable upon conversion or exercise of the Convertible Notes or any Preferred Stock issued to the Other Investors), (b) shares of Common Stock into which such shares of Common Stock have been converted and (c) shares of Common Stock issued with respect to such shares by way of stock dividend or stock split or in connection with any merger, consolidation, recapitalization or other reorganization affecting the Common Stock. Other Registrable Securities will continue to be Other Registrable Securities in the hands of any Other Stockholder and each Other Stockholder thereof will succeed to the rights and obligations of a Holder of Other Registrable Securities hereunder, provided that shares of Other Registrable Securities will cease to be Other Registrable Securities when transferred (i) to the Company, (ii) to a holder of Investor Registrable Securities, or (iii) pursuant to a Public Sale.

“Other Stockholders” means any Person for so long as such Person holds Other Registrable Securities and any other Person to whom Other Registrable Securities are assigned or transferred in accordance with the Stockholder Agreement and Section 12(g) of this Agreement for so long as such Person holds any Other Registrable Securities.

“Person” means any individual, partnership, corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof.

“Piggyback Registration” has the meaning specified in Section 3(a) hereof.

“Preferred Stock” means (a) the Company’s (i) Series C Convertible Preferred Stock, $0.01 par value per share, (ii) Series D Convertible Preferred Stock, $0.01 par value per share and (iii) Series A-2 Convertible Preferred Stock, $0.01 par value per share and (b) any capital stock or other securities into which or for which any such shares of such Preferred Stock shall have been converted or exchanged pursuant to any recapitalization, reorganization or merger of the Company.

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“Prospectus” means the prospectus included in any Registration Statement, as amended or supplemented by any Prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference in such Prospectus.

“Public Sale” means any sale of Common Stock pursuant to a sale registered under the Securities Act or to the public through a broker or market-maker pursuant to the provisions of Rule 144 (or any successor rule) adopted under the Securities Act.

“Registered” and “Registration” means a registration effected by preparing and filing a Registration Statement in compliance with the Securities Act and the declaration or ordering by the Commission of effectiveness of such Registration Statement.

“Registrable Securities” means all Investor Registrable Securities and all Other Registrable Securities.

“Registration Expenses” has the meaning specified in Section 7 hereof.

“Registration Statement” means any registration statement of the Company which covers any of the Registrable Securities pursuant to the provisions of this Agreement including the Prospectus, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement.

“Sankaty Investors” has the meaning specified in the Preamble hereof.

“Securities Act” means the Securities Act of 1933, as amended.

“Stock Purchase Agreement” means that certain Purchase Agreement, of even date herewith, among the Company and the Investors.

“Stockholder Agreement” means, collectively, (i) the Stockholder Agreement, dated as of August 17, 2007, among the Company and certain stockholders of the Company, as amended and in effect from time to time and (ii) the Stockholder Agreement, dated as of August 17, 2007, among the Company, the HIG Investor, Fred Baldwin, Robert Coolidge and Scott Cameron, as amended and in effect from time to time.

“Stockholders” means, collectively, the Investor Stockholders and the Other Stockholders.

“Underwriters’ Maximum Number” means, for any Piggyback Registration, Demand Registration or other registration which is an underwritten registration, that number of securities to which such registration should, in the opinion of the managing underwriters of such registration in the light of marketing factors, be limited.

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2. Demand Registration.

(a) Request for Demand Registration.

(i) Subject to the limitations contained in the following paragraphs of this Section 2, (A) any Investor Stockholders who collectively hold 50% or more of all Investor Registrable Securities may at any time and from time to time pursuant to this subparagraph (i), make a written request for the registration by the Company under the Securities Act of all or any part of the Investor Registrable Securities of such Investor Stockholders (such registration being herein called a “Demand Registration”) and (B) if the entire principal amount of the Convertible Note has been converted into Convertible Note Shares prior to the second anniversary hereof, Baldwin may, subject to Section 2(b), make a written request for the registration by the Company under the Securities Act of such Convertible Note Shares (such registration being called herein a “Note Share Registration”). Within ten (10) days after the receipt by the Company of any such written request for a Demand Registration, the Company will give written notice of such registration request to all Holders of Registrable Securities.

(ii) Subject to the limitations contained in the following paragraphs of this Section 2, after the receipt of such written request for a Demand Registration, (A) the Company will be obligated and required to include in such Demand Registration all Registrable Securities with respect to which the Company shall receive from Holders of Registrable Securities, within thirty (30) days after the date on which the Company shall have given to all Holders a written notice of registration request pursuant to Section 2(a)(i) hereof, the written requests of such Holders for inclusion in such Demand Registration, and (B) the Company will use its best efforts in good faith to effect promptly the registration of all such Registrable Securities. All written requests made by Holders of Registrable Securities pursuant to this subparagraph (ii) will specify the number of shares of Registrable Securities to be registered and will also specify the intended method of disposition thereof.

(b) Limitations on Demand Registration.

(i) The Holders of Investor Registrable Securities will not be entitled to require the Company to effect (A) more than one (1) Demand Registration on Form S-1, SB-1 or SB-2 (or other comparable form adopted by the Commission) during any twelve-month period or (B) any Demand Registration on Form S-1, SB-1 or SB-2 (or other comparable form adopted by the Commission) unless Form S-3 (or any comparable form adopted by the Commission) is not available for such Demand Registration. Baldwin will not

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be entitled to cause the Company to effect (x) more than one completed Note Share Registration or (y) any Note Share Registration after the second anniversary of the date hereof. The Company shall not be required to effect any Note Share Registration, and may terminate and/or withdraw any Note Share Registration that has been initiated hereunder, at any time at which Convertible Note Shares are eligible for sale pursuant to Rule 144 (or any successor rule thereto), even if such shares are then subject to the volume restrictions of Rule 144.

(ii) Any registration initiated by Holders of Investor Registrable Securities as a Demand Registration pursuant to Section 2(a) hereof shall not count as a Demand Registration for purposes of Section 2(b)(i) hereof (A) unless and until such registration shall have become effective and at least eighty percent (80%) of all Investor Registrable Securities requested to be included in such registration shall have been actually sold or (B) if such Holders withdraw their request for a Demand Registration at any time because (1) such Holders reasonably believed that the Registration Statement or Prospectus contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein (in the case of the Prospectus, in the light of the circumstances under which they were made) not misleading, (2) such Holders notified the Company of such fact and requested that the Company correct such alleged misstatement or omission and (3) the Company has refused to correct such alleged misstatement or omission.

(iii) The Company shall not be obligated or required to effect a Demand Registration or Note Share Registration of any Registrable Securities pursuant to Section 2(a) hereof during the period commencing on the date falling thirty (30) days prior to the Company’s estimated date of filing of, and ending on the date sixty (60) days following the effective date of, any Registration Statement pertaining to any underwritten registration initiated by the Company, for the account of the Company, if the written request of Investor Stockholders for such Demand Registration or Note Share Registration pursuant to Section 2(a)(i) hereof shall have been received by the Company after the Company shall have given to all Holders of Registrable Securities a written notice stating that the Company is commencing an underwritten registration initiated by the Company; provided, however, that the Company will use its best efforts in good faith to cause any such Registration Statement to be filed and to become effective as expeditiously as shall be reasonably possible (to the extent that it remains so required pursuant to the provisions hereof). All Holders agree to maintain the confidentiality of any notice stating the Company is commencing an underwritten registration except that Holders may disclose such information on a confidential basis to their legal counsel and other advisors to the extent necessary to exercise their rights under this Agreement.

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(iv) Anything contained herein to the contrary notwithstanding, the Company may delay the filing or effectiveness of any Registration Statement under this Section 2 for a period of up to 90 days after the date of a request for registration pursuant to this Section 2 if a Material Transaction exists at the time of such request.

