EXHIBIT 4.8
THIRD AMENDED
NOTE AND WARRANT PURCHASE AGREEMENT
This Third Amended Note and Warrant Purchase Agreement amends and
completely replaces the prior version of this Agreement. It remains effective as
of the dates originally signed as to each Purchaser.
NOTE AND WARRANT PURCHASE AGREEMENT, dated effective as of the date
noted by their signature as to each Purchaser, by and among Integral Vision,
Inc., a Michigan corporation (the "Company"), those purchasers listed on Exhibit
A (each individually a "Purchaser " and collectively, the "Purchasers", which
term shall include Class 1 Purchasers, Class 2 Purchasers and Class 3
Purchasers, as defined below, successors and assigns and any permitted
transferees of the Notes or the Warrants) and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇,
P.C., as Agent.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION 1. SALE AND PURCHASE OF NOTES AND WARRANTS
(a) The Company agrees to sell to the Purchasers and, subject to the
terms and conditions hereof and in reliance upon the representations and
warranties of the Company contained herein or made pursuant hereto, the
Purchasers agree to purchase from the Company on the Closing Date specified in
Section 2 hereof, (i) a Note or Notes in the aggregate principal amount set
forth opposite such Purchaser's name on Exhibit A hereto and (ii) upon the
purchase of a Class 1 or Class 2 Note, a Warrant or Warrants for the number of
shares of the Company's Common Stock set forth opposite such Purchaser's name on
Exhibit A. The number of Class 2 Warrants purchased by a Class 2 Purchaser will
be determined based on the amount of its Class 2 Note and the length of time
such Note is outstanding, as more fully explained in Section 1(d), below. In
addition, Class 2 Purchasers may elect to take interest of 12% per annum on
their Class 2 Note instead of acquiring a Class 2 Warrant or Warrants. The
aggregate purchase price to be paid to the Company by the Purchasers for such
Notes and such Warrants is 100% of the principal amount of the Notes to be
purchased by the Purchasers, which amount will be allocated in accordance with
Section 2(d) hereof.
(b) As used herein, "Notes" means either "Class 1 Notes," "Class 2
Notes" or "Class 3 Notes" in a total aggregate amount outstanding at any time
not to exceed $4,000,000. Class 1 Notes and Class 2 Notes shall not exceed
$3,000,000 outstanding, however such $3,000,000 shall be decreased by the
principal amount of any Class 1 Notes exchanged for Class 3 Notes, as provided
in Section 1(c), below.
(i) "Class 1 Notes" means the aggregate in principal
amount of the Company's 10% Secured Notes due four
(4) years from the Closing Date
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for each Purchaser. Each Note will be substantially
in the form of the Note set forth as Exhibit B
hereto. Interest on the Notes shall accrue from the
Closing Date and shall be payable quarterly on the
30th day of March, June, September and December of
each year (the "Quarterly Payment Dates"), commencing
as to each Purchaser on the Quarterly Payment Date
next following their Closing Date (which first
interest payment shall be for the period from and
including the Closing Date specified in Section 2
hereof through and including the next occurring
Quarterly Payment Date) at the interest rates and in
the manner specified in the form of Note attached
hereto as Exhibit B. Principal on the Notes shall be
paid in quarterly installments on the Quarterly
Payment Dates beginning after one year from the
Closing Date for each Purchaser through and including
the Quarterly Payment Date immediately preceding the
fourth anniversary from the Closing Date for such
Purchaser. All Notes issued on or before April 15,
2002, in the total amount of $1,050,000 are Class 1
Notes. Class 1 Notes issued after April 15, 2002 will
be subordinated to the Class 1 Notes issued on or
before April 15, 2002 in their rights to receive
payment under the Collateral Assignment, as defined
below.
(ii) "Class 2 Notes" means the aggregate in principal
amount of the Company's 10% Secured Working Capital
Notes due at the time the Accounts Receivable or the
Letter of Credit proceeds on the orders specified in
such Class 2 Note is received by the Company. Each
Class 2 Note will be substantially in the form of the
Class 2 Note set forth as Exhibit D hereto. Interest
on the Class 2 Notes shall accrue from the Closing
Date at the rate of 10% (12% if elected and no Class
2 Warrant is received). Class 2 Notes will be issued
to fund working capital needs to enable the Company
to manufacture and ship specified orders and will be
paid as the accounts receivable of the Letter of
Credit proceeds on those specified orders are
received. Payments will be applied first to accrued
interest and then to principal. In the event the
Class 2 Notes are not paid by the Company out of
receivables or Letter of Credit Proceeds and the
Company defaults on its obligations on the Class 2
Notes, the Class 2 Notes will have rights to payment
under the Collateral Assignment, as defined below,
but such rights will be subordinate to the rights of
the Class 1 Purchasers who purchased on or before
April 15, 2002 and will be on a par with the Class 1
Purchasers who purchase after April 15, 2002. Class 2
Purchasers will have the right to payment out of the
additional security granted to them in the Security
Agreement in the Accounts and Inventory of the
Company only in the event the Company voluntarily or
involuntarily becomes subject to any proceedings
under the Bankruptcy Code. At the time their Class 2
Note is issued or at any time their notes are
outstanding, Class 2 Noteholders will have the option
to elect to cease accruing Class 2 Warrants, as
defined below, and to instead begin receiving
interest on their Class 2 Note at the rate of 12%.
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(iii) "Class 3 Notes" means the aggregate in principal
amount of the Company's 8% Subordinated Secured
Convertible Notes due January 2, 2009. Each Note will
be substantially in the form of the Note set forth as
Exhibit F hereto. Interest on the Notes shall accrue
from the Closing Date and shall be payable
semi-annually on the first day of July and January of
each year (the "Semi-Annual Payment Dates"),
commencing July 1, 2004 at the interest rates and in
the manner specified in the form of Note attached
hereto as Exhibit F. Principal on the Notes shall be
paid on January 2, 2009, unless sooner called by the
Company or converted into common stock of the Company
at the option of the Holder. Except as provided in
Section 1(c), below, the conversion rate for Class 3
Notes shall be set at the time of their issuance by
the Company's board of directors. Class 3 Notes will
be subordinated to the Class 1 Notes and Class 2
Notes in their rights to receive payment under the
Collateral Assignment, as defined below.
(c) Outstanding Class 1 Notes may be exchanged for Class 3 Notes
at the option of the Class 1 Purchaser, by notice to the
Company on or before December 31, 2003, or earlier upon 30
days notice to the purchasers by the Company. Class 3 Notes
obtained in exchange for Class 1 Notes shall be convertible
into common stock of the Company at the rate of four shares of
common stock for each one dollar of Class 3 Note principal
converted. Class 1 Purchasers electing to exchange their Class
1 Notes for Class 3 Notes would be required to surrender Class
1 Warrants equal to the number of shares of the Company's
Common Stock into which their Class 3 Note could be converted.
Class 1 Purchasers electing to exchange Class 1 Notes would
additionally have the option, at December 31, 2003, to convert
all or a portion of the accrued interest outstanding on such
previously or simultaneously exchanged Class 1 Notes to Class
3 Notes. Class 3 Notes obtained in exchange for accrued
interest on Class 1 Notes shall be convertible into common
stock of the Company at the rate set by the Company's board of
directors based on the average Market Price of the Company's
common stock over the 60 day period prior to the date on which
the election to exchange is received by the Company.
(d) If all or a portion of (i) the principal amount of the Notes,
(ii) the interest payable thereon or (iii) any fee or other amount
payable hereunder or under any other Loan Document shall not be paid
when due (whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall bear interest at a rate per annum
equal to the Default Rate from the date of such nonpayment until paid
in full (both before and after judgment).
(e) As used herein, "Warrants" means either "Class 1 Warrants" or
"Class 2 Warrants."
(i) "Class 1 Warrants" means the aggregate of Common
Stock Purchase Warrants (specifically including
Warrants to purchase 240,000 Shares
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issued as a part of this offering in March 2001)
evidenced by certificates substantially in the form
of Exhibit C hereto, together with all Warrants
issued in exchange therefor or replacement thereof.
Such Warrants in the aggregate initially entitle the
holders thereof to purchase the specified number of
shares of Common Stock of the Company, no par value,
for each $1 in value of the Notes issued to such
holder at a specified purchase price per share, as
set forth on Exhibit A hereto as to each Purchaser,
such number and such price being subject to
adjustment as provided in the form of Warrant
attached hereto as Exhibit C. All Warrants issued on
or before April 15, 2002 are Class 1 Warrants.
(ii) "Class 2 Warrants" means the aggregate of Class 2
Common Stock Purchase Warrants evidenced by
certificates substantially in the form of Exhibit E
hereto, together with Class 2 Warrants issued in
exchange therefor or replacement thereof. Such Class
2 Warrants in the aggregate initially entitle the
holders thereof to purchase one share of Common Stock
of the Company, no par value, for each $1 in value of
the Class 2 Notes issued to such Class 2 Purchaser
multiplied by a fraction, the numerator of which is
the number of days such Class 2 Note is outstanding
and the denominator of which is 365, at a specified
purchase price per share which shall be approximately
150% of the recent fair market value of the Company's
Common Stock as agreed by the parties as of the date
of the issuance of the corresponding Class 2 Note or
such other price as the Board of Directors shall
determine is appropriate based on the circumstances
at the time, as set forth on Exhibit A hereto as to
each Class 2 Purchaser, such number and such price
being subject to adjustment as provided in the form
of Warrant attached hereto as Exhibit E.
SECTION 2. THE CLOSING
(a) Subject to the terms and conditions hereof, the closing (the
"Closing") of the purchase and sale of the Notes and Warrants will take place at
the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C. at such time and date as
shall be mutually agreed to by the Company and the Purchasers. Such times and
dates are herein referred to as the "Closing Dates" and individually as a
"Closing Date."
(b) Subject to the terms and conditions hereof, on each Closing Date
(i) the Company will deliver to each Purchaser (A) a Note or Notes,
substantially in the form of Exhibit B hereto for Class 1, Exhibit D for Class 2
and Exhibit F for Class 3, payable to such Purchaser (or its nominee as notified
to the Company), and dated the Closing Date, in the aggregate principal amount
set forth opposite such Purchaser's name on Exhibit A, and (B) for Class 1 and
Class 2, a Warrant or Warrants evidenced by certificates substantially in the
form of Exhibit C hereto for Class 1 and dated the Closing Date, for the number
of shares of the Company's Common Stock set forth opposite such Purchaser's name
on Exhibit A, and (ii) upon such Purchaser's receipt thereof, such Purchaser
will deliver to the Company by wire transfer an amount equal to the
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purchase price for such Notes and Warrants (as specified in Section 1(a) hereof)
payable to the order of the Company in immediately available funds. Class 2
Warrants, if elected, substantially in the form of Exhibit E will be dated the
Closing Date, but will not be determined as to number of shares or delivered
until the applicable Class 2 Note has been repaid by the Company.
(c) As an alternative to Section 2(b), upon receipt of a Purchaser's
signed copy of this Agreement, the Company will sign the Agreement, the Note and
the Warrants, as applicable, and will instruct the Agent to communicate to the
Purchaser that such documents have been signed and the Agent has obtained a
perfected interest in the Collateral. Thereafter, upon the Company's receipt by
wire transfer of the purchase price for the Note and Warrants, the Company will
deliver the signed Agreement, Note and Warrants, as applicable, to the
Purchaser.
(d) The Purchasers acknowledge that the Notes and the Warrants
constitute an investment unit" within the meaning of Section 1273(c)(2) of the
Code and that the Company will allocate the "issue price" (within the meaning of
Section 1273(b) of the Code) of such investment unit, for all Income Tax
purposes, between the Notes and Warrants as required by applicable tax law. Each
Purchaser agrees to abide by Treasury Regulation ss. 1. 1273-2(h)(2) with
respect to such allocation of the issue price. For all Notes and Warrants issued
under this Purchase Agreement after December 31, 2001, the Company and its tax
advisors have determined that the limited marketability of the Company's Common
Stock does not provide a reasonable basis for the Company and its advisors to
determine a value for the Warrants issued or the conversion rights. Therefore,
all warrants issued by the Company pursuant to this Agreement, shall have only a
minimal or negligible value ascribed to them. It is understood, however, that in
the event market conditions change such that the warrants again have value, the
Company and its tax advisors will determine an appropriate value for warrants
issued thereafter with no need to amend this Agreement.
SECTION 3. DEFINITIONS
(a) For purposes of the Loan Documents, the following definitions shall
apply (such definitions to be equally applicable to both the singular and plural
forms of the terms defined):
"Accountants" means ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ or another independent certified
public accounting firm selected by the Company and reasonably satisfactory to
the Majority Noteholders.
"Affiliate", when used with respect to any Person, means (i) if such
Person is a corporation, any officer or director thereof (other than a director
nominated by one of the Purchasers) and any Person (other than one of the
Purchasers) which is, directly or indirectly, the beneficial owner of more than
ten percent (10%) of the Voting Stock thereof, and, if such beneficial owner is
a partnership, any partner thereof, or if such beneficial owner is a
corporation, any Person, directly or indirectly through one or more
intermediaries, controlling, controlled by or under common control with such
beneficial owner, or any officer or director of such beneficial owner or of any
corporation occupying any such control relationship, (ii) if such Person is a
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partnership, any partner thereof, (iii) in all cases, any Person (other than one
of the Purchasers) which, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with
such Person, and (iv) in all cases, any Person 10% or more of whose Voting Stock
is beneficially owned, directly or indirectly through one or more
intermediaries, by such Person. For purposes of this definition, "control"
(including the correlative terms "controlling", "controlled by" and "under
common control with"), with respect to any Person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
"Agent" means ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C. or any successor
agent appointed pursuant to Section 21.7 hereof
"Aggregate Net Income" means the aggregate amount of positive annual
net income after taxes for each fiscal year of the Company and its Subsidiary on
a consolidated basis, as determined in accordance with GAAP, beginning with the
fiscal year ending December 31, 2001 through the date of determination, without
any offset for any negative net income during such period. Aggregate Net Income
will only be adjusted as of the last day of each fiscal year.
"Agreement" means this Agreement (together with exhibits and schedules)
as from time to time assigned, supplemented or amended or as the terms hereof
may be waived.
"Bankruptcy Code" means the United States Bankruptcy Code and any
successor thereto, and the rules and regulations issued thereunder.
"Board" or "Board of Directors" means, with respect to any Person which
is a corporation, a business trust or other entity, the board of directors or
other group, however designated, which is charged with legal responsibility for
the management of such Person, or any committee of such board of directors or
group, however designated, which is authorized to exercise the power of such
board or group in respect of the matter in question.
"Business" means the business conducted by the Company in the vision
industry and all other activities ancillary or related thereto.
"Business Day" means any day other than a Saturday, Sunday or other day
on which banks in Detroit, Michigan are required to close.
"Capital Expenditures" means for any period, the amount of all payments
made by the Company during such period for the lease, purchase, improvement,
construction or use of any Property, the value or cost of which under GAAP is
required to be capitalized and appears on the Company's balance sheet in the
category of property, plant or equipment, without regard to the manner in which
such payments or the instrument pursuant to which they are made is characterized
by the Company or any other Person, and shall include, without limitation, the
principal components of payments for the installment purchase of Property and
payments under
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Capitalized Leases.
"Capitalized Leases" means any lease to which the Company or the
Subsidiary is party as lessee, or by which it is bound, under which it leases
any property (real, personal or mixed) from any lessor other than the Company or
the Subsidiary, and which is required to be capitalized in accordance with GAAP,
but also including any such lease, whether or not so capitalized, where the
Company or a Subsidiary is treated as the owner of the leased property under the
Code.
"Claims" has the meaning set forth in the definition of "Environmental
Claim."
"Class 1 Note" has the meaning set forth in Section 1(b)(i) hereof.
"Class 2 Note" has the meaning set forth in Section 1(b)(ii) hereof.
"Class 3 Note" has the meaning set forth in Section 1(b)(iii) hereof.
"Class 1 Purchaser" means a purchaser of Class 1 Notes and Class 1
Warrants.
"Class 2 Purchaser" means a purchaser of Class 2 Notes and Class 2
Warrants, if elected.
"Class 3 Purchaser" means a purchaser of Class 3 Notes.
"Class 1 Warrants" has the meaning set forth in Section 1(d)(i) hereof.
"Class 2 Warrants" has the meaning set forth in Section 1(d)(ii)
hereof.
"Closing" has the meaning set forth in Section 2(a) hereof.
"Closing Date" has the meaning set forth in Section 2(a) hereof.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations and interpretations thereunder.
"Collateral" means the Property upon which the Agent is granted the
Security Interests, pursuant to the terms of the Collateral Assignment. In the
case of the Class 2 Purchasers, "Collateral" also includes all of the following
assets and rights of the Company, wherever located, whether now owned or
hereafter acquired or arising: Accounts; Letters of Credit; Letter-of-credit
rights; Inventory, including Work in Progress; Supporting obligations; and all
Proceeds and products of the foregoing.
"Collateral Assignment" means the Collateral Assignment of Proprietary
Rights and Security Agreement dated March 29, 2001 by the Company and the Agent.
"Commission" means the Securities and Exchange Commission and any other
similar or
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successor agency of the federal government administering the Securities Act or
the Securities Exchange Act.
"Common Stock" means that class of stock or other equivalent evidences
of ownership of the Company, the holders of which are entitled to vote generally
to elect the Board of Directors.
"Company" means Integral Vision, Inc., a Michigan corporation, its
successors and permitted assigns and also includes Integral Vision, Ltd., the
wholly owned subsidiary of the Company.
"Company's Obligations" means all loans, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), premiums, liabilities, obligations (including the
performance of the covenants of the Company contained herein or in the Loan
Documents), fees, lease payments, guaranties, covenants, and duties owing by the
Company to the Purchasers or the Agent of any kind and description (whether
pursuant to or evidenced by this Agreement, any of the other Loan Documents, or
any other note or other instrument, or by any other agreement between the
Purchasers or the Agent and the Company, and whether or not for the payment of
money), whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, and including any debt, liability, or
obligation owing from the Company to others that the Purchasers or the Agent may
have obtained by assignment or otherwise, and further including all interest not
paid when due.
"Consolidated," when used with reference to any financial term in this
Agreement, means the aggregate for the Company and the Subsidiary of the amounts
signified by such term for all such Persons, with intercompany items eliminated,
and, with respect to earnings, after eliminating the portion of earnings
properly attributable to minority interests, if any, in the capital of any such
Person (other than in the capital of the Company) and otherwise as determined in
accordance with GAAP.
"Consolidated Cash Flow" means for any period, the Consolidated Net
Income plus each of the following items, to the extent deducted from the
revenues of the Company in the calculation of net income for such period: (i)
Depreciation; (ii) amortization and other noncash charges; (iii) interest
expense incurred and fees paid to the Senior Lender pursuant to the Loan
Agreement; and (iv) Income Taxes determined as the accrued liability of the
Company and the Subsidiary in respect of such period, regardless of what portion
of such expense has actually been paid by the Company and the Subsidiary during
such period; and after deduction for (A) Income Taxes, to the extent actually
paid during such period; (B) all noncash income items recognized; (C) gain on
the sale of property, plant or equipment; and (D) all Capital Expenditures paid
by the Company and the Subsidiary.
"Consolidated Coverage Ratio" means, as of any date of determination,
the ratio of Consolidated Cash Flow to Consolidated Interest Expense.
"Consolidated Interest Expense" means, for any period, the total
interest payable during
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such period by the Company and the Subsidiary on account of Indebtedness.
"Consolidated Liabilities" means, at any time, the total liabilities of
the Company and its Subsidiary, determined in accordance with GAAP and after
eliminating intercompany transactions among the Company and the Subsidiary.
"Consolidated Net Income" means, for any period for which the amount
thereof is to be determined, the net income (net of any losses or expenses) or
loss of the Company and the Subsidiary on a consolidated basis, during such
period (such net income to be determined in accordance with GAAP) after Income
Taxes actually paid, but excluding:
(a) the earnings during such period of any Person to which the
assets of the Company or any Subsidiary shall have been sold,
transferred or disposed of, or into which the Company or such
Subsidiary shall have merged, prior to the date of such
transaction;
(b) any extraordinary gain or loss during such period arising from
the sale, exchange or other disposition of capital assets
(such term to include all fixed assets, whether tangible or
intangible, and all inventory sold in conjunction with the
disposition of fixed assets);
(c) any gain or loss during such period arising from the write-up
or write-down of any asset; and
(d) any earnings or gains during such period resulting from the
receipt of any proceeds of any life insurance policy.
"Consolidated Assets" means, at any time, the total assets of the
Company and its Subsidiaries determined in accordance with GAAP.
"Consolidated Net Worth " means, at any time, Consolidated Assets minus
Consolidated Liabilities.
"Contingent Liabilities" of any person means, as of any date, all
obligations of such person or of others for which such person is contingently
liable, as obligor, guarantor, surety or in any other capacity, or in respect of
which obligations such person assures a creditor against loss or agrees to take
any action to prevent any such loss (other than endorsements of negotiable
instruments for collection in the ordinary course of business), including all
reimbursement obligations of such person in respect of any letters of credit,
surety bonds or similar obligations and all obligations of such person to
advance funds to, or to purchase assets, property or services from, any other
person in order to maintain the financial condition of such other person.
"Default Rate" means a per annum rate equal to the interest rate on the
Notes plus four percent (4%).
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"Depreciation" means, in respect of any period, all depreciation on
Property taken during such period, as determined in accordance with GAAP.