(c) Priority on Demand Registrations. In the case of any underwritten Demand Registration, if the managing underwriters shall give written advice to the Company and the Holders of Registrable Securities to be included in such registration of an Underwriters’ Maximum Number, then: (i) the Company will be obligated and required to include in such registration that number of Investor Registrable Securities requested by the Investor Stockholders to be included in such registration which does not exceed the Underwriters’ Maximum Number, and such number of Investor Registrable Securities shall be allocated pro rata among the Holders of such Investor Registrable Securities on the basis of the number of Registrable Securities requested to be included therein by each such Investor Stockholder; (ii) if the Underwriters’ Maximum Number exceeds the number of Investor Registrable Securities requested by the Investor Stockholders thereof to be included in such registration, the Company will be obligated and required to include in such registration that number of Other Registrable Securities requested by the Other Stockholders to be included in such registration which does not cause the total number of Registrable Securities to exceed the Underwriters’ Maximum Number, and such number of Other Registrable Securities shall be allocated pro rata among the Holders of such Other Registrable Securities on the basis of the number of Other Registrable Securities requested to be included therein by each such Holder; (iii) if the Underwriters’ Maximum Number exceeds the sum of the number of Registrable Securities which the Company shall be required to include in such Demand Registration, then the Company will be entitled to include in such registration that number of securities which shall have been requested by the Company to be included in such registration for the account of the Company and which shall not be greater than such excess, and (iv) if the Underwriters’ Maximum Number exceeds the sum of the number of Registrable Securities which the Company shall be required to include in such Demand Registration and the number of securities which the Company proposes to offer and sell for its own account in such registration, then the Company may include in such registration that number of other securities which Persons (other than the Holders of Registrable Securities as such) shall have requested be included in such registration and which shall not be greater than such excess. Neither the Company nor any of its stockholders (other than Holders of Registrable Securities) shall be entitled to include any securities in any underwritten Demand Registration unless the Company or such stockholders (as the case may be) shall have agreed in writing to sell such securities on the same terms and conditions as shall apply to the Registrable Securities to be included in such Demand Registration.

(d) Selection of Underwriters. The Holders of a majority of the Investor Registrable Securities to be included in any Demand Registration shall determine whether or not such Demand Registration shall be underwritten and shall select the investment banker(s) and managing underwriter(s) to administer such offering, subject to the approval of the Company, not to be unreasonably withheld.

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3. Piggyback Registrations.

(a) Rights to Piggyback.

(i) If (and on each occasion that) the Company proposes to register any of its securities under the Securities Act either for the Company’s own account or for the account of any of its stockholders (other than for Holders pursuant to Section 2 hereof entitled to participate in a registration) (each such registration not withdrawn or abandoned prior to the effective date thereof being herein called a “Piggyback Registration”), the Company will give written notice to all Holders of Registrable Securities of such proposal not later than the earlier to occur of (A) the tenth day following the receipt by the Company of notice of exercise of any registration rights by any Persons, and (B) the thirtieth day prior to the anticipated filing date of such Piggyback Registration.

(ii) Subject to the provisions contained in paragraph (b) of this Section 3 and in the last sentence of this subparagraph (ii), (A) the Company will be obligated and required to include in each Piggyback Registration all Registrable Securities with respect to which the Company shall receive from Holders of Registrable Securities, within fifteen (15) days after the date on which the Company shall have given written notice of such Piggyback Registration to all Holders of Registrable Securities pursuant to Section 3(a)(i) hereof, the written requests of such Holders for inclusion in such Piggyback Registration, and (B) the Company will use its best efforts in good faith to effect promptly the registration of all such Registrable Securities. The Holders of Registrable Securities shall be permitted to withdraw all or any part of the Registrable Securities of such Holders from any Piggyback Registration at any time prior to the effective date of such Piggyback Registration unless such Holders of Registrable Securities shall have entered into a written agreement with the Company’s underwriters establishing the terms and conditions under which such Holders would be obligated to sell such securities in such Piggyback Registration. The Company will not be obligated or required to include any Registrable Securities in any registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 of the Commission is applicable.

(b) Priority on Piggyback Registrations. If a Piggyback Registration is an underwritten registration, and the managing underwriters shall give written advice to the Company of an Underwriters’ Maximum Number, then: (i) the Company and any other stockholder exercising demand registration rights shall be entitled to include in such registration that number of securities which the Company and such other stockholders proposes to offer and sell for its own account in such registration and

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which does not exceed the Underwriters’ Maximum Number; (ii) if the Underwriters’ Maximum Number exceeds the number of securities which the Company and the other stockholders exercising demand registration rights proposes to offer and sell in such registration, then the Company will be obligated and required to include in such registration that number of Investor Registrable Securities requested by the Holders thereof to be included in such registration and which does not exceed such excess and such Investor Registrable Securities shall be allocated pro rata among the Holders thereof on the basis of the number of Investor Registrable Securities requested to be included therein by each such Holder; (iii) if the Underwriters’ Maximum Number exceeds the sum of the number of the Investor Registrable Securities which the Company shall be required to include in such registration pursuant to clause (ii) and the number of securities which the Company and stockholders exercising demand registration rights proposes to offer and sell for its own account in such registration, then the Company will be obligated and required to include in such registration that number of Other Registrable Securities requested by the Holders thereof to be included in such registration and which does not exceed such excess and such Other Registrable Securities shall be allocated pro rata among the Holders thereof on the basis of the number of Other Registrable Securities requested to be included therein by each such Holder, and (iv) if the Underwriters’ Maximum Number exceeds the sum of the number of the Investor Registrable Securities which the Company shall be required to include in such registration pursuant to clauses (ii) and (iii) and the number of securities which the Company and stockholders exercising demand registration rights proposes to offer and sell for its own account in such registration, then the Company may include in such registration that number of other securities which Persons shall have requested be included in such registration and which shall not be greater than such excess.

(c) Selection of Underwriters. In any Piggyback Registration, the Company shall (unless the Company shall otherwise agree) have the right to select the investment bankers and managing underwriters in such registration.

4. Lockup Agreements.

(a) Restrictions on Public Sale by Holders of Registrable Securities. Each Holder of Registrable Securities, if the Company or the managing underwriters so request in connection with any underwritten registration of the Company’s securities, will not, without the prior written consent of the Company or such underwriters, effect any public sale or other distribution of any equity securities of the Company, including any sale pursuant to Rule 144, during the seven (7) days prior to, and during the one hundred eighty (180) day period commencing on, the effective date of such underwritten registration, except in connection with such underwritten registration. As long as such restrictions remain in place, no Holder of Registrable Securities shall be permitted to sell a greater percentage of the Registrable Securities owned by such Holder than the percentage of Registrable Securities owned by any other Holder of Registrable Securities that are permitted to be sold without such restrictions.

(b) Restrictions on Public Sale by the Company. The Company agrees not to effect any public sale or other distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such equity securities, during the period commencing on the seventh day prior to, and ending on the one hundred eightieth (180th) day following, the effective date of any underwritten Demand or Piggyback Registration, except in connection with any such underwritten registration and except for any offering pursuant to an employee benefit plan and registered on Form S-8 (or any successor form).

5. Registration Procedures.

(a) Whenever the Holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement, the Company will use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company will as expeditiously as possible:

(i) prepare and file with the Commission a Registration Statement with respect to such Registrable Securities and use its best efforts to cause such Registration Statement to become effective (provided, that before filing a Registration Statement or Prospectus or any amendments or supplements thereto, the Company will furnish to counsel selected by the holders of Registrable Securities covered by such Registration Statement, copies of all such documents proposed to be filed, which documents will be subject to the timely review of such counsel and the Company will not file any Registration Statement or amendment thereto or any Prospectus or any supplement thereto, including documents incorporated by reference, to which the Holders of a majority of the Registrable Securities covered by such Registration Statement shall reasonably object);

(ii) prepare and file with the Commission such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for not more than six (6) months, and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during such effective period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement and cause the Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act;

(iii) upon request, furnish to each seller of Registrable Securities such number of copies of such Registration Statement, each amendment and supplement thereto, the Prospectus included in such Registration Statement (including each preliminary Prospectus and each Prospectus filed under Rule 424 of the Securities Act) and such other documents as each such seller may

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reasonably request in order to facilitate the disposition of the Registrable Securities owned by each such seller (it being understood that the Company consents to the use of the Prospectus and any amendment or supplement thereto by such seller in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto);

(iv) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests, use its best efforts to keep each such registration or qualification effective, including through new filings, amendments or renewals, during the period such Registration Statement is required to be kept effective, and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller; provided that the Company will not be required (A) to qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph (a)(iv), (B) to subject itself to taxation in any such jurisdiction or (C) to consent to general service of process in any such jurisdiction;

(v) notify each seller of such Registrable Securities, at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the Prospectus included in such Registration Statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company will promptly prepare (and, when completed, give notice to each seller of Registrable Securities) a supplement or amendment to such Prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; provided that upon such notification by the Company, each seller of such Registrable Securities will not offer or sell such Registrable Securities until the Company has notified such seller that it has prepared a supplement or amendment to such Prospectus and delivered copies of such supplement or amendment to such seller;

(vi) cause all such Registrable Securities to be listed, prior to the date of the first sale of such Registrable Securities pursuant to such registration, on each securities exchange on which similar securities issued by the Company are then listed;

(vii) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such Registration Statement;

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(viii) enter into all such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including, without limitation, effecting a stock split or a combination of shares);

(ix) make available for inspection on a confidential basis by any seller, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such seller or underwriter (in each case after reasonable prior notice), all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company’s officers, directors, employees and independent accountants to supply on a confidential basis all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such Registration Statement;

(x) permit any holder of Registrable Securities which holder, in the reasonable judgment of the Company, might be deemed to be an underwriter or a controlling person of the Company within the meaning of Section 15 of the Securities Act, to participate in the preparation of such registration or comparable statement and to permit the insertion therein of material, furnished to the Company in writing, which in the reasonable judgment of such holder and its counsel should be included, provided that such material shall be furnished under such circumstances as shall cause it to be subject to the indemnification provisions provided pursuant to Section 8(b) hereof;

(xi) in the event of the issuance of any stop order suspending the effectiveness of a Registration Statement, or of any order suspending or preventing the use of any related Prospectus or suspending the qualification of any Registrable Securities included in such Registration Statement for sale in any jurisdiction, the Company will use its best efforts promptly to obtain the withdrawal of such order;

(xii) if requested by the managing underwriter or underwriters or any holder of Registrable Securities in connection with any sale pursuant to a Registration Statement, promptly incorporate in a Prospectus supplement or post-effective amendment such information relating to such underwriting as the managing underwriter or underwriters or such holder reasonably requests to be included therein, and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after being notified of the matters incorporated in such Prospectus supplement or post-effective amendment;

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(xiii) cooperate with the holders of Registrable Securities and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be sold under such registration, and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or such holders may request;

(xiv) use its best efforts to cause the Registrable Securities to be registered with or approved by such other governmental agencies or authorities within the United States and having jurisdiction over the Company as may reasonably be necessary to enable the seller or sellers thereof or the underwriter or underwriters, if any, to consummate the disposition of such Registrable Securities;

(xv) use its best efforts to obtain:

(A) at the time of effectiveness of each registration, a “comfort letter” from the Company’s independent certified public accountants covering such matters of the type customarily covered by “cold comfort letters” as the Holders of a majority of the Registrable Securities covered by such registration and the underwriters reasonably request; and

(B) at the time of any underwritten sale pursuant to a Registration Statement, a “bring-down comfort letter”, dated as of the date of such sale, from the Company’s independent certified public accountants covering such matters of the type customarily covered by comfort letters as the Holders of a majority of the Registrable Securities covered by such Registration Statement and the underwriters reasonably request;

(xvi) use its best efforts to obtain, at the time of effectiveness of each Piggyback Registration and at the time of any sale pursuant to each registration, an opinion or opinions, favorable in form and scope to the Holders of a majority of the Registrable Securities covered by such registration, from counsel to the Company in customary form; and

(xvii) otherwise comply with all applicable rules and regulations of the Commission, and make generally available to its security holders (as contemplated by Section 11(a) under the Securities Act) an earnings statement satisfying the provisions of Rule 158 under the Securities Act no later than ninety (90) days after the end of the twelve month period beginning with the first month of the Company’s first fiscal quarter commencing after the effective date of the Registration Statement, which statement shall cover said twelve month period.

6. Cooperation by Prospective Sellers, Etc.

(a) Each prospective seller of Registrable Securities will furnish to the Company in writing such information as the Company may reasonably require from such seller, and otherwise reasonably cooperate with the Company in connection with any Registration Statement with respect to such Registrable Securities.

(b) The failure of any prospective seller of Registrable Securities to furnish any information or documents in accordance with any provision contained in this Agreement shall not affect the obligations of the Company under this Agreement to any remaining sellers who furnish such information and documents unless in the reasonable opinion of counsel to the Company or the underwriters, such failure impairs or may impair the viability of the offering or the legality of the Registration Statement or the underlying offering.

(c) The Holders of Registrable Securities included in any Registration Statement will not (until further notice) effect sales thereof after receipt of telegraphic or written notice from the Company to suspend sales to permit the Company to correct or update such Registration Statement or Prospectus; but the obligations of the Company with respect to maintaining any Registration Statement current and effective shall be extended by a period of days equal to the period such suspension is in effect.

(d) At the end of any period during which the Company is obligated to keep any Registration Statement current and effective as provided by Section 5 hereof (and any extensions thereof required by the preceding paragraph (c) of this Section 6), the Holders of Registrable Securities included in such Registration Statement shall discontinue sales of shares pursuant to such Registration Statement upon receipt of notice from the Company of its intention to remove from registration the shares covered by such Registration Statement which remain unsold, and such Holders shall notify the Company of the number of shares registered which remain unsold promptly after receipt of such notice from the Company.

(e) Notwithstanding any other provision herein to the contrary, no Holder of Registrable Securities which constitute warrants or options shall be required to exercise such warrants or options in connection with any registration until the actual sale of the shares of Common Stock issuable upon exercise of such warrants or options. The Company shall enter into such agreements and shall otherwise cooperate with the Holders of Registrable Securities in order to ensure that such Holders are not required to exercise any warrants or options prior to the date of the actual sale of the shares of Common Stock issuable upon exercise of such warrants or options.

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7. Registration Expenses.

(a) All costs and expenses incurred or sustained in connection with or arising out of each registration pursuant to Sections 2 and 3 hereof, including, without limitation, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel for the underwriters in connection with the blue sky qualification of Registrable Securities), printing expenses, messenger, telephone and delivery expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements of one counsel representing the Holders of Registrable Securities, such counsel to be selected by the Holders of a majority of the Registrable Securities to be included in such registration, fees and disbursements of all independent certified public accountants (including the expenses relating to the preparation and delivery of any special audit or “cold comfort” letters required by or incident to such registration), and fees and disbursements of underwriters (excluding discounts and commissions), the reasonable fees and expenses of any special experts retained by the Company of its own initiative or at the request of the managing underwriters in connection with such registration, and fees and expenses of all (if any) other Persons retained by the Company (all such costs and expenses being herein called, collectively, the “Registration Expenses”), will be borne and paid by the Company. The Company will, in any case, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, and the fees and expenses incurred in connection with the listing of the securities to be registered on each securities exchange on which similar securities of the Company are then listed.

(b) The Company will not bear the cost of nor pay for any stock transfer taxes imposed in respect of the transfer of any Registrable Securities to any purchaser thereof by any Holder of Registrable Securities in connection with any registration of Registrable Securities pursuant to this Agreement.

(c) To the extent that Registration Expenses incident to any registration are, under the terms of this Agreement, not required to be paid by the Company, each Holder of Registrable Securities included in such registration will pay all Registration Expenses which are clearly solely attributable to the registration of such Holder’s Registrable Securities so included in such registration, and all other Registration Expenses not so attributable to one Holder will be borne and paid by all sellers of securities included in such registration in proportion to the number of securities so included by each such seller.

8. Indemnification.

(a) Indemnification by the Company. The Company will indemnify each Holder requesting or joining in a registration and each underwriter of the securities so registered, the officers, directors and partners of each such Person and each Person who controls any thereof (within the meaning of the Securities Act) against any and

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all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of any material fact contained in any Prospectus, offering circular or other document incident to any registration, qualification or compliance (or in any related Registration Statement, notification or the like) or any omission (or alleged omission) to state therein any material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company and relating to any action or inaction required of the Company in connection with any such registration, qualification or compliance, and the Company will reimburse each such Holder, underwriter, officer, director, partner and controlling person for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such claim, loss, damage or liability arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder, underwriter, officer, director, partner or controlling person and stated to be specifically for use in such Prospectus, offering circular or other document (or related Registration Statement, notification or the like).

(b) Indemnification by Each Holder. Each Holder requesting or joining in a registration will indemnify each underwriter of the securities so registered, the Company and its officers and directors and each Person, if any, who controls any thereof (within the meaning of the Securities Act) and their respective successors in title and assigns against any and all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of any material fact contained in any Prospectus, offering circular or other document incident to any registration, qualification or compliance (or in any related Registration Statement, notification or the like) or any omission (or alleged omission) to state therein any material fact required to be stated therein or necessary to make the statement therein not misleading, and such Holder will reimburse each underwriter, the Company and each other Person indemnified pursuant to this paragraph (b) for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; provided, however, that this paragraph (b) shall apply only if (and only to the extent that) such statement or omission was made in reliance upon written information furnished to such underwriter or the Company by such Holder in writing and stated to be specifically for use in such Prospectus, offering circular or other document (or related Registration Statement, notification or the like) or any amendment or supplement thereto; and, provided further, that each Holder’s liability hereunder with respect to any particular registration shall be limited to an amount equal to the net proceeds received by such Holder from the Registrable Securities sold by such Holder in such registration.