"Earnings Available for Dividends" means the excess of (A) the sum of
(x) 50% of aggregate Consolidated Net Income, if positive, for each fiscal year
commencing on or after January 1, 2001 less 100% of aggregate Consolidated Net
Income, if negative, for each fiscal year commencing on or after January 1, 2001
plus (y) net proceeds from the sale by the Company of Common Stock (other than
pursuant to the Warrants) minus (B) all Restricted Payments and Restricted
Investments made since the Closing Date.
"Environment" means all air, surface water, groundwater, or land,
including land surface or subsurface, including all fish, wildlife, biota and
all other natural resources.
"Environmental Auditors" has the meaning set forth in Section 7.14
hereof
"Environmental Claim" means any and all administrative or judicial
actions, suits, orders, claims, liens, notices, notices of violations,
investigations, complaints, requests for information, proceedings, or other
communication (written or oral), whether criminal or civil, (collectively,
"Claims") pursuant to or relating to any applicable Environmental Law by any
person (including but not limited to any Governmental or Regulatory Authority,
private person and citizens' group) based upon, alleging, asserting, or claiming
any actual or potential (i) violation of or liability under any Environmental
Law, (ii) violation of any Environmental Permit, or (iii) liability for
investigatory costs, cleanup costs, removal costs, remedial costs, response
costs, natural resource damages, property damage, personal injury, fines, or
penalties arising out of, based on, resulting from, or related to the presence,
or Release into the Environment, of any Hazardous Materials at any location,
including but not limited to any off-site location to which Hazardous Materials
or materials containing Hazardous Materials were sent forth for handling,
storage, treatment or disposal.
"Environmental Clean-up Site" means any location which is listed or
proposed for listing on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System, or on any
similar state list of sites requiring investigation or cleanup, or which is the
subject of any pending or threatened action, suit, proceeding, or investigation
related to or arising from any alleged violation of any Environmental Law or the
presence or Release of a Hazardous Material.
"Environmental Law" means any and all current and future, federal,
state, local, provincial and foreign, civil and criminal laws, statutes,
ordinances, orders, codes, rules, regulations, Environmental Permits, policies,
guidance documents, judgments, decrees, injunctions, or agreements with any
Governmental or Regulatory Authority, relating to the protection of health and
the Environment, worker health and safety, and/or governing the handling, use,
generation, treatment, storage, transportation, disposal, manufacture,
distribution, formulation, packaging, labeling, or Release of Hazardous
Materials, whether now existing or subsequently amended or enacted, including
but not limited to: the Clean Air Act, 42 U.S.C. ss.
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7401 et seq.; the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), 42 U.S.C.ss.9601 et seq.; the Federal Water
Pollution Control Act, 33 U.S.C. ss.1251 et seq; the Hazardous Material
Transportation Act 49 U.S.C.ss.1801 et seq.; the Federal Insecticide, Fungicide
and Rodenticide Act 7 U.S.C.ss.136 et seq.; the Resource Conservation and
Recovery Act of 1976 ("RCRA"), 42 U.S.C.ss.6901 et seq.; the Toxic Substances
Control Act, 15 U.S.C.ss.2601 et seq.; the Occupational Safety & Health Act of
1970, 29 U.S.C.ss.651 et seq.; the Oil Pollution Act of 1990, 33 U.S.C.ss.2701
et seq.; and the state analogies thereto, all as amended or superseded from time
to time; and any common law doctrine, including but not limited to, negligence,
nuisance, trespass, personal injury, or property damage related to or arising
out of the presence, Release, or exposure to a Hazardous Material.
"Environmental Permit" means any federal, state, local, provincial, or
foreign permits, licenses, approvals, consents or authorizations required by any
Governmental or Regulatory Authority under or in connection with any
Environmental Law and includes any and all orders, consent orders or binding
agreements issued or entered into by a Governmental or Regulatory Authority
under any applicable Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, or any successor statute.
"ERISA Affiliate" means each "person" (as defined in Section 3(9) of
ERISA) which is under "common control" with the Company or any of its
Subsidiaries (within the meaning of Section 414(b), (c), (m) or (o) of the
Code).
"Event of Default" has the meaning set forth in Section 14 hereof.
"Fair Market Value" of any property means the fair market sale value
which a willing buyer at retail would pay a willing seller, each under no
compulsion to buy or sell and in full possession of all relevant facts.
"GAAP" means generally accepted accounting principles, as in effect
from time to time, which shall include the official interpretations thereof by
the Financial Accounting Standards Board or any successor thereto, consistently
applied.
"General Intangibles" means all of the Company's and the Subsidiary's
present and future general intangibles and other personal Property (including
without limitation, any and all rights of the Company and the Subsidiary to all
choses or things in action, tax refund claims, credits, claims, demands,
goodwill, licenses, franchise agreements, subscription costs, patents, trade
names, trademarks, service marks, copyrights, rights to royalties, blueprints,
drawings, customer lists, purchase orders, computer programs, computer discs,
computer tapes, literature, reports, catalogs, methods, sales literature, video
tapes, confidential information and trade secrets, consulting agreements,
employment agreements, leasehold interests in real and personal Property,
insurance policies, deposits with insurers relating to workers' compensation
liabilities, deposit accounts, tax refunds and proprietary rights in any
equipment), other than "Equipment,"
-11-
"Inventory," "Accounts" and "Negotiable Instruments," as each such term is
defined in the UCC, as well as the Company's and the Subsidiary's books and
records of any kind relating to any of the foregoing, and all products and
proceeds of the foregoing.
"Governmental Regulations" means any and all laws, statutes,
ordinances, rules, regulations, judgments, writs, injunctions, decrees, orders,
awards and standards, or any similar requirement, of the government of the
United States or any foreign government or any state, province, municipality or
other political subdivision thereof or therein or any court, agency,
instrumentality, regulatory authority or commission of any of the foregoing.
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city or other political subdivision.
"Hazardous Materials" means petroleum, petroleum hydrocarbons or
petroleum products, petroleum by-products, radioactive materials, underground
storage tanks, asbestos or asbestos- containing materials, gasoline, diesel
fuel, pesticides, radon, urea formaldehyde, lead or lead- containing materials,
polychlorinated biphenyls, ionizing and non-ionizing radiation including radon
and electromagnetic frequency radiation; and any other chemicals, materials,
substances or wastes in any amount or concentration which are now or hereafter
become defined as or included in the definition of "hazardous substances,"
"hazardous materials," "hazardous wastes," "extremely hazardous waste,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants
"pollutants" "regulated substances," "solid wastes," or "contaminants" or words
of similar import, under any Environmental Law.
"Income Taxes" means all federal, state, local or foreign income,
taxes, assessments, duties, fees, levies or other governmental charges, whether
disputed or not, together with any interest, penalties, additions to tax or
additional amounts with respect thereto.
"Indebtedness" means all liabilities, obligations and reserves,
contingent or otherwise, which in accordance with GAAP, would be reflected as a
liability on a balance sheet or would be required to be disclosed in a financial
statement, including, without duplication: (i) all Indebtedness for Borrowed
Money, (ii) all obligations secured by any Lien upon Property owned by the
Company, irrespective of whether such obligation or liability is assumed; (iii)
any obligation of the Company guaranteeing or intended to guarantee (whether
guaranteed, endorsed, co-made, discounted, or sold with recourse to the Company,
but exclusive of obligations arising as the result of the endorsement by the
Company of checks or other negotiable instruments in the ordinary course of the
Company's business for purposes of depositing such items) any indebtedness,
lease, dividend, letter of credit, or other obligation of any other Person; and
(iv) liabilities in respect of unfunded vested benefits under any Single
Employer Plan or in respect of withdrawal liabilities incurred under ERISA by
the Company or any ERISA Affiliate to any Multiemployer Plan.
"Indebtedness for Borrowed Money" means without duplication, all
Indebtedness (i) in
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respect of money borrowed, (ii) evidenced by a note, debenture or other like
written obligation to pay money (including, without limitation, all of the
Company's Obligations and the Permitted Senior Indebtedness, and all
reimbursement or other obligations of the Company in respect of letters of
credit (except for commercial letters of credit up to $500,000), letter of
credit guaranties, bankers acceptances, interest rate swaps, controlled
disbursement accounts, or other financial products (except hedging
transactions); (iii) in respect of Capitalized Leases or for the deferred
purchase price of Property (other than trade payables arising in the ordinary
course of business that are not represented by promissory notes or by other
written evidence other than invoices); or (iv) in respect of obligations under
conditional sales or other title retention agreements, and all guaranties of any
or all of the foregoing.
"Indemnified Persons" has the meaning set forth in Section 18.2 hereof.
"Investment" means, with respect to any Person:
(i) the amount paid or committed to be paid, or the value of
property (excluding stock of the Company) or services
contributed or committed to be contributed, by the Company for
or in connection with the acquisition by the Company of any
stock, bonds, notes, debentures, partnership or other
ownership interests or other securities of such Person; and
(ii) the amount of any advance, loan or extension of credit to, or
guaranty or other similar obligation with respect to any
Indebtedness of such Person by the Company and (without
duplication) any amount committed to be advanced, loaned, or
extended to, or the payment of which is committed to be
assured by a guaranty or similar obligation for the benefit
of, such Person by the Company.
"Joint Venture" means a corporation, limited partnership or other
limited liability business entity, formed in the ordinary course of business by
the Company or any Subsidiary with Persons other than Affiliates.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security interest of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement and any
financing lease or Capitalized Lease having substantially the same effect as any
of the foregoing and any assignment or other conveyance of any right to receive
income).
"Loan Documents" mean, collectively, the
(iii) Agreement;
(iv) Notes;
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(v) Warrants;
(vi) Collateral Assignment;
(vii) Security Agreement;
(viii) UCC financing statements; and
(ix) such other instruments and documents as Purchasers may require
to evidence and perfect the Security Interests and the Notes,
and individually any one of them.
As to each of the foregoing, together with all alterations, amendments,
changes, extensions, modifications, refinancings, refundings, renewals,
replacements, restatements or supplements thereto.
"Losses" have the meaning set forth in Section 18.2 hereof.
"Majority Noteholders" means the holders of Notes evidencing more than
50% of the principal amount of all Notes then outstanding.
"Market Price" per share of the Company's Common Stock means the
average of the daily closing prices for the period specified. The closing price
for each day shall be the last reported sale price or, in case no such sale
takes place on such day, the average of the closing bid and asked prices, in
either case on the principal national United States securities exchange on which
the Company's Common Stock is listed or admitted to trading, or if the Company's
Common Stock is not listed or admitted to trading on any such national
securities exchange, the average of the highest reported bid and lowest reported
asked prices as furnished by the National Association of Securities Dealers
Inc., Automated Quotation System Level I, the Over-the- Counter Bulletin Board
or comparable system. If the closing price cannot be so determined, the Market
Price shall be determined:
(x) by the written agreement of the Company and the holders of
the affected Class 3 Notes or Warrants representing a majority
of the Shares then obtainable from the conversion of such
Class 3 Notes or the exercise of such outstanding Warrants
(the "Majority Holders"); or
(y) in the event that no such agreement is reached within
fifteen (15) days after the event giving rise to the need to
determine the Market Price, by a nationally recognized U.S.
investment banking firm, selected by the Company ("Company
Appraiser") not more than 5 Business Days after the end of
such 15 day period. Any appraiser appointed pursuant to this
paragraph shall be instructed to make its determination as
promptly as possible and in any event within 30 days of
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appointment. If no such selection is made within such period,
then the Majority Holders shall as promptly as possible select
such a firm whose determination shall be final and binding. If
such selection is timely made by the Company, and the Majority
Holders do not object to the Market Price as determined by the
Company Appraiser within 10 days of receipt of notice thereof
by all holders of Warrants, then the Market Price as
determined by the Company Appraiser shall be the Market Price.
If the Majority Holders do so object to the Company
Appraiser's determination of Market Price, then the Majority
Holders can select a nationally recognized U.S. investment
banking firm ("Alternate Appraiser") to review the Company
Appraiser's report and other relevant information. Within 10
days after receipt by the Alternate Appraiser of such report
and such other information as is reasonably requested by the
Alternate Appraiser, the Company Appraiser and Alternate
Appraiser shall communicate and/or meet to resolve any
questions or differences with respect to the Market Price. If
such appraisers agree on a Market Price, such Market Price
shall be the Market Price. If no agreement is reached then the
Company Appraiser and Alternate Appraiser shall select a third
nationally recognized firm ("Third Appraiser"). If the Company
Appraiser and the Alternate Appraiser cannot agree on a Third
Appraiser within 20 days of the end of such 10 day period,
either may apply to the American Arbitration Association to
appoint the Third Appraiser. The Third Appraiser shall, within
30 days of its hire, issue a report with its determination of
Market Price which shall be conclusive and binding. All
expenses of the Company Appraiser shall be borne by the
Company. All expenses of the Alternate Appraiser shall be
borne by the holders of the Warrants. All expenses of the
Third Appraiser shall be borne equally by the Company and the
holders of the Warrants.
Market Price shall be determined on the basis of the fair
market value of the Company as if it were sold as a going
concern on the date of valuation and without regard to the
lack of any trading market for, or the lack of liquidity in,
the Common Stock of the Company.
The Company shall cooperate, and shall provide all necessary
information and assistance, to permit any determination under
the preceding clause (x) or (y).
Each Appraiser shall be instructed to use its best efforts to
give the Company and all holders reasonable advance notice of
the Market Price and the contents of its report (by delivering
a draft report) before the report is delivered in final form.
Any communications or reports by an Appraiser to either the
Company or any of the holders regarding Market Price shall be
given simultaneously to both the Company and all of the
holders.
"Material Adverse Effect" means (i) a material adverse effect on the
assets, properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company and the
Subsidiary on a consolidated basis, (ii) an effect which is prejudicial in
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any material respect to the holders of the Notes or the Warrants or (iii) an
effect on the ability of the Company or the Subsidiary to perform its
obligations under this Agreement, any Loan Document, the Notes or the Warrants.
"Multiemployer Plan" shall mean any multiemployer plan (within the
meaning of section 3(37) of ERISA) to which either the Company, the Subsidiary,
or any ERISA Affiliate has an obligation to contribute.
"Note" or "Notes" has the meaning set forth in Section l(b) hereof.
"Outstanding" or "outstanding" means, when used with reference to the
Notes or Warrants as of a particular time, all Notes or Warrants, as the case
may be, theretofore duly issued except (i) Notes or Warrants theretofore
reported as lost, stolen, mutilated or destroyed or surrendered for transfer,
exchange or replacement, in respect of which new or replacement Notes or
Warrants have been issued by the Company, (ii) Notes theretofore paid in full,
(iii) Warrants theretofore fully exercised and (iv) Notes theretofore canceled
by the Company, whether upon exercise of a Warrant in whole or in part or
otherwise; except that for the purpose of determining whether holders of the
requisite principal amount of Notes or Warrants have made or concurred in any
declaration, waiver, consent, approval, notice, annulment of acceleration or
other communication under this Agreement or under any Notes or Warrants, Notes
or Warrants registered in the name of, as well as Notes or Warrants owned
beneficially by, the Company, the Subsidiary or any of their Affiliates (other
than one of the Purchasers) shall not be deemed to be outstanding.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permits" has the meaning set forth in Section 4.10 hereof
"Permitted Liens" means any of the following Liens:
(i) the Security Interests;
(ii) Liens for taxes not delinquent or for taxes being contested in
good faith by appropriate proceedings and as to which adequate
financial reserves have been established on its books and
records;
(iii) A lien by the State of Michigan related to past due Single
Business Tax for which the Company has agreed to make periodic
payment;
(iv) Liens (other than any Lien imposed by ERISA) created and
maintained in the ordinary course of business which are not
material in the aggregate, and which would not constitute or
result in a Material Adverse Effect, and which constitute (A)
pledges or deposits under worker's compensation laws,
unemployment insurance laws or similar legislation, (B) good
faith deposits in connection with
-16-
bids, tenders, contracts or leases to which the Company or a
Subsidiary is a party for a purpose other than borrowing money
or obtaining credit, including rent security deposits, (C)
Liens imposed by law, such as those of carriers, warehousemen
and mechanics, if payment of the obligation secured thereby is
not yet due or if such Liens are discharged within sixty (60)
days of the date they are imposed, (D) Liens securing taxes,
assessments or other governmental charges or levies not yet
subject to penalties for nonpayment, and (E) pledges or
deposits to secure public or statutory obligations of a
Company or a Subsidiary, or surety, customs or appeal bonds to
which the Company or a Subsidiary is a party;
(v) Liens affecting real property which constitute minor survey
exceptions or defects or irregularities in title, minor
encumbrances, easements or reservations of, or rights of
others for, rights of way, sewers, electric lines, telegraph
and telephone lines and other similar purposes, or zoning or
other restrictions as to the use of such real property;
provided, however, that all of the foregoing, in the
aggregate, do not at any time materially detract from the
value of said properties or materially impair their use in the
operation of the businesses of the Company or the Subsidiary,
as the case may be; and
(vi) Purchase Money Liens securing purchase money Indebtedness;
provided, however, that the aggregate outstanding amount of
Indebtedness and secured by all such Purchase Money Liens for
the Company and all Subsidiaries shall not exceed, on an
aggregate basis, $500,000 at any time.
"Permitted Senior Indebtedness" means the interests of the lessor under
any Capitalized Leases permitted to exist hereunder.
"Person" means an individual, corporation, partnership, firm, limited
liability company, association, trust, unincorporated organization, government,
governmental body or political subdivision thereof.
"Plan" shall mean any employee benefit plan (within the meaning of
section 3(3) of ERISA) maintained or contributed to by the Company, any
Subsidiary, or any ERISA Affiliate, other than a Multiemployer Plan.
"Potential Default" means a condition or event which, with notice or
lapse of time or both, would constitute an Event of Default.
"Prohibited Transaction" means any transaction involving any Plan which
is proscribed by Section 406 of ERISA or Section 4975 of the Code.
"Property" means all types of real, personal or mixed property and all
types of tangible or intangible property.
-17-
"Purchase Money Liens" means Liens securing purchase money Indebtedness
incurred in connection with the acquisition of capital assets by the Company in
the ordinary course of business; provided that (a) such Liens do not extend to
or cover assets or properties other than those purchased in connection with the
purchase in which such Indebtedness was incurred and (b) the obligation secured
by any such Lien so created shall not exceed 100% of the cost of the property
including transportation and installation costs, covered thereby.
"Purchaser(s)" has the meaning set forth in the first paragraph hereof.
"Real Estate" means all real estate and improvements located thereon
owned by the Company.
"Registration Demand" has the meaning set forth in Section 17 hereof.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing of a
Hazardous Material into the Environment.
"Representative" means The Klonoff Company, Inc. or any successor
Representative in its capacity as agent for the Class 2 Purchasers as Secured
Party under the Security Agreement.
"Reportable Event" shall mean, with respect to any Single Employer
Plan, an event described in section 4043(b) of ERISA, other than an event as to
which the notice requirement is waived under applicable PBGC regulations.
"Restricted Investment" means any Investment other than (1) obligations
of the United States government due within one year, (2) certificates of deposit
and bankers acceptances due within one year of a United States domiciled
commercial bank having capital funds of at least $100 million and whose
long-term unsecured debt obligations have been given a rating of at least A by
Standard & Poor's or A2 by Moody's, (3) commercial paper rated P-1 by Moody's or
A-1 by Standard & Poor's and maturing not more than 270 days from the date of
creation thereof, (4) debt of any state or political subdivision that is rated
AA or better by Moody's or Aa2 or better by Standard and Poor's and maturing in
less than one year, (5) investments in, and loans and advances to, Subsidiaries
or entities that will, concurrently with such investment become Subsidiaries,
(6) trade credit extended in the ordinary course of the Company's business, (7)
loans and advances made in the ordinary course of business to officers and
employees of Company for relocation expenses, travel advances and similar
expenses relating to their employment, (8) endorsements of instruments or items
of payment for deposit to the Company's bank accounts, and (9) additional
Investments not to exceed $500,000 in the aggregate.
"Restricted Payment" means (i) every direct or indirect dividend or
other distribution paid, made or declared by the Company on or in respect of any
class of its capital stock or in respect of any partnership or Joint Venture, in
all cases whether now or hereafter outstanding, interests and any payment under
or with respect to anti-dilution provisions of any capital stock of
-18-
the Company, (ii) every payment in connection with the redemption, purchase,
retirement or other acquisition, direct or indirect, by or on behalf of the
Company of any shares of the Company's capital stock, whether or not owned by
the Company or any partnership or Joint Venture interests of the Company, or any
warrants, rights or options to acquire such stock or partnership interests,
(iii) every payment by or on behalf of the Company (whether as repayment or
prepayment of principal or as interest or otherwise) on or with respect to any
obligation to any Person, of any Affiliate of the Company or of any other holder
of shares of the Company's Common Stock, which obligation is assumed or
guaranteed by the Company; provided, however, (a) that the restrictions of the
foregoing clauses (i) and (ii) shall not apply to any dividend, distribution, or
other payment to the extent payable in shares of the Common Stock of the Company
or in options, warrants or other rights to purchase such Common Stock, (b) that
none of the foregoing clauses shall apply to any payments from a Subsidiary to
the Company, (c) that none of the foregoing clauses shall apply to any purchases
by the Company from a Wholly-Owned Subsidiary of additional capital stock of
such Subsidiary and (d) that none of the foregoing clauses shall apply to any
payments, distributions or other transfers or actions on or with respect to the
Notes or Warrants. For purposes of this definition, "capital stock" shall also
include warrants (other than the Warrants) and other rights and options to
acquire shares of capital stock.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules, regulations and interpretations thereunder.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules, regulations and interpretations thereunder.
"Security Agreement" means the Security Agreement dated May 1, 2002
between the Representative and the Company.
"Security Interest" means the Liens granted to the Agent for the
benefit of the Purchasers pursuant to this Agreement and the Loan Documents.