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(c) Indemnification Proceedings. Each party entitled to indemnification pursuant to this Section 8 (the “Indemnified Party”) shall give notice to the party required to provide indemnification pursuant to this Section 8 (the “Indemnifying Party”) promptly after such Indemnified Party acquires actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party (at its expense) to assume the defense and settlement of any claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party who shall conduct the defense of such claim or litigation shall be acceptable to the Indemnified Party, and the Indemnified Party may participate in such defense at such party’s expense; and provided, further, that the failure by any Indemnified Party to give notice as provided in this paragraph (c) shall not relieve the Indemnifying Party of its obligations under this Section 8 except to the extent that the failure results in a failure of actual notice to the Indemnifying Party and such Indemnifying Party is damaged solely as a result of the failure to give notice. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. The reimbursement required by this Section 8 shall be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred.

9. Contribution in Lieu of Indemnification. If the indemnification provided for in Section 8 hereof is unavailable to a party that would have been an Indemnified Party under such Section in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each party that would have been an Indemnifying Party thereunder shall, in lieu of indemnifying such Indemnified Party, contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and such Indemnified Party on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof). The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Party or such Indemnified Party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and each Holder of Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 9. The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 9 shall include any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding any provision of this Section 9 to the contrary, (a) no Person guilty of fraudulent misrepresentation

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(within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation and (b) each Holder’s liability hereunder with respect to any particular registration shall be limited to an amount equal to the net proceeds received by such Holder from the Registrable Securities sold by such Holder in such registration.

10. Eligibility Requirements. After the date hereof, the Company will make reasonable efforts in good faith to take all steps necessary to ensure that the Company will be eligible to register securities on Form SB-2, as long as the Company is a “small business issuer”, or Form S-3 (or any comparable forms adopted by the Commission) as soon thereafter as possible, and to make publicly available and available to the Holders of Registrable Securities, pursuant to Rule 144 or Rule 144A of the Commission under the Securities Act, such information as shall be necessary to enable the Holders of Registrable Securities to make sales of Registrable Securities pursuant to such Rules. The Company will furnish to any Holder of Registrable Securities, upon request made by such Holder, a written statement signed by the Company, addressed to such Holder, describing briefly the action the Company has taken or proposes to take to comply with the current public information requirements of Rule 144 and Rule 144A.

11. Participation in Underwritten Registrations. (a) No Person may participate in any underwritten registration pursuant to this Agreement unless such Person (i) agrees to sell such Person’s securities on the basis provided in any underwriting arrangements approved by the Persons entitled, under the provisions hereof, to approve such arrangements, and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required by the terms of such underwriting arrangements. Any Holder of Registrable Securities to be included in any underwritten registration shall be entitled at any time to withdraw such Registrable Securities from such registration prior to its effective date in the event that such Holder shall disapprove of any of the terms of the related underwriting agreement.

(b) Notwithstanding the priorities set forth in Sections 2(c) and 3(b) above, in the event that the managing underwriters in any underwritten Demand Registration or Piggyback Registration inform the Company in writing that the inclusion therein of any Other Registrable Securities held by management employees of the Company or any of its subsidiaries would impair the marketability of the Registrable Securities to be included in such registration, the Company shall be required to include in such registration only such number of Other Registrable Securities held by such management employees as the managing underwriters determine would not negatively impair the Registrable Securities to be sold in connection therewith. If any such event shall occur, the other Holders of Registrable Securities (other than any Holder affected by the restriction described above) shall be entitled to include in such registration, the number of Registrable Securities that Holders of Other Registrable Securities would have been entitled to include in such registration but for such restriction described above (such Registrable Securities to be allocated pro rata among such other Holders on the basis of the number of Registrable Securities requested to be included therein by each such Holder).

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12. Miscellaneous.

(a) No Inconsistent Agreements. The Company has not previously entered into any agreement with respect to its Common Stock granting any registration rights to any Person, and will not on or after the date of this Agreement enter into any agreement with respect to its securities which grants demand registration rights to anyone or which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof.

(b) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless such amendment, modification, supplement, waiver or consent is approved in writing by the Holders of at least fifty-one percent (51%) of the Investor Registrable Securities, the Holders of at least fifty-one percent (51%) of the Registrable Securities and the Company; provided, however, that no amendment, modification or waiver of any provision of this Agreement that adversely affects the rights of any Party (as hereinafter defined) to this Agreement in a manner different from the rights of the other Parties shall be effective against such adversely affected Party unless approved in writing by the holders of at least a majority of the Registrable Securities then held by all members of such Party. As used in this Section 12(b), “Party” means any one of the following entities or groups: (i) the Company, (ii) the Holders of Investor Registrable Securities, and (iii) the Holders of Other Registrable Securities. Section 2(a)(i)(B) and the second and third sentences of Section 2(b)(i) may not be amended, modified or supplemented, and waivers or consents to departures from such provisions may not be given, unless such amendment, modification, supplement, waiver or consent is approved in writing by Baldwin.

(c) Registrable Securities Held by the Company. Whenever the consent or approval of Holders of Registrable Securities is required pursuant to this Agreement, Registrable Securities held by the Company shall not be counted in determining whether such consent or approval was duly and properly given by such Holders.

(d) Term. The agreements of the Company contained in this Agreement shall continue in full force and effect so long as any Holder holds any Registrable Securities.

(e) Remedies. In the event of a breach by the Company of its obligations under this Agreement, each Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

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(f) Notices. Any notice provided for in this Agreement will be in writing and will be deemed properly delivered if either personally delivered or sent by overnight courier or telecopier or mailed certified or registered mail, return receipt requested, postage prepaid, to the recipient at the address specified below:

(i) if to a Holder, at such Holder’s address on the stock transfer books of the Company; and

(ii) if to the Company, at:

Advanced Communications Technologies, Inc.
420 Lexington Avenue, Suite 2739
New York, NY 10170
Attention: Wayne Danson
Fax: (646) 227-1666

with copies to:

ACT-DE LLC
c/o H.I.G. Capital, LLC
855 Boylston Street
11th Floor
Boston, MA 02116
Attention: John Black and William Nolan
Fax: (617) 262-1505

and to:

Bingham McCutchen LLP
399 Park Avenue
New York, New York 10022
Attention: Neil W. Townsend
Fax: (212) 752-5378

and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 12(f). Any such notice shall be effective (A) if delivered personally or by telecopy, when received, (B) if sent by overnight courier, when receipted for, and (C) if mailed, three (3) days after being mailed as described above.

(g) Successors and Assigns. This Agreement and the rights of any Holder hereunder may be assigned to, and shall inure to the benefit of, any Person to whom such Holder transfers Registrable Securities, provided that such transfer is made in compliance with the provisions of the Stockholder Agreement(s) and the transferee agrees to be bound by all of the terms and conditions of this Agreement by executing and delivering to the Company an Instrument of Accession.

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(h) Counterparts. This Agreement may be executed in two or more counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same instrument.

(i) Headings. The headings in this Agreement are for convenience of reference only and shall not constitute a part of this Agreement, nor shall they affect their meaning, construction or effect.

(j) Governing Law. The validity, performance, construction and effect of this Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, giving effect to principles of conflicts of law.

(k) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby.

(l) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company with respect to the Registrable Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as an instrument under seal as of the date first written above.


COMPANY: ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
By:	/s/ Wayne Danson
	Name:	Wayne Danson
	Title:	Chief Executive Officer


BUYERS: ACT-DE LLC
By:	/s/William Nolan
	Name William Nolan
	Title:	Executive Vice President



	/s/ Fred V. Baldwin
	Fred V. Baldwin



	/s/ Robert Coolidge
	Robert Coolidge



	/s/ Scott Cameron
	Scott Cameron

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PROSPECT HARBOR CREDIT PARTNERS, L.P.
By:	/s/ Stuart Davies
	Name:	Stuart Davies
	Title:	Managing Director


SANKATY CREDIT OPPORTUNITIES II, L.P.
By:	/s/ Stuart Davies
	Name:	Stuart Davies
	Title:	Managing Director


SANKATY CREDIT OPPORTUNITIES III, L.P.
By:	/s/ Stuart Davies
	Name:	Stuart Davies
	Title:	Managing Director


RGIP, LLC
By:	/s/ R.B. Malt
	Name:	R. B. Malt
	Title:	Managing Member

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SCHEDULE 1
TO REGISTRATION
RIGHTS AGREEMENT

Santaky Investors

Prospect Harbor Credit Partners, L.P.

Sankaty Credit Opportunities II, L.P.

Sankaty Credit Opportunities III, L.P.

RGIP, LLC

Other Investors

Fred Baldwin

Robert Coolidge

Scott Cameron

S-1

SCHEDULE 2
TO REGISTRATION
RIGHTS AGREEMENT

Instrument of Accession

Reference is made to that certain Registration Rights Agreement, dated as of August ___, 2007, a copy of which is attached hereto (as amended and in effect from time to time, the “Registration Rights Agreement”), among Advanced Communications Technologies, Inc., a Florida corporation (the “Company”), and the Holders (as defined therein).

The undersigned, _________________, [in order to become] [is] the owner or holder of ___________________ shares of the [Series C Convertible Preferred Stock, $.01 par value per share] [Series D Convertible Preferred Stock, $.01 par value per share] [Common Stock, $.001 par value per share] (the “Shares”) of the Company [and] hereby agrees that by his [her/its] [its] execution hereof the undersigned is a Holder party to the Registration Rights Agreement subject to all of the restrictions and conditions applicable to Holders set forth in such Registration Rights Agreement, and all of the Shares [purchased by the undersigned in connection herewith] [owned by the undersigned as of the date hereof] (and any and all shares of Common Stock of the Company issued in respect thereof) are [Investor] [Other] Registrable Securities, subject to all the restrictions and conditions applicable to [Investor] [Other] Registrable Securities as set forth in the Registration Rights Agreement. This Instrument of Accession shall take effect and shall become a part of said Registration Rights Agreement immediately upon acceptance thereof by the Company.

Executed as of the date set forth below.


		Signature:


		Address:







		Date:

Accepted:
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.



By:
Date:

S-2

EX-99.5 6 g09144exv99w5.htm EX-99.5 STOCKHOLDERS AGREEMENT Ex-99.5 Stockholders Agreement

EXHIBIT 5

STOCKHOLDER AGREEMENT

This STOCKHOLDER AGREEMENT (this “Agreement”), dated as of August 17, 2007, is among (a) ADVANCED COMMUNICATIONS TECHNOLOGIES, INC., a Florida corporation (the “Company”), (b) ACT-DE, LLC (“HIG”), (c) the Persons identified on Schedule 1 as “Sankaty Investors” (the “Sankaty Investors”), (d) the Persons on Schedule 1 hereto under the heading “Other Investors” (the “Other Investors”), and (e) any other Person who becomes a party to this Agreement by executing an Instrument of Accession.

WHEREAS, the parties hereto wish to set forth their relative rights with regard to the transfer and issuance of the Company’s securities, election of the Company’s Board of Directors and certain other matters concerning the Company’s capital stock;

NOW, THEREFORE, the parties to this Agreement hereby agree as follows:

§1. DEFINITIONS. For all purposes of this Agreement, the following terms shall have the meanings set forth below:

Affiliate. Affiliate shall mean, with respect to any Stockholder, any Person directly or indirectly controlling, controlled by or under direct or indirect common control with such Stockholder and shall include (a) any Person who is a director or beneficial holder of at least 10% of the then outstanding capital stock (or partnership interests or membership interests or other shares of beneficial interest) of such Stockholder and Family Members of any such Person, (b) any Person of which such Stockholder or an Affiliate (as defined in clause (a) above) of such Stockholder directly or indirectly, either beneficially owns at least 10% of the then outstanding capital stock (or partnership interests or membership interests or other shares of beneficial interest) or constitutes at least a 10% equity participant, (c) any Person of which an Affiliate (as defined in clause (a) above) of such Stockholder is a partner, director, officer or executive employee and (d) in case of a specified Person who is an individual, Family Members of such Person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under direct or indirect common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by contract or otherwise.

Approved Sale. See Section 3.1.

Charter. Charter shall mean the Company’s Articles of Incorporation and all amendments thereto.

Common Equity Rights. Common Equity Rights shall mean any options, warrants or other rights issued by the Company to acquire Common Stock.

Common Stock. Common Stock shall mean the Company’s Common Stock, no par value per share any shares of any other class of capital stock of the Company hereafter issued which are (i) not preferred as to dividends or assets over any class of stock of the Company, (ii) not subject to redemption pursuant to the terms thereof, or (iii) issued to the holders of shares of Common Stock upon any reclassification thereof.

Company. See Preamble.

Company Equity Securities. Company Equity Securities shall mean Common Stock and any securities convertible into or containing options or rights to acquire shares of Common Stock.

Disposition Event. means any of the following transactions: (i) a consolidation or merger of the Company with or into any other person(s), entity or entities in which less than a majority of the outstanding voting power of the surviving person(s), entity or entities is held by persons or entities who were stockholders of the Company prior to such event or (ii) a sale, lease, exchange or disposition of all, or substantially all, of the property (with or without the good will) of the Company otherwise than in its usual and regular course of business.

Family Limited Liability Company. Family Limited Liability Company shall mean, with respect to any individual, any limited liability company created for the benefit of one or more of such individual’s Related Persons and controlled by such individual.

Family Limited Partnership. Family Limited Partnership shall mean, with respect to any individual, any limited partnership created for the benefit of one or more of such individual’s Related Persons and controlled by such individual.

Family Members. Family Members shall mean, with respect to any individual, any Related Person, Family Trust, Family Limited Liability Company or Family Limited Partnership of such individual.

Family Trust. Family Trust shall mean, with respect to any individual, any trust created for the benefit of such individual or one or more of such individual’s Related Persons.

HIG. See Preamble.

HIG Securities. HIG Securities shall mean (a) the shares of Series C Preferred Stock issued to HIG pursuant to the Purchase Agreement, (b) all other Company Equity Securities purchased by, issued to or otherwise acquired by HIG from time to time, (c) all shares of the Company’s capital stock issued or issuable upon conversion or exercise of such securities and (d) all shares of the Company’s capital stock issued with respect to such shares by way of stock dividend or stock split or in connection with any merger, consolidation, recapitalization or other reorganization affecting the Company’s capital stock. HIG Securities will continue to be HIG Securities in the hands of any holder and each transferee thereof will succeed to the rights and obligations of a holder of HIG Securities hereunder, provided that shares of HIG Securities will cease to be HIG Securities when transferred (i) to the Company, (ii) to a Sankaty Stockholder, (iii) to an Other Stockholder or (iv) pursuant to a Public Sale.

HIG Stockholder. HIG Stockholder shall mean HIG for so long as such Person holds HIG Securities and any other Person to whom HIG Securities are transferred for so long as such Person holds any HIG Securities.

Instrument of Accession. See Preamble.

Majority HIG Holders. Majority HIG Holders shall mean the holder or holders at the relevant time of determination of fifty-one percent (51%) or more of the number of then issued and outstanding shares of Common Stock included in the HIG Securities (determined on a fully-diluted basis).

Majority Sankaty Holders. Majority Sankaty Holders shall mean the holder or holders at the relevant time of determination of fifty-one percent (51%) or more of the number of then issued and outstanding shares of Common Stock included in the Sankaty Securities (determined on a fully-diluted basis).

Major Stockholder. Major Stockholder means (i) any HIG Stockholder and (ii) any Sankaty Stockholder, for as long as the Sankaty Stockholders continue to hold at least 25% of the Sankaty Securities outstanding on the date hereof.

Offer Notice. See Section 2.2.

Other Securities. Other Securities shall mean (a) all Company Equity Securities purchased by, issued to or otherwise acquired by any of the Other Investors or any Person who is not a HIG Stockholder or a Sankaty Stockholder, (b) all shares of the Company’s capital stock issued or issuable upon conversion or exercise of such securities, and (c) all shares of the Company’s capital stock issued with respect to such shares by way of stock dividend or stock split or in connection with any merger, consolidation, recapitalization or other reorganization affecting the Company’s capital stock. Other Securities will continue to be Other Securities in the hands of any holder and each transferee thereof will succeed to the rights and obligations of a holder of Other Securities hereunder, provided that shares of Other Securities will cease to be Other Securities when transferred (i) to the Company, (ii) to an HIG Stockholder, (iii) to a Sankaty Stockholder or (iv) pursuant to a Public Sale.

Other Stockholder. Other Stockholder shall mean any Person who holds Other Securities and any other Person to whom Other Securities are issued or transferred for so long as such Person holds any Other Securities.

Participating Stockholders. See Section 2.2.

Person. Person shall mean an individual, partnership, limited liability company, corporation, association, trust, joint venture, unincorporated organization, or any government, governmental department or agency or political subdivision thereof.

Personal Representative. Personal Representative shall mean the successor or legal representative (including, without limitation, a guardian, executor, administrator or conservator) of a dead or incompetent Stockholder.