"Share" or "Shares" means shares of the Company's Common Stock, or
other securities, which can be obtained or have been obtained by an exercise in
whole or in part of any Warrant or the exchange of a Warrant for shares of the
Company's Common Stock pursuant to the terms of the Warrants. In the event that
any Shares are sold either in a public offering pursuant to an effective
registration statement under Section 6 of the Securities Act or pursuant to Rule
144 (but if sold under Rule 144, only if sold in "brokers' transactions" within
the meaning of Rule 144), then the transferees of such Shares shall not be
entitled to any benefits under this Agreement with respect to such Shares and
such Shares shall no longer be considered to be "Shares" for purposes of this
Agreement.
"Single Employer Plan" shall mean any Plan that is subject to Title IV
of ERISA.
"Solvent" has the meaning set forth in Section 4.19 hereto.
-19-
"Subsidiary" means any corporation in which at least a majority of the
shares (other than any directors' qualifying shares required by law) of each
class of the capital stock (other than preferred stock), at the time as of which
any determination is being made, is owned, beneficially and of record, directly
or indirectly, by the Company or its Subsidiary, or both.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of Michigan, as amended, or as in effect in any jurisdiction in
which Collateral is located.
"Voting Stock" means capital stock or a partnership or membership of
any class or classes of a corporation, partnership or other limited liability
entity, respectively, the holders of which are ordinarily entitled to elect the
directors, or persons performing similar functions, of such corporation,
partnership or entity.
"Warrant" or "Warrants" has the meaning set forth in Section l(d)
hereof.
"1997 Warrants" means warrants for the purchase of up to 2,139,368
shares of the Company's common stock at $4.49 per share (as adjusted at June 30,
2003) through June 30, 2005.
"Wholly-Owned Subsidiary" means any Subsidiary, all of the equity
securities of which (other than directors' qualifying shares) are owned by the
Company or one or more other Wholly-Owned Subsidiary of the Company.
(e) For all purposes of the Loan Documents, except as otherwise
expressly provided or unless the context otherwise requires:
(i) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to the particular Loan Document
as a whole and not to any particular Section or other
subdivision thereof,
(ii) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with GAAP;
(iii) all computations provided for herein, if any, shall be
made in accordance with GAAP, unless another method of
computation is herein specified;
(iv) any uses of the masculine, feminine or neuter gender
shall also be deemed to include any other gender, as
appropriate; and
(v) the exhibits and schedules to this Agreement shall be
deemed a part of this Agreement and any Exhibit, Annex or
Schedule to any other Loan Document shall be deemed a part of
such other Loan Document, as the case may be.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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The Company represents and warrants as follows as of the date hereof
and as of the Closing Date:
4.1. Corporate Existence and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and is duly qualified to do business, and is
in good standing, in all additional jurisdictions where such qualification is
necessary under applicable law. The Company has all requisite corporate power to
own or lease the properties used in its business and to carry on its business as
now being conducted and as proposed to be conducted, and to execute and deliver
this Agreement and the other Loan Documents to be executed and to engage in the
transactions contemplated hereby and thereby.
4.2. Corporate Authority. The execution, delivery and performance by
the Company of this Agreement and the other Loan Documents have been duly
authorized by all necessary corporate action and are not in contravention of any
applicable Governmental Regulation, or of the terms of the Company's charter or
by-laws, or of any contract or undertaking to which the Company is a party or by
which the Company or its property may be bound or affected and do not result in
the imposition of any Lien, except for Permitted Liens.
4.3. Binding Effect. This Agreement is, and each of the Loan Documents
to which the Company is a party when delivered hereunder will be, legal, valid
and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms.
4.4. Subsidiaries. The only Subsidiary of the Company is Integral
Vision Ltd., a company organized under the laws of England and Wales. The
Company directly owns all of the issued and outstanding shares of the
Subsidiary.
4.5. Financial Condition. The financial statements included in the
documents delivered pursuant to Section 10.6, copies of which have been
furnished to the Purchasers, fairly present, and the financial statements
delivered pursuant to Section 7.4 will fairly present, the financial position of
the Company and the Subsidiary as at the respective dates thereof, and the
results of operations of the Company and the Subsidiary for the respective
periods indicated, all on a consolidated basis in accordance with GAAP (subject,
in the case of interim statements, to normal, immaterial year-end audit
adjustments). There is no material Contingent Liability of the Company or the
Subsidiary that is not reflected in such consolidated statements or in the notes
thereto.
4.6. Use of Loans. The Company will use the proceeds of the sale of the
Notes and the Warrants for working capital and other general corporate purposes.
The Company does not extend or maintain, in the ordinary course of business,
credit for the purpose, whether immediate, incidental, or ultimate, of buying or
carrying margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of any
Note will be used for the purpose, whether immediate, incidental, or ultimate,
of buying or carrying any such margin stock or maintaining or extending credit
to others for such purpose.
-21-
4.7. Consents, Etc. Except for such consents, approvals,
authorizations, declarations, registrations or filings delivered by the Company
at or prior to the Closing pursuant to Section 10.5, if any, each of which is in
full force and effect, no consent, approval or authorization of or declaration,
registration or filing with any governmental authority or any nongovernmental
person, including any creditor, lessor or shareholder of the Company or any
Subsidiary, is required on the part of the Company or any Subsidiary in
connection with the execution, delivery and performance of this Agreement and
the other Loan Documents or the transactions contemplated hereby or thereby or
as a condition to the legality, validity or enforceability of this Agreement and
the other Loan Documents.
4.8. Taxes. Each of the Company and the Subsidiary has filed all tax
returns (federal, state and local) required to be filed and have paid all taxes
shown thereon to be due, including interest and penalties, or has established
adequate financial reserves on its books and records for payment thereof. The
Company does not know of any actual or proposed tax assessment or any basis
therefor, and no extension of time for the assessment of deficiencies in any
federal or state tax has been granted to the Company.
4.9. Title to Properties. Except as otherwise disclosed in the latest
consolidated balance sheet delivered pursuant to Section 4.5, the Company and
the Subsidiary have a valid and indefeasible ownership interest in all of the
properties and assets reflected in the consolidated balance sheet of the Company
and the Subsidiary or subsequently acquired by the Company or the Subsidiary.
All of such properties and assets are free and clear of any Lien, except for
Permitted Liens.
4.10. Compliance with Governmental Relations. To the best of the
Company's knowledge, the Company and the Subsidiary is in compliance in all
material respects with all Governmental Regulations (including Environmental
Laws) applicable to such person or its business or properties. Without limiting
the generality of the foregoing, all licenses, permits, orders or approvals
which are required under any Governmental Regulation in connection with any of
the businesses or properties of the Company or the Subsidiary ("Permits") are in
full force and effect, no notice of any violation has been received in respect
of any such Permits and no proceeding is pending or, to the knowledge of the
Company, threatened to terminate, revoke or limit any such Permits.
4.11. ERISA. To the best of the Company's knowledge, the Company and
its Plans are in compliance in all material respects with those provisions of
ERISA and of the Code which are applicable with respect to any Plan. No
Prohibited Transaction and no Reportable Event has occurred with respect to any
such Plan. The Company is not an employer with respect to any Multiemployer
Plan. The Company has met the minimum funding requirements under ERISA and the
Code with respect to its Plans, if any, and has not incurred any liability to
the PBGC or any Plan. There is no material unfunded benefit liability,
determined in accordance with Section 400 1 (a)(1 8) of ERISA, with respect to
any Plan of the Company.
4.12. Environmental Matters. Without limiting the generality of Section
4.10:
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(a) No written demand, claim, notice, suit, suit in
equity, action, administrative action, investigation
or inquiry whether brought by any governmental
authority, private person or otherwise, arising
under, relating to or in connection with any
Environmental Laws is pending or, to the best of the
Company's knowledge, threatened against Company, the
Subsidiary any Property or any past or present
operation of the Company or the Subsidiary which
could result in a Material Adverse Effect.
(b) The Company does not have any knowledge that any
other person has ever received any notice, claim or
allegation of any violation, and the Company is not
aware of any existing violation, of Environmental
Laws at or about any Property, and the Company does
not have any knowledge of any actions commenced or
threatened by any party for or related to or arising
out of non-compliance with Environmental Laws which
apply to any Property, activities at any Property or
Hazardous Materials at, from or affecting any
Property.
(c) None of the Property appears on the National Priority
List (as defined under federal law) or any state
listing which identifies sites for remedial clean-up
or investigatory actions. To the best of the
Company's knowledge, none of the Property has been
contaminated with substances which give rise to a
clean-up obligation under any Environmental Law or
common law.
4.13. Investment Company Act. Neither Company nor the Subsidiary is an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
4.14. Disclosure. No report or other information furnished in writing
by or on behalf of the Company to any Purchaser in connection with the
negotiation or administration of this Agreement contains any material
misstatement of fact or omits to state any material fact or any fact necessary
to make the statements contained therein not misleading. Neither this Agreement,
the other Loan Documents, nor any other document, certificate, or report or
statement or other information furnished to any Purchaser by or on behalf of the
Company in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact in order
to make the statements contained herein and therein not misleading. There is no
fact known to the Company which materially and adversely affects, or which in
the future may (so far as the Company can now foresee) materially and adversely
affect, the business, properties, operations, condition, financial or otherwise,
or prospects of the Company or the Subsidiary, which has not been set forth in
this Agreement or in the other documents, certificates, statements, reports or
other information furnished in writing to any Purchaser by or on behalf of the
Company in connection with the transactions contemplated hereby.
4.15. Stock Ownership. The authorized capital stock of the Company
consists of (i)
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25,000,000 shares of Common Stock, without par value, of which 9,429,901 shares
are outstanding, and (ii) 400,000 shares of Preferred Stock, without par value,
none of which are outstanding. Such outstanding shares of Common Stock are duly
authorized, validly issued and outstanding and fully paid and nonassessable.
Except for the Warrants, the 1997 Warrants and options to purchase shares of
Common Stock granted to employees, directors or agents of the Company pursuant
to the Company's stock option plans, there are no outstanding options, warrants,
rights, convertible securities or other agreements or plans under which the
Company may become obligated to issue, sell or transfer shares of its capital
stock or other securities.
4.16. No Defaults or Conflicts.
(a) No Event of Default or Potential Default has occurred and is
continuing.
(b) The execution, delivery and performance by the Company of this
Agreement and of the Loan Documents to which it is a party and any of the
transactions contemplated hereby or thereby (including, without limitation, the
issuance of the Notes, the Warrants and the Shares as contemplated herein or
therein) do not and will not (i) violate or conflict with, with or without the
giving of notice or the passage of time or both, any provision of (A) the
Articles of Incorporation or By-Laws of the Company or (B) any law, rule,
regulation, order, judgment, writ, injunction, decree, agreement, indenture or
other instrument applicable to the Company or the Subsidiary or any of their
respective properties (or to which the Company of the Subsidiary is a party or
by which any of their respective properties may be bound), (ii) other than
pursuant to this Agreement or the Loan Documents, result in the creation of any
Lien upon any of the Company's or the Subsidiary's Properties, (iii) require the
consent, waiver, approval, order or authorization of, or declaration,
registration, qualification or filing with, any Person (whether or not a
governmental authority and including, without limitation any shareholder
approval) other than (A) the consent of the Senior Lender (B) any registration,
qualification or filing with the Securities and Exchange Commission or any state
securities commission necessary in connection with the Company's obligations
under Section 17 hereof and (C) the Company's routine filing obligations under
the Securities Exchange Act or (iv) cause anti-dilution clauses of any
outstanding securities to become operative or give rise to any preemptive
rights. No such provision referred to in the preceding clause (i) will have a
Material Adverse Effect.
4.17. Offering of Notes. Neither the Company nor any agent nor any
other Person acting on their behalf, directly or indirectly, (i) offered any of
the Notes, Warrants or any similar security of the Company (A) by any form of
general solicitation or general advertising (within the meaning of Regulation D
under the Securities Act) or (B) for sale to or solicited offer to buy any
thereof from, or otherwise approached or negotiated with respect thereto with,
any Person other than the Purchasers and additional potential investors who,
either alone or with their Purchaser Representatives(s) (as defined in
Regulation D under the Securities Act) have such knowledge and experience in
financial and business matters that they are capable of evaluation the merits
and risks of the prospective investment and who are able to bear the economic
risks of the investment or (ii) has done, or caused to be done (or has omitted
to do or to cause to be done) any act which act (or which omission) would result
in bringing the issuance or sale of the Notes,
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Warrants or Shares within the provisions of Section 5 of the Securities Act.
4.18. Outstanding Securities. All securities (as defined in the
Securities Act) of the Company have been offered, issued, sold and delivered in
compliance with, or pursuant to exemptions from, all applicable federal and
state laws, and the rules and regulations of federal and state regulatory bodies
governing the offering, issuance, sale and delivery of securities. The Company's
common stock is currently traded on the Nasdaq Stock Market. However, the
Company has been notified by Nasdaq that it no longer qualifies for listing, and
the Company expects that it will soon be required to move to the Over the
Counter Bulletin Board.
4.19. Solvency. The Company is and has been experiencing cash flow
difficulties such that it would likely not meet a definition of "solvency"
meaning that it can pay its debts as they mature. However, the assets of the
Company, at a fair valuation, exceed its total liabilities.
4.20. Chief Executive Office. The chief executive office of the Company
and its records with respect to the Collateral are located at Farmington Hills,
Michigan.
SECTION 5. REPRESENTATIONS OF THE PURCHASERS
Each Purchaser severally represents and warrants, but only as to
itself, to the Company that:
5. 1. Power and Authority. Such Purchaser has all requisite power,
authority and legal right to execute, deliver, enter into, consummate and
perform this Agreement and the Loan Documents to which it is a party. The
execution, delivery and performance of this Agreement and the Loan Documents to
which it is a party by such Purchaser have been duly authorized by all required
corporate and other actions. Such Purchaser has duly executed and delivered this
Agreement and the Loan Documents to which it is a party, and this Agreement and
the Loan Documents to which it is a party constitute the legal, valid and
binding obligation of such Purchaser enforceable against such Purchaser in
accordance with their respective terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to the rights of
creditors generally and subject to the availability of equitable remedies and
the application of equitable principles.
5.2. Purchase for Investment. Such Purchaser is capable of evaluating
the risk of its investment in the Notes and Warrants being purchased by it and
is able to bear the economic risk of such investment. Such Purchaser is
purchasing the Notes and Warrants to be purchased by it for its own account, and
the Notes and Warrants are being purchased by it for investment and not with a
present view to any distribution thereof.
It is understood that the disposition of such Purchaser's property
shall, subject to the terms of this Agreement, at all times be within such
Purchaser's control. If such Purchaser should in the future decide to dispose of
any of its Notes, Warrants or Shares, it is understood that it may do so only in
compliance with the Securities Act and this Agreement.
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SECTION 6. PREPAYMENTS
6.1. Optional Prepayments of Class 1 Notes.
(a) At any time after one year from the Closing Date for a Purchaser
(but not before) the Company may at its option (subject to the other provisions
of this Section 6.1) prepay all or part of the principal amount of Class 1 Notes
outstanding for more than one year, at a price equal to the aggregate principal
amount of the Notes to be prepaid plus accrued interest thereon to the date of
prepayment.
(b) The aggregate amount of each prepayment of the principal amount of
Class 1 Notes pursuant to this Section 6.1 shall be allocated among all Class 1
Notes at the time outstanding for more than one year, in proportion, as nearly
as practicable, to the respective unpaid principal amounts of such Class 1
Notes.
(c) The right of the Company to prepay Class 1 Notes pursuant to this
Section 6.1 shall be conditioned upon its giving notice of prepayment, signed by
an officer, to the holders of Class 1 Notes not less than thirty (30) days and
not more than sixty (60) days prior to the date upon which the prepayment is to
be made specifying (i) the registered holder of each Class 1 Note to be prepaid,
(ii) the aggregate principal amount being prepaid, (iii) the date of such
prepayment (which must be a Business Day), (iv) the accrued and unpaid interest
(to but not including the date upon which the prepayment is to be made) and (v)
that the prepayment of Class 1 Notes is being made pursuant to this Section 6.1.
Notice of prepayment having been so given, the aggregate principal amount of the
Class 1 Notes so specified in such notice, and all accrued and unpaid interest
thereon, shall become due and payable on the specified prepayment date, but the
right to apply any or all of the Class 1 Notes as payment to exercise any Class
1 Warrant or Warrants shall continue to, but not including, the date of such
prepayment. Notwithstanding, the above, Class 1 Notes purchased after April 15,
2002 are subordinate in the right of payment to those Class 1 Notes purchased on
or before April 15, 2002, and are on a par in the right of payment with Class 2
Notes.
6.2. Optional Prepayments of Class 2 Notes.
Class 2 Notes must be paid at such times as the Company receives
payment on the specified order(s) associated with such Notes, with payment being
applied first to accrued interest and then to principal. Payment from
receivables or letter of credit proceeds on these specified orders can be made
on the Class 2 Notes even if the Company is then in default on the Class 1
Notes. In addition, the Company may make prepayment in full or part on the Class
2 Notes at any time.
6.3. Optional Prepayments of Class 3 Notes.
(a) The Company may at its option (subject to the other provisions of
this Section 6.3) prepay all or part of the principal amount of Class 3 Notes,
at a price equal to the aggregate
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principal amount of the Notes to be prepaid plus accrued interest thereon to the
date of prepayment.
(b) The aggregate amount of each prepayment of the principal amount of
affected Class 3 Notes pursuant to this Section 6.3 shall be allocated among all
affected Class 3 Notes, in proportion, as nearly as practicable, to the
respective unpaid principal amounts of such Class 3 Notes.
(c) The right of the Company to prepay Class 3 Notes pursuant to this
Section 6.3 shall be conditioned upon its giving notice of prepayment, signed by
an officer, to the holders of Class 3 Notes not less than thirty (30) days and
not more than sixty (60) days prior to the date upon which the prepayment is to
be made specifying (i) the registered holder of each Class 3 Note to be prepaid,
(ii) the aggregate principal amount being prepaid, (iii) the date of such
prepayment (which must be a Business Day), (iv) the accrued and unpaid interest
(to but not including the date upon which the prepayment is to be made) and (v)
that the prepayment of Class 3 Notes is being made pursuant to this Section 6.3.
Notice of prepayment having been so given, the aggregate principal amount of the
Class 3 Notes so specified in such notice, and all accrued and unpaid interest
thereon, shall become due and payable on the specified prepayment date, but the
right to convert any or all of the Class 3 Notes to Common Stock shall continue
to, but not including, the date of such prepayment. Notwithstanding that Class 3
Notes are subordinate in the right of payment to Class 1 Notes and Class 2
Notes, such subordination shall not affect the ability of the Company to prepay
Class 3 Notes pursuant to this Section 6.3.
(d) The right of the Company to prepay Class 3 Notes pursuant to this
Section 6.3 shall be further conditioned upon (i) sixteen months shall have
elapsed from the Closing Date for each Class 3 Note affected, (ii) the Common
Stock of the Company shall have been trading at an average Market Price of the
greater of $1 per share or 125% of the conversion price for the Class 3 Notes
being called for the four months prior to the specified prepayment date and
(iii) the Common Stock receivable by the Class 3 Purchasers upon conversion of
their Class 3 Notes having been eligible for public market sale, whether through
registration or an exemption therefrom, for at least four months prior to the
specified prepayment date. The provisions of this section 6.3(d) shall not be
applicable if the prepayment by the Company is pursuant to the sale by the
Company of substantially all of its assets.
6.4. Obligations Unconditional. The Company hereby agrees and confirms
that its obligations under the Notes shall be deemed to constitute for all
purposes obligations for the payment of indebtedness for borrowed money and
shall accordingly be absolute and unconditional in accordance with the terms of
the Notes and this Agreement and shall not be affected by (and the Company
agrees not to assert) any right the Company may now or at any time hereafter
have, including any right to terminate, cancel, quit or surrender this Agreement
or any Note except in accordance with the express terms thereof.
SECTION 7. AFFIRMATIVE COVENANTS
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The Company covenants and agrees that, until payment in full of the
principal of and accrued interest on the Notes and the payment or performance of
all other obligations under the Loan Documents, the Company shall:
7.1. Preservation of Corporate Existence; Etc. Do or cause to be done
all things necessary to preserve, renew and keep in full force and effect its
legal existence, except to the extent permitted by Section 8.3, and its
qualification as a foreign corporation in good standing in each jurisdiction in
which such qualification is necessary under applicable law, and the rights,
licenses, permits (including those required under Environmental Laws),
franchises, patents, copyrights, trademarks and trade names material to the
conduct of its businesses; and defend all of the foregoing against all claims,
actions, demands, suits or proceedings at law or in equity or by or before any
governmental instrumentality or other agency or regulatory authority.
7.2. Maintenance of Properties; Insurance. Maintain, preserve and
protect all property that is material to the conduct of its business and keep
such property in good repair, working order and condition and from time to time
make, or cause to be made, all needful and proper repairs, renewals, additions,
improvements and replacements thereto necessary in order that the business
carried on in connection therewith may be properly conducted at all times in
accordance with customary and prudent business practices for similar businesses;
and maintain in full force and effect insurance with responsible and reputable
insurance companies or associations in such amounts, on such terms and covering
such risks, including fire and other risks insured against by extended coverage,
as is usually carried by companies engaged in similar businesses and owning
similar properties similarly situated and maintain in full force and effect
public liability insurance, business interruption insurance, insurance against
claims for personal injury or death or property damage occurring in connection
with any of its activities or any properties owned, occupied or controlled by
it, in such amounts as it shall reasonably deem necessary, and maintain such
other insurance as may be required by Governmental Regulations or as may be
reasonably requested by the Majority Noteholders. Upon request, the Company
shall deliver to each Purchaser copies of all or any of such insurance policies
or the related certificates of insurance.