Preferred Stock. Preferred Stock shall mean (a) the Company’s Series C Preferred Stock, $0.01 par value per share (the “Series C Preferred Stock”), (b) the Company’s Series D Preferred Stock, $0.01 par value per share, (c) the Company’s Series A-2 Preferred Stock, $0.01 par value per share and (d) any capital stock of the Company which is (i) preferred as to distributions upon

a liquidation of the Company or dividends over any other class of stock of the Company, (ii) subject to redemption pursuant to the terms thereof or (iii) issued to the holders of Preferred Stock upon any reclassification thereof.

Public Sale. Public Sale shall mean any sale of Common Stock pursuant to a registration statement under the Securities Act or to the public through a broker or market-maker pursuant to the provisions of Rule 144 (or any successor rule) adopted under the Securities Act.

Purchase Agreement. The Purchase Agreement, of even date herewith, among the Company the HIG Investor and the Sankaty Investors.

Related Persons. Related Persons shall mean, with respect to any individual, such individual’s parents, spouse, siblings, children and grandchildren.

Sankaty Securities. Sankaty Securities shall mean (a) the shares of Series C Preferred Stock issued to Sankaty pursuant to the Purchase Agreement, (b) all other Company Equity Securities purchased by, issued to or otherwise acquired by Sankaty from time to time, (c) all shares of the Company’s capital stock issued or issuable upon conversion or exercise of such securities and (d) all shares of the Company’s capital stock issued with respect to such shares by way of stock dividend or stock split or in connection with any merger, consolidation, recapitalization or other reorganization affecting the Company’s capital stock. Sankaty Securities will continue to be Sankaty Securities in the hands of any holder and each transferee thereof will succeed to the rights and obligations of a holder of Sankaty Securities hereunder, provided that shares of Sankaty Securities will cease to be Sankaty Securities when transferred (i) to the Company, (ii) to a HIG Stockholder, (iii) to an Other Stockholder or (iv) pursuant to a Public Sale.

Sankaty Stockholder. Sankaty Stockholder shall mean each Sankaty Investor for so long as such Person holds Sankaty Securities and any other Person to whom Sankaty Securities are transferred for so long as such Person holds any Sankaty Securities.

Securities. Securities shall mean the HIG Securities, the Sankaty Securities and the Other Securities.

Securities Act. Securities Act shall mean the Securities Act of 1933, as amended.

Stockholders. Stockholders shall mean, collectively, the HIG Stockholders, the Sankaty Stockholders and the Other Stockholders.

Stock Options. Stock Options shall mean any options to purchase capital stock of the Company pursuant to a Stock Option Agreement.

Stock Option Agreements. Stock Option Agreements shall mean any agreement between the Company and any employee, director or consultant of the Company entered into from time to time in compliance with the terms hereof, pursuant to which any such employee, director or consultant is awarded an option to purchase equity in the Company, in each case as amended and in effect from time to time.

Subsidiary. Subsidiary shall mean any corporation, association, trust, or other business entity, of which the designated parent shall at any time own or control directly or indirectly through a Subsidiary or Subsidiaries at least a majority (by number of votes) of the outstanding shares of capital stock (or other shares of beneficial interest) which are (a) entitled ordinarily, in the absence of contingencies, to vote for the election of a majority of such business entity’s directors (or Persons exercising similar functions), even though the right so to vote has been suspended by the happening of such a contingency, or (b) entitled at the time to vote for the election of a majority of such business entity’s directors (or Person exercising similar functions), whether or not the right so to vote exists by reason of the happening of a contingency.

Transfer. See Section 2.1.

Transferring Stockholder. See Section 2.2.

§2. RESTRICTIONS ON TRANSFER OF SECURITIES.

2.1. Series C Transfers. No Stockholder may sell, assign, pledge or otherwise transfer (a “Transfer”) any interest in any Series C Preferred Stock, either voluntarily or involuntarily, by operation of law or otherwise, except:

(a) in the case of any HIG Stockholder, (i) to its Affiliates, (ii) as a distribution to its members or partners, in the case of an HIG Stockholder organized as a limited liability company, limited partnership or general partnership, (iii) to any successor purchasing substantially all of its assets, or (iv) to any other Person so long as such HIG Stockholder has complied with Section 2.3; or

(b) in the case of any Sankaty Stockholder, (i) to its Affiliates, (ii) as a distribution to its members or partners, in the case of an Sankaty Stockholder organized as a limited liability company, limited partnership or general partnership, (iii) to any successor purchasing substantially all of its assets, (iv) to the extent permitted by Section 2.3 or (v) to any other Person so long as such Sankaty Stockholder has complied with Section 2.4; or

(c) in the case of any Other Stockholder who is an individual, (i) to such Other Stockholder’s Family Members, provided that such Other Stockholder or his Personal Representative retains exclusive voting control over the transferred Securities, or (ii) to such Other Stockholder’s Personal Representative; or

(d) in the case of any Other Stockholder that is not an individual, to any successor purchasing substantially all of its assets; or

(e) in the case of any Stockholder, pursuant to a Disposition Event or to the Company;

provided that (x) the restrictions contained in this Section 2 will continue to be applicable to the Series C Preferred Stock after any Transfer pursuant to clauses (a), (b), (c) or (d) above, and (y) the transferee of such Securities in any such Transfer pursuant to clauses (a), (b), (c) or (d) above shall either be a party hereto or shall have executed and delivered to the Company an Instrument of Accession.

2.2. Other Transfers. Any Stockholder may Transfer any Securities (other than Series C Preferred Stock) without restrictions hereunder provided that, in the case of any Transfer other than in connection with a Disposition Event or a Public Sale, the transferee of such Securities shall either be a party hereto or shall have executed and delivered to the Company an Instrument of Accession.

2.3. Participation Rights. No HIG Stockholder may make a Transfer of Series C Preferred Stock pursuant to clause (a)(iv) of Section 2.1 unless such HIG Stockholder complies with the provisions of this Section 2.3. The transferring HIG Stockholder (the “Transferring Stockholder”) shall deliver a written notice (the “Offer Notice”) to the Company and to each Sankaty Stockholder that holds Series C Preferred Stock. The Offer Notice will disclose in reasonable detail the proposed number of shares of Series C Preferred Stock to be transferred, the proposed price, terms and conditions of the Transfer and the identity of the transferee. Each of the Sankaty Stockholders holding Series C Preferred Stock may elect to participate in the contemplated sale by delivering written notice to the Transferring Stockholder within 10 days after receipt of the Offer Notice. If any of such Sankaty Stockholders elects to participate in such sale (the “Participating Stockholders”), each of the Transferring Stockholder and the Participating Stockholders will be entitled to sell in the contemplated sale a number of shares of Preferred Stock equal to the product of (i) the fraction, the numerator of which is the number of shares of Series C Preferred Stock held by such Person, and the denominator of which is the aggregate number of Series C Preferred Stock owned by the Transferring Stockholder and the Participating Stockholders, multiplied by (ii) the number of shares of Series C Preferred Stock to be sold by the Transferring Stockholder and the Participating Stockholders in the contemplated sale.

As a condition to any Transfer by the Transferring Stockholder, the Transferring Stockholder must obtain the agreement of the prospective transferee(s) to the participation of all Participating Stockholders in any contemplated sale and will not transfer any of its Securities to the prospective transferee(s) if the prospective transferee(s) declines to allow the participation of the Participating Stockholders on the terms specified herein.

2.4. Right of First Refusal. No Sankaty Stockholder may make any Transfer of Preferred Stock pursuant to clause (b)(v) of Section 2.1 unless such Sankaty Stockholder complies with the provisions of this Section 2.4. The transferring Sankaty Stockholder (the “Transferring Sankaty Stockholder”) will deliver a written notice (the “Sankaty Offer Notice”) to each HIG Stockholder. The Sankaty Offer Notice will disclose in reasonable detail the desired number of shares of Preferred Stock to be transferred, and the desired price, terms and conditions of the Transfer. The HIG Stockholders (or their designees) may elect to purchase all (but not less than all) of the Preferred Stock specified in the Sankaty Offer Notice at the price and on the terms specified therein by delivering written notice (the “HIG Acceptance Notice”) of such election to the Transferring Sankaty Stockholder and the other non-transferring Sankaty Stockholders within twenty (20) days after receipt of the Sankaty Offer Notice (the “Election Period”). If the HIG Stockholders elect to purchase all of the Preferred Stock being offered, the Transfer of such Preferred Stock will be consummated within thirty (30) days after expiration of the Election Period. If the HIG Stockholders do not elect to purchase all of the Preferred Stock being offered, the Transferring Sankaty Stockholder may, within ninety (90) days after the expiration of the Election Period, complete the Transfer of such Preferred Stock at a price equal

to or greater than the price listed in the Sankaty Offer Notice and otherwise on terms no more favorable to the transferees than the terms offered to the HIG Stockholders in the Sankaty Offer Notice, provided, that no such Transfer may be completed unless each of such transferees shall have executed and delivered to the Company an Instrument of Accession. If the Transferring Sankaty Stockholder fails to consummate such Transfer on such terms within the ninety (90) day period after the expiration of the Election Period, any subsequent proposed transfer of such Sankaty Securities shall be once again subject to the provisions of this Section 2.4.

2.5. Transfers of Securities in Breach of this Agreement. In the event of any Transfer of Securities in breach of this Agreement, commencing immediately upon the date of such attempted Transfer (a) such Transfer shall be void and of no effect, (b) no dividend of any kind or any distribution pursuant to any liquidation, redemption or otherwise shall be paid by the Company to the purported transferee in respect of such Securities (all such rights to payment by the transferring Stockholder and/or the purported transferee being deemed waived), (c) the voting rights of such Securities, if any, shall terminate, and (d) neither the transferring Stockholder nor the purported transferee shall be entitled to exercise any rights with respect to such Securities until such Transfer in breach of this Agreement has been rescinded.

§3. SALE OF THE COMPANY.

3.1. Approved Sale. In the event that a Disposition Event is approved by the Company’s Board of Directors and consented to by the Majority HIG Holders at any time when the HIG Stockholders collectively hold at least fifty percent (50%) of the Common Stock on a fully-diluted basis (an “Approved Sale”), each Stockholder hereby waives, to the extent permitted by applicable law, all rights to object to or dissent from such Approved Sale and hereby agrees to consent to and raise no objection against such Approved Sale.

3.2. Obligations of Stockholders. The Company and the Stockholders hereby agree to cooperate fully in any Approved Sale and not to take any action prejudicial to or inconsistent with such Approved Sale. Without limiting the generality of the foregoing, each Stockholder hereby agrees to (i) vote such Stockholder’s Securities to approve the terms of any such Approved Sale and such matters ancillary thereto as may be necessary in the judgment of the Board of Directors of the Company to effect such Approved Sale, (ii) waive any appraisal rights that such Stockholder would have with respect to such Approved Sale, (iii) in an Approved Sale structured as a sale of stock, sell all of such Stockholder’s Securities on the terms and conditions approved by the Board of Directors of the Company and (iv) upon request, deliver such Stockholder’s Securities (together with executed instruments of transfer) in escrow (pending receipt of the purchase price therefor) to counsel for the Company in such sale. Nothing contained in this Section 3 shall be construed to require any director of the Company to vote or refrain from voting in any particular manner.

3.3. Received Consideration. The obligations of the Stockholders with respect to any Approved Sale are subject to the satisfaction of the conditions that (a) upon the consummation of such Approved Sale, the Stockholders will receive (i) the amount of consideration to which such Stockholders are entitled pursuant to a Liquidation under the Charter and (ii) the same form and amount of consideration per share of Common Stock or Preferred Stock of such series, as applicable, or if any such sellers are given an option as to the form and

amount of consideration to be received per share of Common Stock or Preferred Stock of such series, all holders of Common Stock and Preferred Stock of such series, as applicable, will be given the same option, (b) the representations and warranties to be made by any Stockholder shall be limited to enforceability of its obligations and title to its Securities, (c) any indemnification obligations of a Stockholder shall be several, not joint, and shall (other than with respect to breaches representations and warranties with respect to enforceability of such Stockholder’s obligations and title to Securities) be pro rata based on the value of the proceeds received by the sellers in connection with such Approved Sale, and (d) the aggregate liability of a Stockholder with respect to indemnification obligations in connection with such Approved Sale shall be limited to the proceeds received by such Stockholder in connection with such Approved Sale.

3.4. Proxy. Each Stockholder hereby appoints the Majority HIG Stockholders as such Stockholder’s true and lawful proxy and attorney in connection with any Approved Sale, with full power of substitution, to vote all Securities owned by such Stockholder or over which such Stockholder has voting control to effectuate the agreements set forth in this Section 3 in the event of any breach by such Stockholder of its obligations under this Section 3. The proxies and powers granted by each Stockholder pursuant to this Section 3.4 are coupled with an interest and are given to secure the performance of such Stockholder’s duties under this Section 3. Such proxies are irrevocable for so long as this Section 3 remains in effect and will survive the death, incompetence or disability of any Stockholder who is an individual and the merger, liquidation or dissolution of any Stockholder that is a corporation, limited liability company, partnership or other entity.

§4. BOARD OF DIRECTORS.

4.1. Boards of Directors; Voting Agreements. (a) In any and all elections of directors of the Company (whether at a meeting or by written consent in lieu of a meeting), each Stockholder shall vote, or cause to be voted, or cause such Stockholder’s designees as directors to vote, all Securities owned by such Stockholder or over which such Stockholder has voting control so as to fix the number of directors of the Company at seven (7), and to nominate and elect such directors as follows:

(i) Wayne Danson, for as long as he continues to serve as the Chief Executive Officer of the Company and for any replacement Chief Executive Officer;

(ii) three (3) independent directors designated by the Majority HIG Holders; and

(iii) one independent director designated by the independent directors of the Company immediately prior to the effectiveness of this Agreement and reasonably acceptable to the Majority HIG holders; and

(iv) two (2) other individuals designated by the Majority HIG Holders.

The initial directors designated by the Majority HIG Holders pursuant to clause (iv) above shall be John R. Black and William Nolan. The independent director designated pursuant to clause

(iii) above shall be Wilbank Roche. The three independent directors initially designated pursuant to clause (ii) above shall be J.G. (Pete) Ball, Gerald E. Wedren and Thomas R. Kettteler.

(b) If any vacancy shall occur in the Board of Directors of the Company as a result of death, disability, resignation or any other termination of a director, in any stockholder vote for the replacement of such director, each Stockholder agrees to vote for the replacement for such vacating director designated by the Majority HIG Holders. In the event that the Majority HIG Holders designate for removal any director initially designated by the Majority HIG Holders pursuant to this Section 4.1, each Stockholder shall vote to remove such director in any vote held for such purpose. Each Stockholder hereby agrees to vote or cause to be voted or cause such Stockholder’s designees as directors to vote all Securities owned by such Stockholder or over which such Stockholder has voting control so as to comply with this Section 4.1(b).

4.2. PROXY. EACH STOCKHOLDER HEREBY GRANTS TO THE MAJORITY HIG HOLDERS AN IRREVOCABLE PROXY, COUPLED WITH AN INTEREST, TO VOTE ALL OF THE SECURITIES OWNED BY SUCH STOCKHOLDER OR OVER WHICH SUCH STOCKHOLDER HAS VOTING CONTROL TO THE EXTENT NECESSARY TO CARRY OUT THE PROVISIONS OF THIS SECTION 4 IN THE EVENT OF ANY BREACH BY SUCH STOCKHOLDER OF HIS, HER OR ITS OBLIGATIONS UNDER THE VOTING AGREEMENT CONTAINED HEREIN.

4.3. Action by Stockholders. Each Stockholder further agrees that such Stockholder will not vote any Securities owned by such Stockholder or over which such Stockholder has voting control, or take any action by written consent, or take any other action as a stockholder of the Company, to circumvent the voting arrangements required by this Section 4.

4.4. Expense Reimbursement. The Company hereby agrees to pay all reasonable expenses incurred by the directors designated pursuant to this Section 4 in connection with their attendance at meetings of the Board of Directors of the Company and its Subsidiaries (including all travel and lodging expenses related thereto).

§5. PRE-EMPTIVE RIGHTS.

5.1. Pre-Emptive Rights. Except for the issuance of Common Equity Securities (a) pursuant to a Public Sale, (b) as consideration for the acquisition of all or any substantial portion of the assets or all or any portion of the capital stock of any Person, (c) upon conversion or exercise of any instrument convertible into Preferred Stock, (d) pursuant to any issuance of shares of Common Equity Securities to any employee, director, officer or consultant of the Company or any of its Subsidiaries, (e) as partial consideration for any debt financing extended to the Company or any of its Subsidiaries (other than a non-independent director affiliated with or employed by HIG or any of its affiliates), (f) in connection with any joint venture or strategic relationship approved by the Board of Directors ((a) through (f) are each an “Excluded Equity Event”) or (g) pursuant to any right of first refusal or right of first offer granted by the Company to any of its financing sources or their affiliates, if the Company authorizes the issuance and sale of any Common Equity Securities, the Company will first offer to sell to each Major Stockholder a pro rata portion of such securities equal to the percentage

determined by dividing (i) the number of shares of Common Stock held by such Major Stockholder (determined on a fully-diluted basis), by (ii) the number of shares of Common Stock then outstanding (determined on a fully-diluted basis). Each such Major Stockholder will be entitled to purchase all or part of such stock or securities at the same price and on the same terms as such stock or securities are to be offered to any other Persons.