7.3. Reporting Requirements. Furnish to each Purchaser the following:
(a) promptly and in any event within five (5) calendar days after
becoming aware of the occurrence of (A) any Potential Default or Event
of Default, (B) the commencement of any material litigation against, by
or affecting the Company or any Subsidiary, and any material
developments therein, or (C) any development in the business or affairs
of the Company which has resulted in or which is likely, in the
reasonable judgment of the Company, to result in a Material Adverse
Effect, a statement of an officer of the Company setting forth details
of such Potential Default or Event of Default or such litigation or
such event or condition and the action which the affected person has
taken and proposes to take with respect thereto;
(b) as soon as available and in any event within 45 days after the end
of each fiscal quarter of the Company, the consolidated balance sheet
of the Company as of the end of
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each such quarter and consolidated income statement of the Company for
each such quarter and for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, setting
forth in each case in comparative form the corresponding figures for
the corresponding date or period of the preceding fiscal year;
(c) as soon as available and in any event within 90 days after the end
of each fiscal year of the Company, a copy of the annual audited
consolidated financial statements of the Company for such fiscal year;
(d) promptly after receipt thereof by the Company, copies of any audit
or management reports submitted to it by independent accountants in
connection with any audit, interim audit or other report submitted to
the board of directors of the Company;
(e) promptly after the same are available, copies of each annual
report, proxy or financial statement or other communication sent to the
Company's stockholders and copies of all annual, regular, periodic and
special reports and registration statements which the Company may file
or be required to file with the Securities and Exchange Commission or
with any securities exchange or the National Association of Securities
Dealers, Inc.; and
(f) promptly, such other information respecting the business,
properties, operations or condition, financial or otherwise, of the
Company as any Purchaser may from time to time reasonably request upon
reasonable notice.
Each holder of Notes and Warrants hereby acknowledges that it is aware
of the restrictions imposed by federal and state securities laws on a person
possessing material nonpublic information about a company. In this regard, each
such holder hereby agrees that (i) while it is in possession of material
nonpublic information with respect to the Company and its Subsidiaries, such
holder will not purchase or sell any securities of the Company, or communicate
such information to any third party, in violation of any such laws and (ii) it
will keep all such nonpublic information confidential.
7.4. Accounting; Access to Records, Books; Etc. Maintain a system of
accounting established and administered in accordance with sound business
practices to permit preparation of financial statements in accordance with GAAP
and to comply with the requirements of this Agreement and, at any reasonable
time and from time to time, (i) permit the Agent to examine and make copies of
and abstracts from the records and books of account of, and visit the properties
of, such person and to discuss the affairs, finances and accounts of such person
with their respective directors, officers, employees and independent auditors,
and by this provision the Company does hereby authorize the same, and (ii)
permit the Agent to conduct a comprehensive field audit of its books, records,
properties and assets, if there is no Event of Default or Potential Default
continuing, at the Purchasers' expense, otherwise at the Company's expense.
7.5. Further Assurances. Execute and deliver promptly after request
therefor by any
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Purchaser, all further instruments and documents and take all further action
that may be necessary or desirable, or that any Purchaser may request, in order
to give effect to, and to aid in the exercise and enforcement of the rights and
remedies of any Purchaser under, this Agreement and the other Loan Documents.
7.6. Use of Proceeds. The Company will use the net proceeds realized
from the sale of the Notes and Warrants for working capital and other general
corporate purposes. No portion of such proceeds will be used for the purpose,
whether immediate, incidental or ultimate, of purchasing or carrying, within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System,
as amended from time to time, any "margin stock" as defined in said Regulation
U, or any "margin stock" as defined in Regulation G of the Board of Governors of
the Federal Reserve System, as amended from time to time, or for the purpose of
purchasing, carrying or trading in securities within the meaning of Regulation T
of the Board of Governors of the Federal Reserve System, as amended from time to
time, or for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase any such margin stock or other securities.
7.7. Office for Payment, Exchange and Registration. So long as any of
the Notes or Warrants are outstanding, the Company will maintain an office or
agency where Notes or Warrants may be presented for payment, exchange, exercise
or registration of transfer as provided in this Agreement or in the Warrants.
Such office or agency initially shall be the office of the Company set forth in
Section 22 hereof, which place may from time to time be changed by notice to the
holders of all Notes and Warrants then outstanding.
7.8. Notices. The Company will give notice to each holder of a Note or
Warrant promptly after it learns (other than by notice from all of such holders)
of the existence of any default under any Senior Indebtedness or any material
default under any other evidence of Indebtedness or under any indenture,
mortgage or other agreement relating to any evidence of Indebtedness in respect
of which the Company or any Subsidiary is liable.
7.9. Fiscal Year. The fiscal year of the Company for tax, accounting
and any other purposes shall end on December 31 of each calendar year.
7.10. Communication with Accountants. The Company hereby authorizes the
Agent (on behalf of the Purchasers) to communicate directly with the independent
certified public accountants for the Company and authorizes such accountants to
disclose to the Agent any and all financial statements and any other information
of any kind that they may have with respect to the assets, properties,
liabilities, business, affairs, results of operations, condition (financial or
otherwise) or prospects of the Company; provided, that the Company be informed
of any such disclosures and participate in any conversations between such
accountants and the Agent (and the Company agrees that it will not fail to
cooperate in arranging or unreasonably delay any such conversations); and
further provided that the Agent shall not incur charges from such accountants in
exercise of such rights for more than ten (10) hours per calendar year without
the Company's prior written consent. The Company shall deliver a letter
addressed to such accountants
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instructing them to comply with the provisions of this Section 7.10.
7.11. Environmental Matters. The Company agrees to indemnify, defend,
protect and hold harmless Purchasers, their officers, directors, shareholders,
employees, and agents from and against any and all liability, loss, damage, cost
and expense, including, but not limited to, attorneys' and consultants fees and
disbursements arising from any breach of representations and warranties set
forth in Section 4.12 or covenants set forth in Section 7.2 herein, the Release
or presence of Hazardous Materials on, under, about, adjacent to, from or at any
properties or facilities currently or previously owned, operated or leased by
the Company or any Subsidiary, any predecessors of the Company or any Subsidiary
or any entities previously owned by the Company or any Subsidiary, or at any
off-site location to which Hazardous Materials generated by the Company or any
Subsidiary, any predecessors of the Company or any Subsidiary or any entities
previously owned by the Company or any Subsidiary were sent for handling,
treatment, storage, or disposal or any violation of any Environmental Law or
Environmental Permit by the Company or any Subsidiary or any entity previously
owned by the Company or any Subsidiary. The obligations of the Company under
this Section shall survive the Closing indefinitely.
7.12. Taxes. All payments to a holder of Notes or to a partner of a
holder (or to a partner of such a partner) (any of the foregoing referred to
herein as a "recipient") of principal of, and interest on, the Notes and all
other amounts payable under this Agreement and any other Loan Document shall be
made free and clear of, and without deduction for, any present or future income,
stamp or other taxes, fees, duties, withholding or other charges of any nature
whatsoever imposed by any taxing authority, other than taxes imposed on or
measured by the net income of such recipient (such non-excluded items being
herein called "Taxes"). In the event that any withholding or deduction from any
payment to be made hereunder is required in respect of any Taxes pursuant to any
applicable law, rule or regulation, then the Company will:
(a) pay to the relevant authority the full amount required to be so
withheld or deducted; and
(b) promptly forward to such recipient an official receipt or other
documentation satisfactory to such recipient evidencing such payment to
such authority.
7.13. Delivery of Information for Rule 144A Transactions. If a holder
of Notes proposes to transfer any such Notes pursuant to Rule 144A under the
Securities Act (as in effect from time to time), the Company agrees to provide
(upon the request of such holder or the prospective transferee) to such holder
and (if requested) to the prospective transferee any financial or other
information concerning the Company which is required to be delivered by such
holder to any transferee of such Notes pursuant to such Rule 144A.
SECTION 8. NEGATIVE COVENANTS
The Company further covenants and agrees that it will not:
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8.1. Liens. Create, incur, assume or suffer to exist any Lien upon any
of its Property, whether now owned or hereafter acquired, except Permitted
Liens.
8.2. Merger and Acquisition. Consolidate with or merge with or into any
Person, or acquire directly or indirectly all or substantially all of the
capital stock of any Person; provided that a merger after which the Company is
the surviving corporation and which does not cause a Potential Default or Event
of Default shall be permitted if either the Company is the surviving corporation
or, if not, the surviving corporation assumes all of the Company's obligations
under the Loan Documents in a manner satisfactory to the Purchasers.
8.3. Contingent Liabilities. Assume, guarantee, endorse, contingently
agree to purchase, become liable in respect of any letter of credit, or
otherwise become liable upon the obligation of any Person, except (i)
liabilities arising from the endorsement of letters of credit, notes, drafts,
instruments or documents for deposit or collection or similar transactions in
the ordinary course of business, (ii) deposit account guaranties of the
Subsidiaries not in excess of (pound)100,000 in the aggregate in the United
Kingdom, and (iii) other Contingent Liabilities not in excess of $500,000 in the
aggregate.
8.4. Restricted Payments. Make any Restricted Payment or Restricted
Investment, except from Earnings Available for Dividends.
8.5. Sale or Transfer of Assets. Sell, lease, assign, transfer or
otherwise dispose of any Collateral except in the ordinary course of business or
except upon payment to the Purchasers of 50% of the net proceeds received by the
Company from the sale of such Collateral, up to the full amount of the Company's
Obligations to the Purchasers, except that Class 3 Purchasers would have the
option to instead convert the portion of their Class 3 Notes which is proposed
to be paid into the common stock of the Company with the Company retaining that
portion of the proposed payment. If the Company is successful in its
negotiations to sell its (i) business of developing and manufacturing inspection
systems for the optical disc industry including an Identification Code
Verification System, a Screen and Offset Printed Label Inspection System, a
Scanner and an Optical Disc Orientation System or (ii) its business of
developing and manufacturing a full bottle inspection system for Coca Cola, a
code and label inspection system for L'Oreal, and an inspection system for web
based print quality, those assets will be released from the Collateral
Assignment without any payment from the Company. It is agreed that the Company
may place source code for software in escrow at the request of purchasers of its
products without violating this Agreement.
8.6. Amendment of Charter. Amend, modify or waive any term or provision
of its corporate charter, unless required by law.
8.7. Corporate Offices; Corporate Name; Corporate Records. Transfer its
executive offices or change its corporate name or maintain records (including
computer printouts and programs) with respect to the Collateral at any locations
other than those at which the same are presently kept or maintained, except upon
the Majority Noteholders' prior written consent and
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after the delivery to the Agent of financing statements in form satisfactory to
the Noteholders.
8.8. Private Placement Status. Neither the Company nor any agent nor
any other Person acting on the Company's behalf will do or cause to be done (or
will omit to do or to cause to be done) any act which act (or which omission)
would result in bringing the issuance or sale of the Notes, Warrants or Shares
within the provisions of Section 5 of the Securities Act (other than in
accordance with a registration and qualification of Shares under Section 17
hereof).
8.9. Amendments to Other Agreements. Without the prior written consent
of the Majority Noteholders, which consent will not be unreasonably withheld,
consent to or request any amendment, modification, supplement or waiver of any
of the provisions of any agreement or instrument evidencing (A) the rights of
stockholders' of the Company or (B) the terms of (including the purchase and
sale of) any form of capital stock of the Company.
8.10. Transactions with Affiliates. Enter into, or permit or suffer to
exist, any transaction or arrangement with any Affiliate, except on terms which
are no less favorable to the Company than could be obtained from persons who are
not Affiliates.
SECTION 9.
Intentionally Omitted
SECTION 10. CONDITIONS TO PURCHASERS' OBLIGATIONS
The Purchasers' obligations to purchase a Note or Notes and a Warrant
or Warrants hereunder is subject to satisfaction of the following conditions at
the Closing (any of which may be waived by the Purchasers):
10.1. Accuracy of Representations and Warranties. The representations
and warranties of the Company in this Agreement and in the Loan Documents or in
any certificate or document delivered pursuant hereto or thereto shall be
correct and complete on and as of the Closing Date with the same effect as
though made on and as of the Closing Date (after giving effect to the
transactions contemplated by this Agreement).
10.2. Compliance with Agreements; No Defaults. Except as disclosed on
Exhibit D, the Company performed and complied in all material respects with all
agreements, covenants and conditions contained in this Agreement or the Loan
Documents and any other document contemplated hereby or thereby which are
required to be performed or complied with by the Company on or before the
Closing Date. On the Closing Date (after giving effect to the transactions
contemplated hereby), there shall be no Event of Default or Potential Default.
10.3. Proceedings. All corporate and other proceedings in connection
with the transactions contemplated by the Loan Documents, and all documents
incident thereto, shall be in form and substance satisfactory to the Purchasers
and their counsel, and the Purchasers shall
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have received all such originals or certified or other copies of such documents
as the Purchasers or their counsel may reasonably request.
10.4. Legality; Governmental and Other Authorization. The purchase of
and payment for the Notes and Warrants shall not be prohibited by any law or
governmental order, rule, ruling, regulation, release, interpretation or opinion
applicable to the Purchasers and shall not subject the Purchasers to any
penalty, tax, liability or other onerous condition. Any necessary consents,
approvals, licenses, permits, orders and authorizations of, and registrations or
qualifications with, any governmental or administrative agency, or other Person,
with respect to the transactions contemplated by the Loan Documents shall have
been obtained or made and shall be in full force and effect. The Company shall
have delivered to the Purchasers, upon their reasonable request setting forth
what is required, factual certificates or other evidence, in form and substance
satisfactory to the Purchasers and their counsel, to enable the Purchasers to
establish compliance with this condition.
10.5. No Change in Law, etc. No legislation, order, rule, ruling or
regulation shall have been proposed, enacted or made by or on behalf of any
governmental body, department or agency, and no legislation shall have been
introduced in either House of Congress, and no investigation by any governmental
authority or administrative body shall have been commenced or threatened, and no
action, suit or proceeding shall have been commenced before, and no decision
shall have been rendered by, any court, other governmental body or arbitrator,
which, in any such case, in the Purchasers' reasonable judgment could adversely
affect, restrain, prevent or change the transactions contemplated by this
Agreement and the Loan Documents (including without limitation the issuance of
the Notes and the Warrants hereunder or the issuance of Shares upon exercise of
the Warrants) or materially and adversely affect the business, affairs, assets,
properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company on a consolidated basis.
10.6. Delivery of Additional Disclosure Documents. The Company shall
have delivered a copy of its most recent Form 10-K and any interim reports,
including financial statements, as filed with the Commission.
10.7 Related Agreements. The Company shall have delivered to the
Purchasers executed copies of the Collateral Assignment.
10.8 Security Interests. All filings of UCC financing statements and
all other filings and actions necessary to perfect the Security Interests as
valid and perfected Liens in the Property covered thereby, subject only to
Permitted Liens in effect on the date hereof, shall have been filed or taken and
confirmation thereof shall have been received by the Agent.
10.9 Searches. The results of tax lien, litigation, UCC, bankruptcy,
and judgment searches with respect to the Company obtained by the Purchasers
shall be acceptable.
10.10. Material Agreements. Review and approval by the Purchasers, at
their option and
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expense, of all material agreements to which the Company is a party, including
without limitation, all such documents in respect of the borrowing of money, all
joint venture agreements, supply agreements or requirements contracts, royalty
agreements, license agreements, employment/management incentive agreements, and
product warranties.
10.11 Insurance. The Purchasers shall have received such evidence
satisfactory to them as they have requested that the Company and the
Subsidiaries have in effect such casualty, hazard, public liability, product
liability and other insurance policies required by the Purchasers, written by
insurers and in amounts and forms satisfactory to the Purchasers.
10.12 Other Documents and Opinions. The Purchasers shall have received
such other certificates, documents and opinions, in form and substance
satisfactory to the Purchasers and their counsel, relating to matters incident
to the transactions contemplated hereby as the Purchasers may reasonably
request.
SECTION 11. AMENDMENT AND WAIVER
11.1. Amendments and Waivers. This Agreement and any Loan Document may
be amended (or any provision hereof or thereof waived) only with the written
consent of (i) the Majority Noteholders, and (ii) the holder or holders of
Warrants or Shares representing at least a majority of the sum of the Shares
then outstanding and the Shares then obtainable upon the exercise of all
Warrants then outstanding, if any; provided, however, that no such amendment or
waiver shall (i) change the fixed maturity of any Note, the rate or the time of
payment of interest thereon, the principal amount thereof, the premium thereon,
the currency in which the Notes are payable, the prepayment provisions of
Section 6 hereof, the current exercise price of a Warrant or the registration
rights under Section 17 hereof, without the consent of the holder of each Note,
Warrant or Share so affected or (ii) reduce the aforesaid percentage of Notes,
or reduce the aforesaid percentage of Warrants or Shares, the holders of which
are required to consent to any such amendment or waiver, without the consent of
the holders of all the Notes, or, as the case may be, the holders of all
Warrants and Shares, then outstanding or (iii) exchange the definition of
"Majority Noteholders" without the consent of the holders of all the Notes then
outstanding or (iv) increase the percentage of the amount of the Notes, the
holders of which may declare the Notes to be due and payable under Section 14
hereof, without the consent of the holders of all the Notes then outstanding or
(v) modify the subordination terms in the Purchase Agreement, including without
limitation, the subordination terms in Sections 1(b)(i), 1(b)(ii), 1(b)(iii),
6.1(c), and 20.2 without the consent of the holder of each Note so affected.
11.2. Notice of Proposed Amendments and Waivers. The Company agrees
that all holders of Notes, Warrants or Shares shall be notified by the Company
in advance of any proposed amendment or waiver of any Loan Document, but failure
to give such notice shall not in any way affect the validity of any such
amendment or waiver. In addition, promptly after obtaining the written consent
of the holders herein provided, the Company shall transmit a copy of any
amendment or waiver which has been adopted to all holders of Notes, Warrants or
Shares then outstanding, but failure to transmit copies shall not in any way
affect the validity of any such
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Amendment or waiver.
11.3. All Holders Bound by Amendments and Waivers. The Company and each
holder of a Note, Warrant or Share then or thereafter outstanding shall be bound
by any amendment or waiver effected in accordance with the provisions of this
Section 11, whether or not such Note, Warrant or Share shall have been marked to
indicate such modification, but any Note, Warrant or Share issued thereafter
shall bear a notation as to any such modification (but the failure to bear any
such notation shall not affect the validity of any such subsequently issued
Note, Warrant or Share, which shall be enforceable in accordance with its terms
subject to any such modification).
SECTION 12. EXCHANGE OF NOTES AND WARRANTS; CANCELLATION OF
SURRENDERED NOTES
12.1. Exchange of Notes. Subject to Section 16 hereof, at any time at
the request of any holder of one or more of the Notes to the Company at its
office provided under Section 7.7 hereof, the Company at its expense (except for
any transfer tax or any other tax arising out of the exchange) will issue and
deliver to or upon the order of the holder in exchange therefor new Notes, in
such denomination or denominations as such holder may request (which must be in
denominations of no less than $ 10,000 plus one Note in a lesser denomination,
if required), in aggregate principal amount equal to the unpaid principal amount
of the Note or Notes surrendered and substantially in the form thereof, dated as
of the date to which interest has been paid on the Note or Notes surrendered
(or, if no interest has yet been so paid thereon, then dated the date of the
Note or Notes so surrendered) and payable to such Person or Persons or order as
may be designated by such holder. Any such new Note shall bear any notation
required by Section 11 hereof.
12.2. Exchange of Warrants. Subject to Section 16 hereof, at any time
at the request of any holder of one or more of the Warrants to the Company at
its office provided under Section 7.7 hereof, the Company at its expense (except
for any transfer tax or any other tax arising out of the exchange) will issue
and deliver to or upon the order of the holder in exchange therefor a new
Warrant certificate or certificates of like tenor, in such amount or amounts as
such holder may request and calling in the aggregate on the face or faces
thereof for the number of Shares which are called for on the face or faces of
the Warrant certificate or certificates so surrendered, and in the name of such
holder or as such holder may direct. Any such new Warrant certificate shall bear
any notation required by Section 11 hereof.
12.3. Percent of Interest on Surrendered Notes. In the event that any
Note is surrendered to the Company upon the exercise of all or a portion of any
Warrant using the principal amount of, or accrued and unpaid interest on, the
Notes in accordance with the terms of the Warrants, or upon a prepayment under
Section 6 hereof, the Company shall pay all accrued and unpaid interest on such
Note or such portion thereof and interest shall cease to accrue upon that
portion of the principal amount of such Note used for such exercise or which was
prepaid, and the right to
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receive, and any right or obligation to make, any prepayment on such portion of
the principal amount pursuant to Section 6 hereof shall terminate all upon the
date of such exercise or prepayment and upon presentation and surrender of such
Note to the Company.
12.4. Surrender of Note in Exercise of Warrants. Upon the exercise in
whole or in part of any Warrant using the principal amount of, or accrued and
unpaid interest on, the Notes in accordance with the terms of the Warrants or
upon any prepayment under Section 6 hereof, if only a portion of the principal
amount of a Note is used in such exercise or prepayment, then such Note shall be
surrendered to the Company and the Company shall simultaneously execute and
deliver to or on the order of the holder thereof, at the expense of the Company,
a new Note or Notes in principal amount equal to the unused portion of such
Note.
12.5. Cancellation of Surrendered Notes. All Notes or portions thereof
which have been used to exercise all or a portion of a Warrant, or which have
been prepaid under Section 6 hereof, shall be canceled by the Company and no
Notes shall be issued in lieu of the principal amount so used for such exercise
or prepayment.
SECTION 13. REGISTRATION; REPLACEMENT OF NOTES AND WARRANTS
13. 1. Registration of Transfers. The Company shall keep a register in
which provisions shall be made for the registration of the Notes and Warrants
and the registration of transfers of the Notes and Warrants. The register shall
be kept at the office of the Company provided under Section 7.7 hereof. Upon
surrender for registration of transfer of any Note or Warrant at the office of
the Company, the Company shall execute and deliver, in the name of the
designated transferee or transferees, one or more new Notes or Warrants, as the
case may be, of a like aggregate principal amount of Notes or number of Shares.
Each new Note issued upon transfer shall be in a principal amount of at least
$10,000 and in integral multiples of $10,000 and dated the date or dates to
which interest on the Notes or Warrants surrendered shall have been paid. Each
new Warrant issued upon transfer shall be for at least 25% of the total Warrants
held by such holder and dated the date of the original Warrant. All Notes or
Warrants issued upon any registration of transfer of Notes or Warrants, as the
case may be, shall be the valid obligations of the Company evidencing the same
respective obligations, and entitled to the same security and benefits under
this Agreement and the other Loan Documents, as the Notes or Warrants
surrendered upon such registration of transfer. The Company shall make a
notation on each new Note of the amount of all payments of principal previously
made on the old Notes with respect to which such new Note is issued and the date
to which interest accrued on such old Note has been paid.
13.2. Replacement of Notes and Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Note or Warrant and, in the case of any such loss, theft or
destruction, upon delivery of an indemnity agreement or bond reasonably
satisfactory to the Company, or in the case of any such mutilation, upon
surrender of such Note or Warrant (which surrendered Note or Warrant shall be
canceled by the Company), the Company will, without further charge, issue a new
Note or Warrant, as the case
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may be, of like tenor in lieu of such lost, stolen, destroyed or mutilated Note
or Warrant as if the lost, stolen, destroyed or mutilated Note or Warrant were
then surrendered for exchange.
SECTION 14. DEFAULTS
14.1. Events of Default. Any of the following shall constitute an
"Event of Default " (whether any such event shall be voluntary or involuntary or
come about or be effected by operation of law or pursuant to or in compliance
with any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) the Company defaults in the payment (whether or not such payment is
prohibited under Section 9 hereof) of (A) any part of the principal of any Note,
when the same shall become due and payable, whether at maturity or at a date
fixed for prepayment or by acceleration or otherwise, or (B) the interest on any
Note, when the same shall become due and payable, and such default in the
payment of interest shall have continued for ten (10) days or (C) the Company
fails to pay any other amount due hereunder or under any Loan Document and such
default shall have continued for ten (10) Business Days after notice thereof
from the Agent;
(b) Any representation or warranty made by Borrower in this Agreement
or in any Loan Document or in any certificate, report, financial statement other
document furnished by or on behalf of the Company in connection with this
Agreement, shall prove to have been incorrect in any material respect when made
or deemed made;
(c) Any term, covenant or agreement contained in Section 8 shall be
breached;
(d) Any term, covenant or agreement contained in this Agreement or any
other Loan Document (other than with regard to payments) shall be breached, and
such breach shall remain unremedied for thirty (30) calendar days after receipt
by the Company of written notice thereof;
(e) One or more judgments or orders for the payment of money in an
aggregate amount of $250,000 or more shall be rendered against any of the
Company, or any other judgment or order (whether or not for the payment of
money) shall be rendered against or shall affect Company which causes or could
cause a Material Adverse Effect or which does or could have an adverse effect on
the legality, validity or enforceability of this Agreement or any other Loan
Document and either (i) such judgment or order shall have remained unsatisfied
and the Company shall not have taken action necessary to stay enforcement
thereof by reason of pending appeal or otherwise, prior to the expiration of the
applicable period of limitations for taking such action or, if such action shall
have been taken, a final order denying such stay shall have been rendered, or
(ii) enforcement proceedings shall have been commenced by any creditor upon any
such judgment or order; provided that no final judgment shall be included in the
calculation under this subsection to the extent that the claim underlying such
judgment is covered by insurance and defense of such claim has been tendered to
and accepted by the insurer without reservation.
(f) The occurrence of a Reportable Event that results in or could
result in liability of the
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Company or its ERISA Affiliates to the PBGC or to any Plan in excess of $50,000
and such Reportable Event is not corrected within thirty (30) days after the
occurrence thereof, or the occurrence of any Reportable Event which could
constitute grounds for termination of any Plan of the Company or its ERISA
Affiliates by the PBGC or for the appointment by the appropriate United States
District Court of a trustee to administer any such Plan and such Reportable
Event is not corrected within thirty (30) days after the occurrence thereof, or
the filing by the Company, or any of its ERISA Affiliates of a notice of intent
to terminate a Plan or the institution of other proceedings to terminate a Plan;
or the Company or any of its ERISA Affiliates shall fail to pay when due any
liability to the PBGC or to a Plan in excess of $50,000; or the PBGC shall have
instituted proceedings to terminate, or to cause a trustee to be appointed to
administer, any Plan of the Company or its ERISA Affiliates; or any person
engages in a Prohibited Transaction with respect to any Plan which results in or
could result in liability of the Company, any of its ERISA Affiliates, any Plan
of the Company, or its ERISA Affiliates or any fiduciary of any such Plan in
excess of $50,000; or failure by the Company, or any of its ERISA Affiliates to
make a required installment or other payment to any Plan within the meaning of
Section 302(o) of ERISA or Section 412(n) of the Code that results in or could
result in liability of the Company or any of its ERISA Affiliates to the PBGC or
any Plan in excess of $50,000; or the withdrawal of the Company or any of its
ERISA Affiliates from a Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001 (a)(2) of ERISA; or the Company or any of
its ERISA Affiliates becomes an employer with respect to any Multiemployer Plan
without the prior written consent of the Purchasers.
(g) The Company shall be dissolved or liquidated (or any judgment,
order or decree therefor shall be entered); or shall make a general assignment
for the benefit of creditors; or shall institute, or there shall be instituted
against the Company any proceeding or case seeking to adjudicate it a bankrupt
or insolvent or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief or protection of
debtors or seeking the entry of an order for relief, or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its assets, rights, revenues or property, and, if such
proceeding is instituted against the Company and is being contested by the
Company in good faith by appropriate proceedings, such proceeding shall remain
undismissed or unstayed for a period of 60 days; or shall take any action
(corporate or other) to authorize or further any of the actions described above
in this subsection.
(h) This Agreement or any of the other Loan Documents shall, at any
time after their respective execution and delivery, and for any reason, cease to
be in full force and effect or shall be declared null and void, or be revoked or
terminated, or the validity or enforceability thereof or hereof shall be
contested by the Company or any stockholder of the Company not a party to this
Agreement, or the Company shall deny that it has any further liability or
obligation thereunder or hereunder, as the case may be.
14.2. Acceleration of Notes. If an Event of Default occurs, then and in
each such event the Majority Noteholders may at any time (unless all such Events
of Default shall theretofore
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have been waived or remedied) at its or their option, by written notice or
notices to the Company, declare all the Notes to be due and payable in full.
Upon any such declaration or upon the occurrence of an Event of Default pursuant
to clause (h) of Section 14.1 hereof (in which case no declaration is required),
all Notes shall forthwith immediately mature and become due and payable,
together with interest accrued thereon, without presentment, demand, protest or
notice, all of which are hereby waived. However, if, at any time after the
principal of the Notes shall so become due and payable and prior to the date of
maturity stated in the Notes, all arrears (without giving effect to any such
acceleration) of principal and interest on the Notes (with interest at the rate
specified in the Notes on any overdue principal and, to the extent legally
enforceable, on any overdue interest) shall be paid by or for the account of the
Company, then the Majority Noteholders, by written notice or notices to the
Company, may rescind or annul such declaration. If any holder of a Note shall
give any notice or take any other action with respect to a claimed default, the
Company, forthwith upon receipt of such notice or obtaining knowledge of such
other action, will give written notice thereof to all other holders of the Notes
then outstanding, describing such notice or other action and the nature of the
claimed default.
SECTION 15. REMEDIES
15.1. Enforcement of Rights; Exercise of Remedies. In case any one or
more Events of Default shall occur and be continuing, the holder of a Note or
Warrant then outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Loan Document, or for an injunction against a violation of any of the terms
hereof or thereof, or in aid of the exercise of any power granted hereby or
thereby or by law or for any other remedy (including, without limitation,
damages). In addition, the Agent may:
(a) without notice to or demand upon the Company, make such payments
and do such acts as the Agent considers necessary or reasonable to protect
interest in the Collateral. The Company agrees to assemble the Collateral if the
Agent so requires, and to make the Collateral available to the Agent as the
Agent may designate. The Company authorizes the Agent to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or Lien that in the Agent's determination appears to be
prior or superior to its security interest and to pay all expenses incurred in
connection therewith. With respect to any of the Company's owned premises, the
Company hereby grants the Agent a license to enter into possession of such
premises and to occupy the same, without charge, for up to one hundred twenty
(120) days in order to exercise any of the Agent's rights or remedies provided
herein, at law, in equity, or otherwise;
(b) ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. The Agent is hereby granted a license or other right to use, without
charge, the Company's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising matter,
and the goodwill associated with any of the foregoing, or any property of a
similar nature, as it
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pertains to the Collateral, in completing production of, advertising for sale,
and selling any Collateral and the Company's rights under all licenses and all
franchise agreements shall inure to the Agent's benefit;
(c) sell the Collateral at either a public or private sale, or both, by
way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including the Company's premises) as the Agent
determines is commercially reasonable. It is not necessary that the Collateral
be present at any such sale;
(d) give notice of the disposition of the Collateral as follows:
(i) the Agent shall give the Company and each holder of a
security interest in the Collateral who has filed with the
Agent a written request for notice, a notice in writing of the
time and place of public sale, or, if the sale is a private
sale or some other disposition other than a public sale is to
be made of the Collateral, then the time on or after which the
private sale or other disposition is to be made;
(ii) the notice shall be personally delivered or mailed,
postage prepaid, to the Company as provided in Section 22, at
least ten (10) calendar days before the date fixed for the
sale, or at least ten (10) calendar days before the date on or
after which the private sale or other disposition is to be
made, unless the Collateral is perishable or threatens to
decline speedily in value. Notice to persons other than the
Company claiming an interest in the Collateral shall be sent
to such addresses as they have furnished to the Agent;
(iii) if the sale is to be a public sale, the Agent also shall
give notice of the time and place by publishing a notice one
time at least ten (10) calendar days before the date of the
sale in a newspaper of general circulation in the county in
which the sale is to be held;
(e) the Agent or any Purchaser may bid and purchase at any public or
private sale and can offset the Company's Obligations against the purchase
price; and
(f) any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by the Company. Any excess will be
returned, without interest and subject to the rights of third parties, by the
Agent to the Company.
15.2. Payment of Expenses of Enforcement and Collection. In case of a
default in the, payment of any principal of or interest on any Note, or default
in the payment of amounts owing under this Agreement or any Loan Document, or
default in the observance of any other agreement or covenant of the Company
contained in this Agreement or any Loan Document, the Company will pay to the
holder thereof or party thereto, in addition to any interest or premium
otherwise required, such further amount as shall be sufficient to cover any and
all costs and expenses of enforcement and collection, including, without
limitation, reasonable attorneys' fees
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and expenses.
15.3. Delay Not a Waiver. No course of dealing and no delay on the part
of the Agent, any holder of any Note or Warrant or any party to this Agreement
or any Loan Document in exercising any rights or remedies shall operate as a
waiver thereof or otherwise prejudice such holder's or party's rights. No right
or remedy conferred hereby or by any Loan Document shall be exclusive of any
other right or remedy referred to herein or therein or available at law, in
equity, by statute or otherwise. To the extent permitted under any applicable
law, the Company hereby irrevocably waives and relinquishes the benefit of any
valuation, stay, appraisal, extension or redemption laws, whether such laws
presently exist or may exist in the future, which laws might, but for this
Section 15.3, be applicable to any sale of any or all of the assets of the
Company (including without limitation the Collateral) made pursuant to any
judgment, order or decree of any court, or otherwise based on any claim relating
to or arising out of this Agreement or of any of the Loan Documents.
15.4. Specific Enforcement. The Purchasers shall, in addition to other
remedies provided by law, have the right and remedy to have the provisions of
this Agreement and any Loan Document specifically enforced by any court having
equity jurisdiction, it being acknowledged and agreed that any breach or
threatened breach of the provisions of this Agreement or any Loan Document will
cause irreparable injury to the Purchasers and that money damages will not
provide an adequate remedy. Nothing contained herein shall be construed as
prohibiting the Purchasers from pursuing any other remedies available to the
Purchasers for such breach or threatened breach, including, without limitation,
the recovery of damages from the Company.
15.5. Certain Waivers. Except as may be otherwise specifically provided
herein or in any other agreement between the Purchasers and the Company which
may be applicable, the Company waives any right, to the extent applicable law
permits, to receive prior notice of or a judicial or other hearing with respect
to (i) any action or prejudgment remedy or proceeding by the Agent to take
possession, exercise control over, or dispose of any item of the Collateral in
any instance (regardless of where the same may be located) where such action is
permitted under the terms of this Agreement, any other Loan Document or by
applicable law, and (ii) of the time, place or terms of sale in connection with
the exercise of the Agent's rights hereunder. The Company also waives, to the
extent permitted by law, any bonds, security or sureties required by any
statute, rule or otherwise by law as an incident to any taking of possession by
the Agent of Property subject to the Agent's Lien. The Company also waives any
damages (direct, indirect, consequential or otherwise) occasioned by the
enforcement of the Agent's rights under this Agreement including the taking of
possession of any Collateral or the giving of notice to any account debtor, all
to the extent that such waiver is permitted by law. The Company also consents
that the Agent may enter upon any premises owned by or leased to the Company
without obligation to pay rent or other compensation or for use and occupancy,
through self help, without judicial process and without having first given
notice to the Company or obtained an order of any court. These waivers and all
other waivers provided for in this Agreement, the other Loan Documents and any
other agreements or instruments executed in connection herewith have been
negotiated by the parties and the Company acknowledges that it has been
represented by
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counsel of its own choice and has consulted such counsel with respect to its
rights hereunder.
SECTION 16. RESTRICTIONS ON TRANSFER
Each holder of a Note or Warrant by acceptance thereof agrees that it
will not sell or otherwise dispose of any Notes, Warrants or Shares unless such
Notes, Warrants or Shares have been registered under, or have been sold pursuant
to an exemption from registration under, the Securities Act. As a condition to
the Company's obligation to issue a new Note or Warrant to a transferee thereof
which (x) is not a holder of a Note or Warrant, the transferor must certify to
the Company the facts on which the transferor is relying for such exemption and
(y) is a holder of a Note or Warrant, the transferor must represent to the
Company in writing that the transfer is so exempt, and in either case the
transferor must provide an opinion from an attorney reasonably satisfactory to
the Company that the requirements for the exemption have been met.
SECTION 17. REGISTRATION RIGHTS
17.1. Piggyback Rights. If the Company shall at any time propose to
file a registration statement under the Securities Act for any sales of shares
of the Company's Common Stock (or any warrants, units, convertibles, rights or
other securities related or linked to any shares of the Company's Common Stock)
on behalf of the Company or otherwise, the Company shall give written notice of
such registration no later than 60 days before its filing with the Commission to
all holders of Warrants or Shares; provided that registrations relating solely
to securities to be issued by the Company in connection with any employee stock
option or employee stock purchase or savings plan on Form S-8 (or successor
forms) under the Securities Act shall not be subject to this Section 17.1. If
holders of Warrants or Shares so request within thirty (30) days of receipt of
such notice, the Company shall include in any such registration the Shares held
or to be held after exercise of Warrants by such holders and requested to be
included in such registration.
17.2. Expenses. Subject to the limitations contained in this Section
17.2 and except as otherwise specifically provided in this Section 17, the
entire costs and expenses of any registration and qualification pursuant to
Section 17.1 hereof shall be borne by the Company. Such costs and expenses shall
include, without limitation, the fees and expenses of counsel for the Company
and of its accountants, all other costs, fees and expenses of the Company
incident to the preparation, printing and filing under the Securities Act of the
registration statement and all amendments and supplements thereto, the
reasonable fees and expenses of one counsel to the holders of Warrants or Shares
relating to such registration and qualification, the cost of furnishing copies
of each preliminary prospectus, each final prospectus and each amendment or
supplement thereto to underwriters (if any), dealers and other purchasers of the
Shares and the costs and expenses (including fees and disbursements of counsel)
incurred in connection with the qualification of the Shares under the securities
laws of various jurisdictions. The Company shall not, however, pay underwriting
fees or commissions to the extent related to the sale of Shares sold in any
registration and qualification, and such fees or commissions shall be paid by
the selling holders of Shares.
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17.3. Procedures.
(a) In the case of each registration or qualification pursuant to
Section 17.1, the Company will keep all holders of Warrants or Shares advised in
writing as to the initiation of proceedings for such registration and
qualification and as to the completion thereof, and will advise any such holder,
upon request, of the progress of such proceedings.
(b) At the Company's expense, the Company will keep each registration
and qualification under this Section 17 effective (and in compliance with the
Securities Act) by such action as may be necessary or appropriate for a period
of one hundred twenty (120) days after the effective date of such registration
statement, including, without limitation, the filing of posteffective amendments
and supplements to any registration statement or prospectus necessary to keep
the registration statement current and the further qualification under any
applicable state securities laws to permit such sale or distribution, all as
requested by such holder or holders, provided, that such 120-day period shall be
extended by the number of days (i) that a stop order or similar proceeding is in
effect which prohibits the distribution of the Shares registered pursuant to
this Section 17 and (ii) from and including the date that each holder on whose
behalf Shares have been registered pursuant to this Section 17 shall have
received a notice delivered pursuant to paragraph (c) below until the date on
which such holders shall have received a reasonable number of copies of a
supplement to or an amendment of the prospectus so that the prospectus
thereafter shall not include an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading; in light of the circumstances then existing.
(c) The Company will immediately notify each holder on whose behalf
Shares have been registered pursuant to this Section 17 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, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing.
(d) If any registration under this Section 17 is in connection with an
underwritten offering, the Company will furnish to each holder on whose behalf
Shares have been registered pursuant to this Section 17 a signed counterpart,
addressed to such holder, of (i) an opinion of counsel for the Company, dated
the effective date of such registration statement, and (ii) a so called "cold
comfort" letter signed by the independent public accountants who have certified
the Company's financial statements included in such registration statement, and
such opinion of counsel and accountants' letter shall cover substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in connection with underwritten public offerings of securities.
(e) Without limiting any other provision hereof, in connection with any
registration of
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Shares under this Section 17, the Company will comply with the Securities Act,
the Securities Exchange Act and all applicable rules and regulations of the
Commission, and will make generally available to its securities holders, as soon
as reasonably practicable, an earnings statement covering a period of at least
twelve (12) months, beginning with the first month of the first fiscal quarter
after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act.
(f) In connection with any registration of Shares under this Section
17, the Company will provide a transfer agent and registrar for the Shares not
later than the effective date of such registration statement.
(g) In connection with any underwritten registration of Shares under
this Section 17, the Company will, if requested by the underwriters for any
Shares included in such registration, enter into an underwriting agreement with
such underwriters for such offering, such agreement to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including, without limitation, provisions relating
to indemnification and contribution. The holders on whose behalf Shares are to
be distributed by such underwriters shall be parties to any such underwriting
agreement, and the representations and warranties by, and the other agreements
on the part of, the Company to and for the benefit of such underwriters shall
also be made to and for the benefit of such holders of Warrants or Shares and
the conditions precedent to the obligations of such underwriters under such
underwriting agreement shall be conditions precedent to the obligations of such
holders of Warrants or Shares. The Company shall cooperate with such holders of
Warrants or Shares in order to limit any representations or warranties to, or
agreements with, the Company or such underwriters to be made by such holders
only to those representations, warranties or agreements regarding such holder,
such holder's Shares and such holder's intended method of distribution and any
other representation required by law. Such underwriting agreement shall comply
with Section 17.4 hereof.
(h) Upon request by any holder of Warrants or Shares who has requested
that their shares be included in a registration, the Company will give such
holder and their underwriters, if any, and their respective counsel and
accountants, (i) such information regarding the preparation of such registration
statement, each prospectus included therein or filed with the Commission, and
each amendment thereof or supplement thereto, as such holder may specify, and
(ii) opportunities to discuss the business of the Company with its officers, its
counsel and the independent public accountants who have certified its financial
statements, as shall be necessary, in the opinion of such holders or such
underwriters or their respective counsel, in order to conduct a reasonable and
diligent investigation within the meaning of the Securities Act. Without
limiting the foregoing, each registration statement, prospectus, amendment,
supplement or any other document filed with respect to a registration under this
Section 17 shall be subject to review and reasonable approval by the holders
registering Shares in such registration and by their counsel.
(i) The Company will cause all of the Shares registered pursuant to
this Section 17 to be accepted for quotation to the same extent as similar
securities issued by the Company.
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17.4. Provision of Documents. The Company will, at the expense of the
Company, furnish to each holder of Warrants or Shares with respect to which
registration has been effected, such number of registration statements,
prospectuses, offering circulars and other documents incident to any
registration or qualification referred to in Section 17.1 as such holder from
time to time may reasonably request.