5.2. Major Stockholders’ Exercise of Right. Each Major Stockholder entitled to purchase securities under this Section 5 must exercise such Major Stockholder’s purchase rights hereunder within 10 days after receipt of written notice from the Company describing in reasonable detail the stock or securities being offered, the purchase price thereof, the payment terms, and such Major Stockholder’s percentage allotment.

5.3. Company’s Exercise of Right. Upon the expiration of the offering period described above, the Company will be free to sell such stock or securities which the Major Stockholders entitled to purchase such stock or securities have not elected to purchase during the 180 days following such expiration on terms and conditions no more favorable to the purchasers thereof, in the aggregate, than those offered to such Major Stockholders. Any stock or securities offered or sold by the Company after such 180-day period must be re-offered to the Major Stockholders entitled to purchase such stock or securities pursuant to the terms of this Section 5.

§6. CONSENT RIGHTS. The Company shall not, without the prior written consent of the Majority HIG Holders and, for as long as the Sankaty Stockholders continue to hold at least 25% of the Series C Preferred issued to the Sankaty Stockholders date hereof, the Majority Sankaty Holders: (a) enter into any contract, arrangement or transaction with an affiliate of the Company unless such contract, arrangement or transaction is on terms that are no less favorable to the Company than those the Company would have been reasonably likely to obtain as the result of arms-length negotiations with an unrelated third party, (b) take any action or enter into any transaction after which the Company will no longer hold, directly or indirectly, all of the issued and outstanding equity of Encompass Group Affiliates, Inc., Cyber-Test, Inc. and Vance Baldwin, Inc., (c) increase the number of shares of Common Stock issuable under the Company’s Amended and Restated 2005 Stock Plan or (d) except in the case of an Excluded Equity Event, the Company shall not issue any Common Equity Securities for consideration below the fair market value of such Common Equity Securities (as determined by the Board in good faith).

§7. ADDITIONAL LEGEND. So long as any Securities are subject to the provisions hereof, all certificates or instruments representing Securities will have imprinted on them the following legend:

The shares represented by this certificate are subject to the terms of a certain Stockholder Agreement, dated as of August 17, 2007, among the issuer of this certificate and certain stockholders. The Stockholder Agreement contains certain restrictive provisions relating to the voting and transfer of shares of the stock represented hereby. A copy of the Stockholder Agreement is on file at the Company’s principal offices. Upon written request to the Company’s Secretary, a copy of the Stockholder Agreement will be provided without charge to the holder of this certificate.

§8. SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

§9. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein, this document embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and thereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.

§10. SUCCESSORS AND ASSIGNS. This Agreement will bind and inure to the benefit of and be enforceable by the Company and the Stockholders and their respective successors and permitted assigns.

§11. COUNTERPARTS. This Agreement may be executed in separate counterparts each of which will be an original and all of which taken together will constitute one and the same agreement.

§12. REMEDIES. The Stockholders will be entitled to enforce their rights under this Agreement specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that money damages is not an adequate remedy for any breach of the provisions of this Agreement and that any Stockholder shall have the remedy of specific performance and/or injunctive relief in order to enforce or prevent any violation of the provisions of this Agreement. In the event of any dispute involving the terms of this Agreement, the prevailing party shall be entitled to collect reasonable fees and expenses incurred by the prevailing party in connection with such dispute from the other parties to such dispute.

§13. NOTICES. Any notice provided for in this Agreement will be in writing and will be deemed properly delivered if either personally delivered or sent by telecopier, overnight courier or mailed certified or registered mail, return receipt requested, postage prepaid to the recipient (a) if to any Stockholder, at the address listed for such Stockholder in the stock records of the Company, and (b) if to the Company, c/o John E. Donahue, Chief Financial Officer. Any such notice shall be effective (i) if delivered personally or by telecopier, when received, (ii) if sent by overnight courier, when receipted for, and (iii) if mailed, 3 days after being mailed as described above. The Company agrees to make available to each Stockholder upon request an address list of all Stockholders to ensure correct delivery of all notices hereunder.

§14. AMENDMENT AND WAIVER. No modification, amendment or waiver of any provision of this Agreement will be effective against the Company or the Stockholders unless such modification, amendment or waiver is approved in writing by the holders of (i) at least fifty-one percent (51%) of the total number of then outstanding shares of Common Stock

constituting Securities then held by all HIG Stockholders (on a fully-diluted basis) and (ii) at least fifty-one percent (51%) of the total number of then outstanding shares of Common Stock constituting Securities then held by all Sankaty Stockholders (on a fully-diluted basis); provided, however, that no amendment, modification or waiver of any provision of this Agreement that adversely affects the rights of one particular Party (as hereinafter defined) to this Agreement shall be effective against such adversely affected Party unless approved in writing by the holders of at least a majority of the outstanding shares of Common Stock constituting Securities then held by all members of such Party. As used in this Section 13, the term “Party” means any one of the following entities or groups: (a) the Company, (b) the HIG Stockholders, (c) the Sankaty Stockholders and (d) the Other Stockholders. The failure of any party to enforce any of the provisions of this Agreement will in no way be construed as a waiver of such provisions and will not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

§15. EMPLOYMENT. Nothing contained in this Agreement is intended to create for any Stockholder who is an officer, employee or director of the Company or any of its Subsidiaries a right to continued employment with the Company or any of its Subsidiaries or employment in the same position or on the same terms as those currently in effect.

§16. TERMINATION. This Agreement will terminate upon the earliest to occur of (a) the completion of any voluntary or involuntary liquidation or dissolution of the Company or (b) the completion of a Disposition Event.

§17. GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

§18. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

§19. CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party.

§20. CALCULATION OF FULLY-DILUTED EQUITY. All references herein to calculations of the Company’s equity or any type, class or series thereof “on a fully diluted basis” or as “fully diluted” or similar terms shall mean such equity or type, class or series thereof at any date as diluted by the issuance of all shares of such equity or type, class or series thereof then issuable upon the exercise or conversion of all then outstanding and exercisable warrants, options or convertible securities pursuant to which the Company is then obligated to issue such equity or type, class or series thereof (in all cases, determined assuming that the Company has sufficient authorized but unissued shares of Common Stock for the exercise or conversion of all such securities), but specifically excluding all shares issuable under warrants, options or convertible securities (other than Series D Preferred Stock) which are not then exercisable or convertible unless the inability to convert arises solely from the lack of authorized shares of common stock.

[Remainder of page intentionally left blank.]

IN WITNESS WHEREOF, the parties hereto have executed this Stockholder Agreement on the day and year first above written.


ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
By:	/s/ Wayne Danson
	Name:	Wayne Danson
	Title:	Chief Executive Officer


ACT-DE, LLC
By:	/s/ William Nolan
	Name:	William Nolan
	Title:	Executive Vice President


PROSPECT HARBOR CREDIT PARTNERS, L.P.
By:	/s/ Stuart Davies
	Name:	Stuart Davies
	Title:	Managing Director


SANKATY CREDIT OPPORTUNITIES II, L.P.
By:	/s/ Stuart Davies
	Name:	Stuart Davies
	Title:	Managing Director


SANKATY CREDIT OPPORTUNITIES III, L.P.
By:	/s/ Stuart Davies
	Name:	Stuart Davies
	Title:	Managing Director


RGIP, LLC
By:	/s/ R.B. Malt
	Name:	R. B. Malt
	Title:	Managing Member

SCHEDULE 1
TO STOCKHOLDER
AGREEMENT

Sankaty Investors

PROSPECT HARBOR CREDIT PARTNERS, L.P.

SANKATY CREDIT OPPORTUNITIES II, L.P.

SANKATY CREDIT OPPORTUNITIES III, L.P.

RGIP, LLC

Other Investors

None

S-1

SCHEDULE 2
TO STOCKHOLDER
AGREEMENT

Instrument of Accession

The undersigned, ______________, in order to become the owner or holder of ______________ shares of ______________, of Advanced Communications Technologies, Inc., a Florida corporation, hereby agrees to become [an Other] [a HIG] [a Sankaty] Stockholder party to that certain Stockholder Agreement, dated as of August ___, 2007 (the “Stockholder Agreement”), a copy of which is attached hereto. This Instrument of Accession shall become a part of such Stockholder Agreement.

Executed as of the date set forth below under the laws of the State of New York.


		Signature:


		Address:







		Date:

Accepted:
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.



By:
Date:

S-2

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