17.5. Indemnification. The Company will indemnify and hold harmless, to
the extent permitted by law, each holder of Warrants or Shares and any
underwriter (as defined in the Securities Act) for such holder and each person,
if any, who controls the holder or underwriter within the meaning of the
Securities Act or the Exchange Act and each of their respective directors,
officers, general partners and members against any losses, claims, damages or
liabilities, joint or several, and expenses (including reasonable attorneys'
fees and expenses and reasonable costs of investigation) to which the holder or
underwriter or such controlling person may be subject, under the Securities Act
or otherwise, insofar as any thereof arise out of or are based upon (i) any
untrue statement or alleged untrue statement of a material fact contained in (A)
any registration statement under which such Shares were registered under the
Securities Act pursuant to Section 17.1 hereof (including all documents
incorporated therein by reference), any prospectus or preliminary prospectus
contained therein, or any amendment or supplement thereto, or (B) any other
document incident to the registration of the Shares under the Securities Act or
the qualification of the Shares under any state securities laws, or (ii) the
omission or alleged omission to state in any item referred to in the preceding
clause a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any violation or alleged violation
by the Company of the Securities Act, the Securities Exchange Act or any other
federal or state securities law, rule or regulation applicable to the Company
and relating to action or inaction by the Company in connection with any such
registration or qualification, except insofar as such losses, claims, damages,
liabilities or expenses arise out of or are based upon any untrue statement or
alleged untrue statement or omission or alleged omission based upon information
furnished to the Company in writing by a selling holder of Shares or by any
underwriter for such holder expressly for use therein (with respect to which
information such holder or underwriter shall so indemnify and hold harmless the
Company, any underwriter for the Company and each person, if any, who controls
the Company or such underwriter within the meaning of the Securities Act or the
Exchange Act and each of their respective directors, officers, general partners
and members). The Company will enter into an underwriting agreement and other
agreements with the underwriter or underwriters for any offering registered
under the Securities Act pursuant to Section 17.1 hereof and with the holders of
Securities selling Shares pursuant to such offering, and such underwriting
agreement and other agreements shall contain customary provisions with respect
to indemnification and contribution which shall, at a minimum, provide the
indemnification set forth above.
17.6. Periodic Payments. The indemnification provided for in Section
17.5 shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred, upon the presentation by the indemnified
party to the indemnifying party of a statement showing the amount of expense,
loss, damage or liability for which payment is then requested.
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17.7. Indemnification Procedure. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding involving a claim referred to in Section 17.5, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action;
provided that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under Section
17.5 except to the extent that the indemnifying party is actually prejudiced by
such failure to give notice. In case any such action is brought against an
indemnified party, the indemnifying party will be entitled to participate in and
to assume the defense thereof, jointly with any other indemnifying party
similarly notified, to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party for
any legal fees and expenses subsequently incurred by the latter in connection
with the defense thereof, unless in such indemnified party's reasonable judgment
an actual or potential conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim. The indemnifying party
will not, without the prior written consent of each indemnified party, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification may be
sought hereunder (whether or not such indemnified party or any Person who
controls such indemnified party is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of such indemnified party from all liability arising out
of such claim, action, suit or proceeding. Notwithstanding anything to the
contrary set forth herein, and without limiting any of the rights set forth
above, in any event any party will have the right to retain, at its own expense,
counsel with respect to the defense of a claim.
17.8. Contribution. If the indemnification provided for in Section 17.5
is unavailable (for any reason other than a determination of its inapplicability
by a court of competent jurisdiction) to hold harmless an indemnified party
under such Section, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of the losses, claims,
damages, liabilities or expenses referred to in Section 17.5 in such proportion
as is appropriate to reflect the relative fault of the indemnifying party on the
one hand, and the indemnified party on the other, in connection with statements
or omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations, including
without limitation the relative benefits received by each party from the
offering of the securities covered by such registration statement, the parties'
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted and the opportunity to correct and prevent any
statement or omission. 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 the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statements or omission. The parties hereto agree
that it would not be just and equitable if contributions pursuant to this
Section 17.8 were to be determined by pro rata or per capita
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allocation (even if the underwriters, if any, were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the first and second sentences of
this Section 17.8. The Company and each holder of Warrants or Shares agrees with
each other and any underwriters of the Shares, if requested by such
underwriters, that (i) the underwriters' portion of such contribution shall not
exceed the underwriting discount and (ii) that the amount of such contribution
shall not exceed an amount equal to the net proceeds actually received by such
indemnifying party from the sale of securities in the offering to which the
losses, liabilities, claims, damages or expenses of the indemnified parties
relate. No Person guilty of fraudulent misrepresentation (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.
17.9. Certain Limitations in Connection with Future Grants of
Registration Rights.
(a) From and after the date of this Agreement, the Company shall not
enter into any agreement with any holder or prospective holder of any of its
Common Stock providing for the granting to such holder of demand registration
rights unless such agreement includes provisions to the effect that (i) the
Company will give the holders of Warrants and Shares notice at least thirty (30)
days prior to the filing of a registration statement pursuant to the exercise of
such rights and (ii) notwithstanding Section 17.1 hereof, if a holder of
Warrants or Shares requests inclusion of Shares (whether such Shares are held
directly or through the right to obtain such Shares upon the conversion of
Warrants held by such holder) and requests priority for such Shares in such
registration statement within thirty (30) days after receipt of such notice,
then such holder's Shares requested to be so included will be given priority
over the securities sought to be registered by the holders of such demand
registration rights if marketing factors require a limitation on the number of
securities to be included in such registration statement If a holder of Warrants
or Shares requests inclusion of its Shares (whether such Shares are held
directly or through the right to obtain such Shares upon conversion of Warrants
held by such holder), but does not request such priority for such Shares in such
registration, then such Shares shall be included in such registration statement
in the manner described in Section 17.1 hereof.
(b) From and after the date of this Agreement, the Company shall not
enter into any agreement with any holder or prospective holder of any of its
Common Stock providing for the granting to such holder of incidental or
"piggyback" registration rights unless such agreement includes provisions to the
effect that, in the case of a registered underwritten public offering of the
Company's Common Stock to which Section 17.1 hereof applies, such agreement
gives the following priority to holders of Warrants or Shares if marketing
factors require a limitation on the number of shares of Common Stock to be
included in such offering the holders of Warrants or Shares and other holders of
securities of the Company having piggyback registration rights shall have an
equal right to include securities in such registration (beyond the amount to be
included on behalf of the Company) in proportion to their relative holdings of
shares of Common Stock of the Company (whether held directly or obtainable upon
conversion or the exercise of warrants or other rights).
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SECTION 18. INDEMNIFICATION
18.1. Indemnification. Whether or not the transactions contemplated by
this Agreement are consummated, the Company hereby agrees to indemnify and hold
each Purchaser and each holder of a Note or Warrant or Share harmless (including
any of such Purchaser's or holder's affiliated companies) and any of such
Purchaser's or holder's directors, officers, employees, or agents and any person
controlling (within the meaning of Section 20(a) of the Securities Exchange Act)
such Purchaser or holder or any of its affiliated companies (collectively, the
"Indemnified Persons") from and against any and all losses, claims, damages,
liabilities, securities law penalties, and expenses whatsoever (including, but
not limited to, any and all reasonable fees and expenses whatsoever incurred by
an Indemnified Person and its attorneys in investigating, preparing for,
defending against, acting as a witness, providing evidence, producing documents,
or taking any other action in respect of any litigation or proceeding, commenced
or threatened, or any claim whatsoever), (collectively, the "Losses") arising
out of or in connection with this Agreement or any Loan Document, other than to
the extent Losses result from the negligence or misconduct of the Indemnified
Person. The foregoing indemnity shall be in addition to any other rights which
the Indemnified Persons may have against the Company otherwise than under this
paragraph. If a court shall hold for any reason that the preceding
indemnification is unavailable to any Indemnified Person as to any matter for
which it would be available if enforceable in accordance with its terms, the
Company on the one hand and the Indemnified Person on the other agree to
contribute to such loss in such proportion as is appropriate to reflect the
relative benefits and the relative fault of the Company on the one hand and of
the Indemnified Person on the other in connection with the statements, actions,
or omissions which results in such Loss, as well as any other relevant equitable
considerations.
18.2. Indemnification Procedures. If any Indemnified Party is entitled
to indemnification hereunder, such Indemnified Party shall give prompt notice to
the Company of any claim or of the commencement of any proceeding with respect
to which such Indemnified Party seeks indemnification pursuant hereto and of
which such Indemnified Party knew or reasonably should have known; provided,
however, that the failure so to notify the Company shall not relieve the Company
from any obligation or liability except to the extent that the amount owed by
the Company has been increased by such failure. The Company shall have the
right, exercisable by giving written notice to an Indemnified Person within 20
Business Days after receipt of written notice from such Indemnified Person of
such claim or proceeding, to assume, at its expense, the defense of any such
claim or proceeding; provided, however, that an Indemnified Person shall have
the right to employ separate counsel in any such claim or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Person unless: (1) the Company
agrees to pay such fees and expenses; or (2) the Company fails promptly to
assume, or to diligently pursue, the defense of such claim or proceeding (in
which case if such Indemnified Person notifies the Company in writing that it
elects to employ separate counsel at the expense of the Company, the Company
shall not have the right to assume the defense thereof, it being understood,
however, that the Company shall not, in connection with any one such claim or
proceeding or separate but substantially similar or related claims or
proceedings in the same jurisdiction, arising out of the same general
allegations or
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circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel) at any time for such
Indemnified Person). Whether or not such defense is assumed by the Company, such
Indemnified Person will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld or
delayed).
SECTION 19. DIRECT PAYMENTS
As long as the Purchaser or any payee named in the Notes delivered to
the Purchaser on the Closing Date, or any institutional holder which is a direct
or indirect transferee from the Purchaser or such payee, shall be the holder of
any Note, the Company will make payments (whether at maturity, upon mandatory or
optional prepayment, upon repurchase or otherwise) of principal, interest and
premium, if any, (i) by check payable to the order of the holder of any such
Note duly mailed or delivered to such address as the Purchaser or such other
holder may designate in writing or (ii) if requested by the Purchaser or such
other holder, by wire transfer to the Purchaser's or such other holder's (or its
nominee's) account at any bank or trust company in the United States of America,
notwithstanding any contrary provision herein or in any Note with respect to the
place of payment. IF THE PURCHASER HAS PROVIDED AN ADDRESS ON EXHIBIT A HERETO
FOR PAYMENTS BY WIRE TRANSFER, THEN THE PURCHASER SHALL BE DEEMED TO HAVE
REQUESTED WIRE TRANSFER PAYMENTS UNDER THE PRECEDING CLAUSE (ii). All such
payments shall be made in federal or other immediately available funds and shall
be transmitted by 2:00 p.m. local time at the place of payment on the day when
due.
SECTION 20. SECURITY INTEREST
20.1. Grant of Security Interest. The Company shall grant to the Agent
for the benefit of the Purchasers a security interest in the Collateral pursuant
to the Collateral Assignment. In addition, the Company shall grant to the Class
2 Purchasers a security interest in all of the following assets and rights of
the Company, wherever located, whether now owned or hereafter acquired or
arising: Accounts; Letters of Credit; Letter-of-credit rights; Inventory,
including Work in Progress; Supporting obligations; and all Proceeds and
products of the foregoing.
20.2. Subordination. The rights of the Class 2 Purchasers under the
Collateral Assignment will be subordinate to the rights of the Class 1
Purchasers under the Collateral Assignment. Specifically, in the event the
Company defaults in its obligations under the Notes or this Agreement and the
Class 2 Purchasers are not paid in full by their security interest in the
accounts receivable or letter of credit proceeds of the Company, the Class 1
Purchasers will be entitled to payment prior to any payment being made to the
Class 2 Purchasers. In addition, the rights of the Class 1 Purchasers after
April 15, 2002 will be subordinate to the rights of the Class 1 Purchasers on or
before April 15, 2002 under the Collateral Assignment. Specifically, in the
event the Company defaults in its obligations under the Class 1 Notes or this
Agreement, the Class 1 Purchasers on or before April 15, 2002 will be entitled
to payment before the Class 1 Purchasers after April 15, 2002. Class 2
Purchasers and Class 1 Purchasers after April 15, 2002
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will share ratably under the Collateral Assignment. The rights of the Class 3
Purchasers under the Collateral Assignment will be subordinate to the rights of
the Class 1 Purchasers and the Class 2 Purchasers under the Collateral
Assignment. Specifically, in the event the Company defaults in its obligations
under the Class 3 Notes or this Agreement, the Class 1 Purchasers and the Class
2 Purchasers will be entitled to payment before the Class 3 Purchasers.
SECTION 21. THE AGENT
21.1. Appointment. Each Purchaser hereby irrevocably designates and
appoints the Agent as the agent of such Purchaser under this Agreement and the
Collateral Assignment, and each such Purchaser irrevocably authorizes the Agent,
as the agent for such Purchaser, to take such action on its behalf under the
provisions of this Agreement and the Collateral Assignment and to exercise such
powers and perform such duties as are expressly delegated to the Agent by the
terms of this Agreement and the Collateral Assignment, together with such other
powers as are reasonably incidental thereto.
21.2. Fees of Agent. The Agent shall be entitled to reasonable fees for
the performance of its duties pursuant to this Agreement, which fees shall be
paid by the Company.
21.3. Application of Proceeds of the Collateral. Subject to Section
20.2, all Collateral shall be held or administered by the Agent for the ratable
benefit of the Purchasers. Any proceeds received by the Agent from the
foreclosure, sale, lease or other disposition of any of the Collateral and any
other proceeds received pursuant to the terms of the Loan Documents shall be
applied, first, to the cost of any such foreclosure, sale, lease or other
disposition including the reasonable fees of the Agent and, second, to the
payment in full of the remaining Company's Obligations pro rata in proportion to
the amount of the Company's Obligations owed first to each of the Class 1
Purchasers who purchased on or before April 15, 2002 and thereafter to each of
the remaining Class 1 Purchasers and the Class 2 Purchasers.
21.4. Delegation of Duties. The Agent may execute any of its duties
under this Agreement by or through agents or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
21.5. Reliance by Agent. The Agent may deem and treat the registered
owner of any Note as the owner thereof for all purposes. The Agent shall be
fully justified in failing or refusing to take any action under this Agreement
unless it shall first receive such advice or concurrence of the Majority
Noteholders as it deems appropriate. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement, the
Notes or any Loan Document in accordance with a request of the Majority
Noteholders, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Purchasers and all future holders of the
Notes.
21.6. Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Potential Default or Event of
Default hereunder unless the Agent has
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received notice from the Company referring to this Agreement, describing such
Potential Default or Event of Default and stating that such notice is a "notice
of default". The Agent may (but shall not be obligated to) take, or refrain from
taking, such action with respect to such Potential Default or Event of Default
as it shall deem advisable and in the best interests of the Purchasers.
21.7. Agent in Its Individual Capacity. The Agent and its Affiliates
may make loans to and generally engage in any kind of business with the Company
as though the Agent were not the Agent hereunder. With respect to any Note
issued to it, the Agent shall have the same rights and powers under this
Agreement as any Purchaser and may exercise the same as though it were not the
Agent, and the terms "Purchaser" and "Purchasers" shall include the Agent in its
individual capacity.
21.8 Conflict of Interest. Purchasers hereby acknowledge that ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C. (the "Initial Agent") serves as general counsel
to the Company and that certain duties of the Initial Agent could present a
conflict between the interest of the Company and the interests of the
Purchasers. The Initial Agent has agreed to serve as Agent as an accommodation.
In the event of any dispute between the Company and the Purchasers, it is agreed
that the Initial Agent will resign its position as Agent and that no objection
will be raised regarding the Initial Agent's representation of the Company.
21.9. Successor Agent. The Agent may resign as Agent upon 20 days
notice to the Purchasers. If the Agent resigns as Agent under this Agreement and
the other Loan Documents, then the Majority Noteholders on whose behalf such
Agent is acting shall appoint a successor agent for the Purchasers, whereupon
such successor agent shall succeed to the rights, powers and duties of the
Agent, and the term "Agent" shall mean such successor agent effective upon its
appointment, and the former Agent's rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent or any of the parties to this Agreement or any Loan Document or any
holders of the Notes. After any retiring Agent's resignation hereunder as Agent,
the provisions of this Section 21 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement and
the other Loan Documents. The Agent shall use its best efforts to notify the
Company of any such resignation; provided, however, neither the Agent nor the
Purchasers shall be held liable in any respect for the failure to provide such
notice; and further provided, however, that until the Company receives notice of
the Agent's resignation and of the appointment of a successor agent, the Company
shall be entitled to rely upon the Agent as the Agent hereunder.
SECTION 22. NOTICES
Unless otherwise expressly permitted by the terms hereof, all notices,
requests, demands, consents and other communications hereunder or under the Loan
Documents shall be in writing and shall be delivered by hand or shall be sent by
telex or telecopy (confirmed by registered, certified or overnight mail or
courier, postage and delivery charges prepaid or shall be sent by overnight mail
or courier (postage and delivery charges prepaid), to the following addresses:
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(a) if to the Purchaser, at the Purchaser's address as set forth in
Exhibit A hereto, or at such other address as may have been furnished to the
Company by the Purchaser in writing; or
(b) if to any other holder of a Note or Warrant, at such address as the
payee or registered holder thereof shall have designated to the Company in
writing; or
(c) if to the Company, at ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇ ▇▇▇▇▇-▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, telephone: ▇▇▇-▇▇▇-▇▇▇▇, fax:
▇▇▇-▇▇▇-▇▇▇▇ or at such other address as may have been furnished in writing by
the Company to the Agent, the Purchasers and the other holders of Notes or
Warrants; or
(d) if to the Agent, at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇,
Attention: J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, telephone: ▇▇▇-▇▇▇-▇▇▇▇, fax: ▇▇▇-▇▇▇-▇▇▇▇ or at
such other address as may have been furnished in writing by the Agent to the
Company, the Purchasers and the other holders of Notes or Warrants.
Whenever any notice is required to be given hereunder, such notice
shall be deemed given and such requirement satisfied only when such notice is
delivered or, if sent by telex or telecopier, when received, unless otherwise
expressly specified or permitted by the terms hereof.
SECTION 23. MISCELLANEOUS
23.1. Entire Agreement. This Agreement and the Loan Documents, together
with any further agreements entered into by the Purchaser and the Company at the
Closing, contain the entire agreement between the Purchaser and the Company, and
supersede any prior oral or written agreements, commitments, terms or
understandings, regarding the subject matter hereof.
23.2. Survival. All agreements, representations and warranties
contained herein in an; Loan Document or any document or certificate delivered
pursuant hereto or thereto shall survive, and shall continue in effect
following, the execution and delivery of this Agreement and of such Loan
Documents, the closings hereunder and thereunder, any investigation at any time
made by the Purchasers or on their behalf or by any other Person, the issuance,
sale and delivery of the Notes and the Warrants, any disposition thereof, any
payment or cancellation of the Notes, and any exercise of the Warrants;
provided, that Sections 7 and 8 shall terminate upon the payment in full of all
outstanding Notes. All statements contained in any certificate or other document
delivered by or on behalf of the Company pursuant hereto shall constitute
representations and warranties by the Company hereunder.
23.3. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument, and all signatures need not appear on any one
counterpart.
23.4. Headings. The headings and captions in this Agreement are for
convenience of
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reference only and shall not define, limit or otherwise affect any of the terms
or provisions hereof.
23.5. Binding Effect and Assignment.
(a) The terms of this Agreement shall be binding upon, and inure to the
benefit of, the parties and their respective successors and permitted assigns
whether so expressed or not.
(b) The Company may not assign any of its obligations, duties or rights
under any of the Loan Documents, except pursuant to Section 8.3 hereof or with
the Majority Noteholders' consent, which shall not be unreasonably withheld.
(c) In addition to any assignment by operation of law, a Purchaser may
assign, in whole or in part, any or all of its rights (and/or obligations) under
this Agreement and any of the Loan Documents to any transferee of any or all of
its Notes, Warrants or Shares, subject to the terms of Section 16 hereof, and
(unless such assignment expressly provides otherwise) any such assignment shall
not diminish the rights the Purchaser would otherwise have under this Agreement
or with respect to any remaining Notes, Warrants or Shares held by the
Purchaser.
23.6. Severability. Any provision of this Agreement or of any Loan
Document which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
thereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
To the extent permitted by applicable law, the parties hereby waive any
provision of law which may render any provision hereof prohibited or
unenforceable in any respect.
23.7. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Michigan (other than any conflict
of laws rule which might result in the application of the laws of any other
jurisdiction).
23.8. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. THE PARTIES
HEREBY CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN
THE STATE OF MICHIGAN AND IRREVOCABLY AGREE THAT ALL ACTIONS OR PROCEEDINGS
RELATING TO THE LOAN DOCUMENTS MAY BE LITIGATED IN SUCH COURTS. THE PARTIES
ACCEPT GENERALLY AND UNCONDITIONALLY THE EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND WAIVE ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREE TO
BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LOAN
DOCUMENTS. THE PARTIES HEREBY AGREE THAT SERVICE UPON THEM BY MAIL AT THE
ADDRESSES PROVIDED IN SECTION 22 HEREOF SHALL CONSTITUTE SUFFICIENT NOTICE AND
SERVICE OF PROCESS IN ANY SUCH PROCEEDING. NOTHING HEREIN SHALL AFFECT THE RIGHT
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
-54-
..
23.9. WAIVER OF JURY TRIAL. THE COMPANY AND THE PURCHASERS HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF ANY LOAN DOCUMENT, OR ANY DEALINGS BETWEEN THEM RELATING
TO THE SUBJECT MATTER OF THIS TRANSACTION. THE COMPANY AND THE PURCHASERS ALSO
WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS
WAIVER, BE REQUIRED OF THE PURCHASERS. THE SCOPE OF THIS WAIVER IS INTENDED TO
BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND
THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. THE COMPANY AND THE PURCHASERS FURTHER WARRANT
AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND
THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER
-55-
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT PAYMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO (OR ASSIGNMENTS OF) ANY LOAN DOCUMENT.
IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO
A TRIAL (WITHOUT A JURY) BY THE COURT.
IN WITNESS WHEREOF, the parties hereto have caused this Note and
Warrant Purchase Agreement to be executed effective as to each Purchaser on the
date indicated beside their signature on Exhibit A.
Integral Vision, Inc.
--------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Chairman of the Board
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C.
As Agent for the Purchasers
------------------------------
J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
President
(Signatures for the Purchasers appear on Exhibit A)
-56-
EXHIBIT A
List of Purchasers
Principal Number Conversion Price
Name and Address Amount of Note of Warrants Per Share
---------------- -------------- ----------- ----------------
A - 1
EXHIBIT B
Form of Class 1 Note
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER ANY APPLICABLE REGULATION OF ANY STATE AND IS NOT TRANSFERABLE EXCEPT
UPON THE CONDITIONS SPECIFIED IN SECTION 16 OF THE PURCHASE AGREEMENT REFERRED
TO HEREIN.
INTEGRAL VISION, INC.
10% Secured Note
Due _____________
Dated ______________
Farmington Hills, Michigan
No. __
FOR VALUE RECEIVED, the undersigned INTEGRAL VISION, INC., a Michigan
corporation (herein, together with any successor, referred to as the "Company"),
hereby promises to pay to __________________________________, a ______________
______________________ of ____________ _________________________, (the "Payee")
or registered assigns, the principal sum of__________ _______________ Dollars
($___________.00) in quarterly installments of principal of __________________
___________ Dollars ($_________.00) beginning on _____________ and thereafter on
the 30th day of September, December, March and June of each year to and
including __________________, and shall pay in full the remaining principal
amount of all Notes then outstanding on the maturity date of _______________,
plus interest (computed on the basis of the actual number of days elapsed over a
360-day year) on the unpaid balance of such principal sum from the date hereof
at the interest rate of 10% per annum, payable quarterly on the 30th day of
March, June, September and December of each year, commencing ________________
(which first interest payment shall be for the period from and including the
date hereof through and including ______________) until the entire principal
amount hereof shall have become due and payable, whether at maturity or at a
date fixed for prepayment or by acceleration or declaration or otherwise, and at
the Default Rate on any overdue installment of principal (including any overdue
prepayment of principal) and on any overdue premium and (to the extent permitted
by law) on any overdue installment of interest until paid. The Default Rate
shall be equal to the per annum interest rate on this Note, plus four percent
(4%).
Capitalized terms not otherwise defined herein shall have the meaning
ascribed thereto in the Note and Warrant Purchase Agreement dated effective as
of _______________ (the "Purchase Agreement"), by and among the Company, the
Agent, the Payee and the other Purchasers named therein.
If any payment due hereunder becomes due and payable on a day which is
not a Business Day, the due date thereof shall be the next day which is a
Business Day, and the interest payable on
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such next Business Day shall be the interest accruing through such actual date
of payment.
Payments of principal and interest shall be made in lawful money of the
United States of America, and may be paid by check mailed, or shall be made by
wire transfer, all as provided in the Purchase Agreement, to the address or
account designated by the holder hereof for such purpose.
This Note is one of a duly authorized issue of Notes issued to the
Purchasers pursuant to the Purchase Agreement. This Note is subject to the
provisions of and is entitled to the benefits of the Purchase Agreement. Each
holder of this Note, by accepting the same, agrees to and shall be bound by the
provisions of the Purchase Agreement.
The obligations of the Company under this Note (and under the Purchase
Agreement) are secured by the Collateral. The existence of such Collateral does
not in any way reduce or restrict the rights and remedies available to a holder
of this Note whether such rights and remedies arise under this Note, the
Purchase Agreement or otherwise.
This Note is transferable only upon the terms and conditions specified
in the Purchase Agreement.
In case an Event of Default shall occur and be continuing, all amounts
then remaining unpaid on this Note shall become or may be declared due and
payable in the manner and with the effect provided in the Purchase Agreement.
No reference herein to the Purchase Agreement and no provision hereof
or thereof shall alter or impair the obligations of the Company, which are
absolute and unconditional, to pay the principal hereof and interest hereon at
the respective times and places specified herein and in the Purchase Agreement.
This Note is delivered in and shall be construed and enforced in
accordance with and governed by the laws of the State of Michigan (other than
any conflict of laws rules which might result in the application of laws of any
other jurisdiction).
Subject to the provisions of the Purchase Agreement, the Company may
treat the person in whose name this Note is registered as the owner and holder
of this Note for the purpose of receiving payment of principal of, premium, if
any, and interest on this Note and for all other purposes whatsoever, and the
Company shall not be affected by any notice to the contrary (except that the
Company shall comply with the provisions of the Purchase Agreement regarding the
issuance of a new Note or Notes to permitted transferees).
(Signed on the next page)
INTEGRAL VISION, INC. has caused this Note to be dated and to be
executed and issued on its behalf by its officer thereto duly authorized.
B-2
INTEGRAL VISION, INC.
By_____________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chairman of the Board
B-3
EXHIBIT C
Form of Class 1 Warrant
No. __
THIS WARRANT CERTIFICATE (AND THE COMMON STOCK OR OTHER SECURITIES ISSUABLE UPON
EXERCISE HEREOF) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
UNDER ANY APPLICABLE REGULATION OF ANY STATE AND ARE NOT TRANSFERABLE EXCEPT
UPON THE CONDITIONS SPECIFIED IN SECTION 16 OF THE PURCHASE AGREEMENT REFERRED
TO HEREIN.
INTEGRAL VISION, INC.
Common Stock Purchase Warrant Certificate
Dated _____________
Farmington Hills, Michigan
FOR VALUE RECEIVED, the undersigned INTEGRAL VISION, INC., a Michigan
corporation (herein referred to as the "Company"), hereby certifies and agrees
that _________________________, a _______________________ of _________________
________________________ __________________________ or registered assigns, is
entitled to purchase from the Company up to an aggregate of __________________
_________________________________ (_______________) duly authorized, validly
issued, fully paid and nonassessable shares of the Company's Common Stock, no
par value, or any stock into which such Common Stock shall have been changed or
any stock or other securities resulting from a reclassification thereof (all
such shares, stock or other securities which may be purchased by this, and all
other, Warrants are herein known as the "Shares") at a purchase price per Share
of $_____ at any time and from time to time from the date hereof until 5:00 p.m.
on the fourth anniversary of the date hereof. The foregoing agreement and rights
are all subject to the terms, conditions and adjustments (in both the number of
Shares and the purchase price per Share) set forth below in this Warrant
Certificate.
This Warrant Certificate is one of the Common Stock Purchase Warrant
Certificates (the "Warrants", which term includes all Warrants issued in
substitution therefor) originally issued in connection with the issue and sale
by the Company of its 10% Secured Notes (the "Notes"). The Warrants and the
Notes have been issued pursuant to the Note and Warrant Purchase Agreement dated
effective as of the Closing Date for each Purchaser (the "Purchase Agreement")
among the Company and the Purchasers named therein. The Warrants originally so
issued evidence rights to purchase an aggregate of ________ shares at an
exercise price of $____ per share, subject to adjustment as provided herein.
This Warrant is subject to the provisions, and is entitled to the benefits, of
the Purchase Agreement, including, without limitation, the registration rights
provisions contained therein. Capitalized terms used without definition herein
are as defined in the Purchase Agreement.
The Company represents that all Shares to which the holders of the
Warrants shall be
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entitled upon the exercise thereof (i) are duly authorized by the Articles of
Incorporation of the Company in accordance with the laws of the State of
Michigan, (ii) have been duly authorized to be issued upon the exercise of the
Warrants from time to time in whole or in part, (iii) will be, when issued in
accordance with the terms of the Warrants, duly authorized and validly issued
and fully paid and nonassessable and free and clear of all Liens and rights of
others whatsoever (other than Liens and rights of others claiming by, through or
under the holder hereof) and (iv) will not be at the time of such exercise
subject to any restrictions on transfer or sale except as provided by applicable
laws.
Section 1. Exercise of Warrant.
1. 1. Manner of Exercise.
(a) This Warrant may be exercised by the holder hereof, in whole or in
part, during normal business hours on any Business Day by surrender of this
Warrant, together with the form of subscription attached as Annex A hereto (or a
reasonable facsimile thereof) duly executed by such holder in substantially such
form, to the Company at its office designated pursuant to the Purchase Agreement
(or, if such exercise is in connection with an underwritten public offering of
Shares subject to this Warrant, at the location at which the underwriting
agreement requires that such Shares be delivered).
(b) Payment of the exercise price for Shares shall be made, at the
option of the holder (i) as provided in Section 1.5 hereof, or (ii) by check or
wire transfer payable to the order of the Company, in any case, in an amount
equal to (A) the number of Shares specified in such form of subscription,
multiplied by (B) the then current exercise price. Such holder shall thereupon
be entitled to receive the number of Shares specified in such form of
subscription (plus cash in lieu of any fractional share as provided in Section
1.3 hereof).
1.2. Effective Date. Each exercise of this Warrant pursuant to Section
1.1(a) hereof shall be deemed to have been effected immediately prior to the
close of business on the Business Day on which this Warrant is surrendered to
the Company as provided in Section 1.1 hereof (except that if such exercise is
in connection with an underwritten public offering of Shares subject to this
Warrant, then such exercise shall be deemed to have been effected upon such
surrender of this Warrant), and such exercise shall be at the current exercise
price in effect at such time. On each such day that an exercise of this Warrant
is deemed effected, the Person or Persons in whose name or names any certificate
or certificates for Shares are issuable upon such exercise (as provided in
Section 1.3 hereof) shall be deemed to have become the holder or holders of
record thereof.
1.3. Share Certificates; Cash for Fractional Shares; and Reissuance of
Warrants. As promptly as practicable after the exercise of this Warrant, in
whole or in part, and in any event within five (5) Business Days thereafter
(unless such exercise shall be in connection with a public offering of Shares
subject to this Warrant, in which event concurrently with such exercise), the
Company at its expense (including the payment by it of any applicable issue,
stamp
C-2
or other taxes) will cause to be issued in the name of and delivered to the
holder hereof or such other person as such holder may direct:
(a) a certificate or certificates for the number of Shares to which
such holder shall be entitled upon such exercise plus, in lieu of any fractional
share to which such holder would otherwise be entitled, cash in an amount equal
to the same fraction of the Market Price per Share (determined in accordance
with Section 2.2(f) hereof) on the effective date of such exercise; and
(b) in case such exercise is in part only, a new Warrant or Warrants of
like tenor, calling in, the aggregate on the face or faces thereof for the
number (which may be fractional) of Shares (without giving effect to any
adjustment therein) equal to the number of such Shares called for on the face of
this Warrant minus the number of Shares obtained upon such exercise.
1.4. Acknowledgment of Obligation. The Company will, at the time of or
at any thereafter each exercise of this Warrant, upon the request of the holder
hereof or of any Shares issued upon such exercise, acknowledge in writing its
continuing obligation to afford to such holder all rights (including, without
limitation, any rights to registration of any such Shares pursuant to the
Purchase Agreement) to which such holder shall continue to be entitled under
this Warrant and the Purchase Agreement; provided, that if any such holder shall
fail to make any such request, the failure shall not affect the continuing
obligation of the Company to afford such rights to such holder.
1.5. Notes. The holder shall have the option, but not the obligation,
upon any exercise of this Warrant, to apply to the payment required by Section
1. 1 hereof all or any part of the accrued and unpaid interest on, or principal
of, any Notes at the time held by the holder. The Company will accept the amount
of accrued and unpaid interest or principal, if such election is selected,
specified in the form of subscription in satisfaction of the exercise price for
such Shares to be purchased. The holder shall have the right to apply all or any
portion of such accrued and unpaid interest or principal to exercise all or any
portion of this Warrant whether or not payment on the Notes is otherwise
prohibited.
1.6. Restriction. The holder acknowledges that the Shares acquired upon
exercise of the Warrant will be "restricted securities" as that term is defined
under the regulations promulgated under the Securities Act, will not be saleable
in the absence of an effective registration statement under the Securities Act
or an exemption from registration, and accordingly may be required to be held
for an indefinite period of time. The holder agrees that Shares issued pursuant
hereto may contain the following legend on the face thereof: "This security has
not been registered pursuant to the Securities Act of 1933, as amended, and each
holder of this security by the acceptance hereof agrees that this security shall
not be transferred in violation of said Act." The Company agrees that such
legend shall be removed from any Shares which are no longer subject to such
restrictions.
Each holder of a Warrant by acceptance thereof agrees that it will not
sell or otherwise dispose of any Warrants or Shares unless such Warrants or
Shares have been registered under, or
C-3
have been sold pursuant to an exemption from registration under, the Securities
Act. As a condition to the Company's obligation to issue a new Warrant to a
transferee thereof which (x) is not a holder of a Warrant, the transferor must
certify to the Company the facts on which the transferor is relying for such
exemption or (y) is a holder of a Warrant, the transferor must represent to the
Company in writing that the transfer is so exempt, and in either case the
transferor must provide an opinion from an attorney reasonably satisfactory to
the Company that the requirement for the exemption have been met.
Section 2. Current Exercise Price and Adjustments.
2.1 Current Exercise Price. The term "current exercise price" shall
mean initially $0.35 per Share, subject to adjustment from time to time as
hereinafter provided, in effect at any given time. In determining the current
exercise price, the result shall be expressed to the nearest $.01, but any such
lesser amount shall be carried forward and shall be considered at the time of
and together with the next subsequent adjustment which, together with any
adjustments being carried forward, shall amount to $.01 per Share or more.
2.2. Adjustment of Current Exercise Price. The current exercise price
shall be subject to adjustment, from time to time (but not below zero), as
follows:
(a) Adjustments for Stock Dividends, Recapitalization, etc. In the
event the Company shall, after the Closing Date, issue any shares of Common
Stock (i) by stock dividend or any other distribution upon the stock of the
Company payable in Common Stock or in securities convertible into or exercisable
or exchangeable for shares of Common Stock or (ii) in subdivision of its
outstanding Common Stock, by reclassification or otherwise, the current exercise
price then in effect shall be reduced proportionately; and, in like manner, in
the event of any combination of shares of Common Stock, by reclassification or
otherwise, the current exercise price then in effect shall be increased
proportionately. An adjustment made pursuant to this Section 2.2(a) shall become
effective retroactively immediately after the record date in the case of a
dividend or other distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination.
(b) Adjustments for Issuance of Additional Stock. Subject to the
exception referred to in Section 2.2(d) hereof and except as otherwise provided
for in Section 2.2(a) hereof, in case the Company shall at any time or from time
to time after the Closing Date issue any additional shares of its Common Stock
("Additional Common Stock") (i) for consideration per share less than the then
current Market Price per share of the Company's Common Stock (determined as
provided in Section 2.2(f) hereof) immediately prior to the issuance of such
Additional Common Stock, or (ii) without consideration, then upon demand of the
Majority Holders (as defined below), in the case of either clause (i) or (ii),
and thereafter successively upon each such issuance, the current exercise price
shall forthwith be reduced to a price determined by multiplying such current
exercise price by a fraction, of which
(A) the numerator shall be (i) the number of shares of the
Company's Common
C-4
Stock outstanding immediately prior to such issuance of shares
of Additional Common Stock plus (ii) the number of shares of
the Company's Common Stock which the aggregate amount of
consideration, if any, received by the Company for the total
number of shares of Additional Common Stock so issued would
purchase at the greater of (x) the Market Price per share of
the Company's Common Stock in effect immediately prior to such
issuance of shares of Additional Common Stock or (y) the
exercise price per Share in effect immediately prior to such
issuance of shares of Additional Common Stock, and
(B) the denominator shall be the number of shares of the
Company's Common Stock outstanding immediately after such
issuance of shares of Additional Common Stock,
provided, however, that such adjustment shall be made only if the current
exercise price determined from the aforesaid fraction shall be less than the
current exercise price in effect immediately prior to the issuance of such
Additional Common Stock. The adjustment described in this Section 2.2(b) shall
be made whenever such Common Stock is issued, and shall become effective
retroactively immediately after the date on which the Company committed to make
such issuance.
(c) Certain Rules in Applying the Adjustment for Additional Stock
Issuances. For purposes of any adjustment as provided in Section 2.2(b), the
following provisions shall also be applicable:
(1) Cash Consideration. In case of the issuance of Additional Common
Stock for cash, the consideration received by the Company therefor shall be
deemed to be the net cash proceeds received by the Company for such Additional
Common Stock after deducting any commissions or other expenses paid or incurred
by the Company for any underwriting of, or otherwise in connection with the
issuance of, such Additional Common Stock.
(2) Non-Cash Consideration. In case of the issuance (other than
application of obligations of the Company) of Additional Common Stock for a
consideration other than cash, or a consideration a part of which shall be other
than cash, the amount of the consideration other than cash so received or to be
received by the Company shall be deemed to be the value of such consideration at
the time of its receipt by the Company as determined in good faith by the Board
of Directors of the Company, provided, that where the non-cash consideration
consists of the cancellation, surrender or exchange of outstanding obligations
of the Company (or where such obligations are otherwise converted into shares of
the Company's Common Stock), the value of the non-cash consideration shall be
deemed to be the amount, including principal and any accrued interest, as of the
time of the Company's receipt, of the obligations canceled, surrendered,
satisfied, exchanged or converted. If the Company receives consideration, part
or all of which consists of publicly traded securities, the value of such
non-cash consideration shall be the aggregate market value of such securities
(based on the latest reported trades) as of the close of the day immediately
preceding the date of their receipt by the Company.
C-5
(3) Options, Warrants, Convertibles, etc. In case of the issuance
(other than by way of a Distribution on Common Stock pursuant to Section 2.2(b)
hereof), whether by distribution or sale to holders of its Common Stock or to
others, by the Company of (i) any security that is convertible into the
Company's Common Stock or (ii) any rights, options or warrants to purchase the
Company's Common Stock (except for the Warrants), if inclusion thereof would
result in a current exercise price lower than if excluded, the Company shall be
deemed to have issued, for the consideration described below, the number of
shares of the Company's Common Stock into which such convertible security may be
converted when first convertible, or the number of shares of the Company's
Common Stock deliverable upon the exercise of such rights, options or warrants
when first exercisable, as the case may be (and such shares shall be deemed to
be Additional Common Stock for purposes of Section 2.2(b) hereof). The
consideration deemed to be received by the Company at the time of the issuance
of such convertible securities or such rights, options or warrants shall be the
consideration so received determined as provided in Sections 2.2(c)(1) and (2)
hereof deducting any commissions or other expenses paid or incurred by the
Company for any underwriting of, or otherwise in connection with, the issuance
of such convertible securities or rights, options or warrants, plus (x) any
consideration or adjustment payment to be received by the Company in connection
with such conversion, or, as applicable, (y) the aggregate price at which shares
of the Company's Common Stock are to be delivered upon the exercise of such
rights, options or warrants when first exercisable (or, if no price is specified
and such shares are to be delivered at an option price related to the Market
Price of the subject Common Stock, an aggregate option price bearing the same
relation to the Market Price of the subject Common Stock at the time such
rights, options or warrants were granted). In case any such securities, rights,
options or warrants shall be issued in connection with the issue or sale of
other securities of the Company comprising one integral transaction in which no
specific consideration is allocated to such securities, rights, options or
warrants, such securities, rights, options or warrants shall be deemed to have
been issued without consideration. If, subsequently, (1) such number of shares
into which such convertible security is convertible, or which are deliverable
upon the exercise of such right, options or warrants, is increased or (2) the
conversion or exercise price of such convertible security, rights, options or
warrants is decreased, then the calculations under the preceding two sentences
(and any resulting adjustment to the current exercise price under 2.2(b) hereof)
with respect to such convertible security, rights, options or warrants, as the
case may be, shall be recalculated as of the time of such issuance but giving
effect to such changes (but any such recalculation shall not result in the
current exercise price being higher than that which would be calculated without
regard to such issuance). On the expiration or termination of such rights,
options or warrants, or rights to convert, the current exercise price hereunder
shall be readjusted (up or down as the case may be) to such current exercise
price as would have been obtained had the adjustments made upon the issuance of
such rights, options, warrants or convertible securities been made upon the
basis of the delivery of only the number of shares of the Company's Common Stock
actually delivered upon the exercise of such rights, options or warrants or upon
the conversion of any such securities and at the actual exercise or conversion
prices (but any such recalculation shall not result in the current exercise
price being higher than that which would be calculated without regard to such
issuance).
(4) Number of Shares Outstanding. The number of shares of the Company's
Common
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Stock as at the time outstanding shall exclude all shares of the Company's
Common Stock then owned or held by or for the account of the Company or any of
its Subsidiaries but shall include the aggregate number of shares of the
Company's Common Stock at the time deliverable in respect of the convertible
securities, rights, options and warrants referred to in Section 2.2(c)(3));
provided, that to the extent that such rights, options, warrants or conversion
privileges are not exercised, such shares of Common Stock shall be deemed to be
outstanding only until the expiration dates of the rights, warrants, options or
conversion privileges or the prior cancellation thereof.
(d) Exclusions from the Adjustment for Additional Stock Issuances. No
adjustment of the current exercise price under Section 2.2(b) hereof shall be
made as a result of or in connection with the issuance of Shares upon exercise
of the Warrants or the exercise of options to purchase shares of the Company's
Common Stock pursuant to options granted to certain employees or agents of the
Company pursuant to the Company's stock option plans. To the extent that the
issuance (or deemed issuance) of the Company's Common Stock shall not result in
any adjustment of the current exercise price pursuant to the provisions of this
Section 2.2(d), then such Common Stock shall not be taken into account for
purposes of determining any fraction referred to in Section 2.2(b) hereof.
(e) Accountants' Certification. Whenever the current exercise price is
adjusted as provided in this Section 2.2, the Company will promptly obtain a
certificate of a firm of independent public accountants of recognized national
standing selected by the Board of Directors of the Company (who may be the
regular auditors of the Company) setting forth the current exercise price as so
adjusted, the computation of such adjustment and a brief statement of facts
accounting for such adjustment, and will mail to the holders of the Warrants a
copy of such certificate from such firm of independent public accountants.
(f) Determination of Market Price. The current "Market Price" per share
of the Company's Common Stock on any date shall be deemed to be the average of
the daily closing prices for the twenty (20) consecutive trading dates ending on
the trading day before such date. The closing price for each day shall be the
last reported sale price or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, in either case on the principal
national United States securities exchange on which the Company's Common Stock
is listed or admitted to trading, or if the Company's Common Stock is not listed
or admitted to trading on any such national securities exchange, the average of
the highest reported bid and lowest reported asked prices as furnished by the
National Association of Securities Dealers Inc., Automated Quotation System
Level I, or comparable system. If the closing price cannot be so determined, the
Market Price shall be determined:
(x) by the written agreement of the Company and the holders of
Warrants representing a majority of the Shares then obtainable
from the exercise of outstanding Warrants (the "Majority
Holders"); or
(y) in the event that no such agreement is reached within
fifteen (15) days after the
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event giving rise to the need to determine the Market Price,
by a nationally recognized U.S. investment banking firm,
selected by the Company ("Company Appraiser") not more than 5
Business Days after the end of such 15 day period. Any
appraiser appointed pursuant to this paragraph shall be
instructed to make its determination as promptly as possible
and in any event within 30 days of appointment. If no such
selection is made within such period, then the Majority
Holders shall as promptly as possible select such a firm whose
determination shall be final and binding. If such selection is
timely made by the Company, and the Majority Holders do not
object to the Market Price as determined by the Company
Appraiser within 10 days of receipt of notice thereof by all
holders of Warrants, then the Market Price as determined by
the Company Appraiser shall be the Market Price. If the
Majority Holders do so object to the Company Appraiser's
determination of Market Price, then the Majority Holders can
select a nationally recognized U.S. investment banking firm
("Alternate Appraiser") to review the Company Appraiser's
report and other relevant information. Within 10 days after
receipt by the Alternate Appraiser of such report and such
other information as is reasonably requested by the Alternate
Appraiser, the Company Appraiser and Alternate Appraiser shall
communicate and/or meet to resolve any questions or
differences with respect to the Market Price. If such
appraisers agree on a Market Price, such Market Price shall be
the Market Price. If no agreement is reached then the Company
Appraiser and Alternate Appraiser shall select a third
nationally recognized firm ("Third Appraiser"). If the Company
Appraiser and the Alternate Appraiser cannot agree on a Third
Appraiser within 20 days of the end of such 10 day period,
either may apply to the American Arbitration Association to
appoint the Third Appraiser. The Third Appraiser shall, within
30 days of its hire, issue a report with its determination of
Market Price which shall be conclusive and binding. All
expenses of the Company Appraiser shall be borne by the
Company. All expenses of the Alternate Appraiser shall be
borne by the holders of the Warrants. All expenses of the
Third Appraiser shall be borne equally by the Company and the
holders of the Warrants.
Market Price shall be determined on the basis of the fair
market value of the Company as if it were sold as a going
concern on the date of valuation and without regard to the
lack of any trading market for, or the lack of liquidity in,
the Common Stock of the Company.
The Company shall cooperate, and shall provide all necessary
information and assistance, to permit any determination under
the preceding clause (x) or (y).
Each Appraiser shall be instructed to use its best efforts to
give the Company and all holders reasonable advance notice of
the Market Price and the contents of its report (by delivering
a draft report) before the report is delivered in final form.
Any communications or reports by an Appraiser to either the
Company or any of the holders regarding Market Price shall be
given simultaneously to both the
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Company and all of the holders.
(g) Reorganization Adjustments. In case of any capital reorganization
or reclassification of the capital stock of the Company (other than a change in
par value or a stock split-up), the holder of this Warrant shall thereafter be
entitled to purchase for the current exercise price the securities and property
receivable upon such capital reorganization or reclassification by a holder of
the number of shares of Common Stock which this Warrant entitled the holder
hereof to purchase immediately prior to such capital reorganization or
reclassification. In the event that at any time, as a result of an adjustment
made pursuant to this Section 2.2(h), the holder of this Warrant shall become
entitled to purchase any other securities or property other than Common Stock,
thereafter the number of such other securities or property so purchasable upon
exercise of this Warrant and the current exercise price shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in this
Section 2.2.
(h) Other Adjustments. Without limiting any provisions of this Section
2.2 or any other provisions of this Warrant, in case any event shall occur as to
which any of the provisions of this Section 2.2 are not strictly applicable but
the failure to make any adjustment would not fairly protect the exercise rights
represented by the Warrants in accordance with the intent and principles of this
Section 2.2, the Company shall at its expense appoint a firm of independent
public accountants of recognized national standing selected by the Board of
Directors of the Company (who may be the regular auditors of the Company), and
reasonably satisfactory to the Majority Holders, which shall give their opinion
upon the adjustment, if any, on a basis consistent with the intent and
principles established in this Section 2.2, necessary to preserve, without
dilution, the economic and other rights represented by the Warrants. Upon
receipt of such opinion, the Company will promptly mail copies thereof to the
holders of the Warrants and shall make the adjustments described therein.
(i) Meaning of "Issuance". References in this Warrant to "issuance" of
stock by the Company include issuances by the Company of previously unissued
shares and issuances, sales or other transfers by the Company of treasury stock.
Section 3. Company's Consolidation or Merger. If the Company shall at
any time consolidate with or merge into another entity (where the Company is not
the continuing corporation after such merger or consolidation), the holder of a
Warrant shall thereafter be entitled to receive, upon the exercise thereof in
whole or in part, the securities or other property to which (and upon the same
terms and with the same rights as) a holder of the number of Shares then
deliverable upon the exercise thereof would have been entitled upon such
consolidation or merger (subject to adjustments under Section 2.2 hereof), and
the Company shall take such steps in connection with such consolidation or
merger as may be necessary to assure such holder that the provisions of the
Warrants and the Purchase Agreement shall thereafter be applicable in relation
to any securities or property thereafter deliverable upon the exercise of this
Warrant, including, but not limited to, obtaining a written acknowledgment from
the continuing entity of its obligation to supply such securities or property
upon such exercise and to be so bound by the
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Warrant and the Purchase Agreement. A sale, transfer or lease (in one, or a
series of related, transactions) of all or substantially all of the assets of
the Company to another person shall be deemed a consolidation or merger for the
foregoing purposes.
Section 4. Notice to Holders of Warrants.
In case at any time:
(i) the Company shall take any action which would require an adjustment
in the current exercise price pursuant to Section 2.2(a), (b), (j), (h) or (i);
or
(ii) there shall be any capital reorganization or reclassification of
the Company's Common Stock (other than a change in par value or from par value
to no par value or from no par value to par value of the Common Stock), or any
consolidation or merger to which the Company is a party and for which approval
of any stockholders of the Company is required, or any sale, transfer or lease
(in one, or a series of related, transactions) of all or substantially all of
the assets of the Company; or
(iii) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give written notice to
the holders of the Warrants, not less than twenty (20) days before any record
date or other date set for definitive action, of the date on which such action,
reorganization, reclassification, sale, transfer, lease, consolidation, merger,
dissolution, liquidation or winding-up, as the case may be, and the terms
thereof.
Section 5. Number of Shares. No adjustment of the current exercise
price will increase the number of Shares which a holder will be entitled to
purchase.
Section 6. No Rights or Liabilities as Stockholder. Nothing contained
in this Warrant shall be construed as conferring upon the holder hereof any
rights as a stockholder of the Company (prior to exercise of all or a portion of
this Warrant) or as imposing any liabilities on such holder to purchase any
securities or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors or stockholders of the Company or
otherwise.
Section 7. Ownership; Transfer. The Company may treat the Person in
whose name this Warrant is registered pursuant to the Purchase Agreement as the
owner and holder of this Warrant for all purposes, and the Company shall not be
affected by any notice to the contrary (except that the Company shall comply
with the provisions of the Purchase Agreement regarding the issuance of a new
Warrant or Warrants to transferees). This Warrant is transferable upon the
conditions specified in the Purchase Agreement.
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Section 8. Covenants
8.1. Information Requirements. The Company will provide to each holder
of Warrants or Shares, promptly after the same are available, copies of each
annual report, proxy or financial statement or other communication sent to the
Company's or a Subsidiary's stockholders and copies of all annual, regular,
periodic and special reports and registration statements which the Company may
file or be required to file with the Securities and Exchange Commission or with
any securities exchange or the National Association of Securities Dealers, Inc.
8.2. Reservation of Shares. There have been reserved, and the Company
shall at all times keep reserved, out of its authorized Common Stock, a number
of shares of Common Stock sufficient to provide for the exercise of the rights
of purchase represented by the then outstanding Warrants.
8.3. No Dilution or Impairment. The Company will not, by amendment of
its Certificate of Incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant. The Company will at all times in good faith
assist in the carrying out of all such terms, and in the taking of all such
action, as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not permit the par value
of any shares of Common Stock receivable upon the exercise of this Warrant to
exceed the amount payable therefor upon such exercise, (b) will take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of the Company's Common
Stock, free from all taxes, Liens and charges with respect to the issue thereof,
upon the exercise of this Warrant from time to time outstanding and (c) will not
take any action which results in any adjustment of this current exercise price
under this Warrant if the total number of shares of the Company's Common Stock
(or other securities) issuable after the action upon the exercise of all of the
Warrants would exceed the total number of shares of Common Stock (or other
securities) then authorized by the Company's Certificate of Incorporation and
available for the purpose of issue upon such exercise.
8.4. Listing of Shares. If the Company shall list any shares of its
Common Stock on any national securities exchange, it will take such action as
may be necessary, from time to time, to list the Shares, subject to issuance, on
such exchange.
8.5. Securities Exchange Act Registration. At any time that the Company
either files and such filing becomes effective, or is required to file, a
registration statement with respect to Common Stock of the Company under Section
5 of the Securities Act or Section 12(b) or Section 12(g) of the Securities
Exchange Act, then thereafter:
(a) The Company will maintain effective a registration statement
(containing such information and documents as the Commission shall specify and
otherwise complying with the
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Securities Exchange Act) with respect to the Common Stock of the Company under
Section 12(b) or Section 12(g), whichever is applicable, of the Securities
Exchange Act and will file on time such information, documents and reports as
the Commission may require or prescribe for companies whose stock has been
registered pursuant to such Section 12(b) or Section 12(g), whichever is
applicable.
(b) The Company will, upon the request of the holder hereof or of any
Shares, make whatever other filings with the Commission, or otherwise make
generally available to the public such financial and other information, as any
such holder may deem reasonably necessary or desirable in order to enable such
holder to be permitted to sell Shares pursuant to the provisions of Rule 144
under the Securities Act (or any successor statute, rule or regulation to Rule
144).
8.6. Delivery of Information for Rule 144A Transactions. If a holder of
Warrants or Shares proposes to transfer any such Warrants or Shares pursuant to
Rule 144A under the Securities Act (as in effect from time to time), the Company
agrees to provide (upon the request of such holder or the prospective
transferee) to such holder and (if requested) to the prospective transferee any
financial or other information concerning the Company and its Subsidiaries which
is required to be delivered by such holder to any transferee of such Warrants or
Shares pursuant to such Rule 144A.
Section 9. Headings. The headings and captions in this Warrant are for
convenience of reference only and shall not define, limit or otherwise affect
any of the terms or provisions hereof.
Section 10. Governing Law. This Warrant shall be governed by, and
construed in accordance with, the laws of the State of Michigan (other than any
conflict of laws rule which might result in the application of the laws of any
other jurisdiction).
Section 11. Survival. The obligations of the Company under this Warrant
shall survive its full exercise.
Section 12. Definitions. Terms not otherwise defined herein are defined
in the Purchase Agreement and are used herein with the same definition.
INTEGRAL VISION, INC. has caused this Warrant to be dated and to be
executed and issued on its behalf by its officer thereunto duly authorized.
Integral Vision, Inc.
By:_________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chairman of the Board
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EXHIBIT D
Form of Class 2 Note
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER ANY APPLICABLE REGULATION OF ANY STATE AND IS NOT TRANSFERABLE EXCEPT
UPON THE CONDITIONS SPECIFIED IN SECTION 16 OF THE PURCHASE AGREEMENT REFERRED
TO HEREIN.
RIGHTS OF THE HOLDER TO RECEIVE PAYMENT AND ITS LIENS SECURING SUCH PAYMENT ARE
SUBJECT AND SUBORDINATE TO THE PRIOR PAYMENT OF ALL OBLIGATIONS OF THE COMPANY
TO THE CLASS 1 PURCHASERS AND TO THE LIENS OF THE CLASS 1 PURCHASERS.
INTEGRAL VISION, INC.
10% Secured Working Capital Class 2 Note
Due _____________
Dated ______________
Farmington Hills, Michigan
No. __
FOR VALUE RECEIVED, the undersigned INTEGRAL VISION, INC., a Michigan
corporation (herein, together with any successor, referred to as the "Company"),
hereby promises to pay to __________________________________, a _______________
______________________ of ____________ _________________________, (the "Payee")
or registered assigns, the principal sum of__________ _______________ Dollars
($___________.00) at such time or times as the accounts receivable or the
specified Letter of Credit proceeds on the following specified orders is
received by the Company:_______________________________________________________
_______________________________________________________________________________
____ and shall pay in full the remaining principal amount then outstanding on
the maturity date of _______________, plus interest (computed on the basis of
the actual number of days elapsed over a 365-day year) on the unpaid balance of
such principal sum from the date hereof at the interest rate of 10% per annum
(12% per annum if the Holder has elected not to receive Class 2 Warrants) until
the entire principal amount hereof shall have become due and payable, whether at
maturity or at a date fixed for prepayment or by acceleration or declaration or
otherwise, and at the Default Rate on any overdue installment of principal
(including any overdue prepayment of principal) and on any overdue premium and
(to the extent permitted by law) on any overdue installment of interest until
paid. The Default Rate shall be equal to the per annum interest rate on this
Note, plus four percent (4%).
Capitalized terms not otherwise defined herein shall have the meaning
ascribed thereto in the Note and Warrant Purchase Agreement dated effective as
of _______________ (the "Purchase Agreement"), by and among the Company, the
Agent, the Payee and the other Purchasers named
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therein.
If any payment due hereunder becomes due and payable on a day which is
not a Business Day, the due date thereof shall be the next day which is a
Business Day, and the interest payable on such next Business Day shall be the
interest accruing through such actual date of payment.
Payments of principal and interest shall be made in lawful money of the
United States of America, and may be paid by check mailed, or shall be made by
wire transfer, all as provided in the Purchase Agreement, to the address or
account designated by the holder hereof for such purpose.
This Note is one of a duly authorized issue of Notes issued to the
Purchasers pursuant to the Purchase Agreement. This Note is subject to the
provisions of and is entitled to the benefits of the Purchase Agreement. Each
holder of this Note, by accepting the same, agrees to and shall be bound by the
provisions of the Purchase Agreement.
The obligations of the Company under this Note (and under the Purchase
Agreement) are secured by the Collateral. The existence of such Collateral does
not in any way reduce or restrict the rights and remedies available to a holder
of this Note whether such rights and remedies arise under this Note, the
Purchase Agreement or otherwise.
This Note is transferable only upon the terms and conditions specified
in the Purchase Agreement.
In case an Event of Default shall occur and be continuing, all amounts
then remaining unpaid on this Note shall become or may be declared due and
payable in the manner and with the effect provided in the Purchase Agreement.
No reference herein to the Purchase Agreement and no provision hereof
or thereof shall alter or impair the obligations of the Company, which are
absolute and unconditional, to pay the principal hereof and interest hereon at
the respective times and places specified herein and in the Purchase Agreement.
This Note is delivered in and shall be construed and enforced in
accordance with and governed by the laws of the State of Michigan (other than
any conflict of laws rules which might result in the application of laws of any
other jurisdiction).
Subject to the provisions of the Purchase Agreement, the Company may
treat the person in whose name this Note is registered as the owner and holder
of this Note for the purpose of receiving payment of principal of, premium, if
any, and interest on this Note and for all other purposes whatsoever, and the
Company shall not be affected by any notice to the contrary (except that the
Company shall comply with the provisions of the Purchase Agreement regarding the
issuance of a new Note or Notes to permitted transferees).
(Signed on the next page)
D-2
INTEGRAL VISION, INC. has caused this Note to be dated and to be
executed and issued on its behalf by its officer thereto duly authorized.
INTEGRAL VISION, INC.
By_____________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chairman of the Board
D-3
EXHIBIT E
Form of Class 2 Warrant
No. __
THIS WARRANT CERTIFICATE (AND THE COMMON STOCK OR OTHER SECURITIES ISSUABLE UPON
EXERCISE HEREOF) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
UNDER ANY APPLICABLE REGULATION OF ANY STATE AND ARE NOT TRANSFERABLE EXCEPT
UPON THE CONDITIONS SPECIFIED IN SECTION 16 OF THE PURCHASE AGREEMENT REFERRED
TO HEREIN.
INTEGRAL VISION, INC.
Class 2 Common Stock Purchase Warrant Certificate
Dated _____________
Farmington Hills, Michigan
FOR VALUE RECEIVED, the undersigned INTEGRAL VISION, INC., a Michigan
corporation (herein referred to as the "Company"), hereby certifies and agrees
that ___________________, a ___________________ of ________________________
__________________________ or registered assigns, is entitled to purchase from
the Company up to an aggregate of _________________________________
(_______________) duly authorized, validly issued, fully paid and nonassessable
shares of the Company's Common Stock, no par value, or any stock into which such
Common Stock shall have been changed or any stock or other securities resulting
from a reclassification thereof (all such shares, stock or other securities
which may be purchased by this, and all other, Warrants are herein known as the
"Shares") at a purchase price per Share of $_____ at any time and from time to
time from the date hereof until 5:00 p.m. on the fourth anniversary of the date
hereof. The foregoing agreement and rights are all subject to the terms,
conditions and adjustments (in both the number of Shares and the purchase price
per Share) set forth below in this Warrant Certificate.
This Class 2 Warrant Certificate is one of the Class 2 Common Stock
Purchase Warrant Certificates (the "Class 2 Warrants", which term includes all
Class 2 Warrants issued in substitution therefor) originally issued in
connection with the issue and sale by the Company of its Class 2 10% Secured
Subordinated Notes (the "Class 2 Notes"). The Class 2 Warrants and the Class 2
Notes have been issued pursuant to the Note and Warrant Purchase Agreement dated
effective as of the Closing Date for each Purchaser (the "Purchase Agreement")
among the Company and the Purchasers named therein. This Class 2 Warrant is
subject to the provisions, and is entitled to the benefits, of the Purchase
Agreement, including, without limitation, the registration rights provisions
contained therein. Capitalized terms used without definition herein are as
defined in the Purchase Agreement.
The Company represents that all Shares to which the holders of the
Class 2 Warrants shall be entitled upon the exercise thereof (i) are duly
authorized by the Articles of Incorporation
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of the Company in accordance with the laws of the State of Michigan, (ii) have
been duly authorized to be issued upon the exercise of the Warrants from time to
time in whole or in part, (iii) will be, when issued in accordance with the
terms of the Warrants, duly authorized and validly issued and fully paid and
nonassessable and free and clear of all Liens and rights of others whatsoever
(other than Liens and rights of others claiming by, through or under the holder
hereof) and (iv) will not be at the time of such exercise subject to any
restrictions on transfer or sale except as provided by applicable laws.
Section 1. Exercise of Warrant.
1. 1. Manner of Exercise.
(a) This Warrant may be exercised by the holder hereof, in whole or in
part, during normal business hours on any Business Day by surrender of this
Warrant, together with the form of subscription attached as Annex A hereto (or a
reasonable facsimile thereof) duly executed by such holder in substantially such
form, to the Company at its office designated pursuant to the Purchase Agreement
(or, if such exercise is in connection with an underwritten public offering of
Shares subject to this Warrant, at the location at which the underwriting
agreement requires that such Shares be delivered).
(b) Payment of the exercise price for Shares shall be made, at the
option of the holder (i) as provided in Section 1.5 hereof, or (ii) by check or
wire transfer payable to the order of the Company, in any case, in an amount
equal to (A) the number of Shares specified in such form of subscription,
multiplied by (B) the then current exercise price. Such holder shall thereupon
be entitled to receive the number of Shares specified in such form of
subscription (plus cash in lieu of any fractional share as provided in Section
1.3 hereof).
1.2. Effective Date. Each exercise of this Warrant pursuant to Section
1. 1 (a) hereof shall be deemed to have been effected immediately prior to the
close of business on the Business Day on which this Warrant is surrendered to
the Company as provided in Section 1. 1 hereof (except that if such exercise is
in connection with an underwritten public offering of Shares subject to this
Warrant, then such exercise shall be deemed to have been effected upon such
surrender of this Warrant), and such exercise shall be at the current exercise
price in effect at such time. On each such day that an exercise of this Warrant
is deemed effected, the Person or Persons in whose name or names any certificate
or certificates for Shares are issuable upon such exercise (as provided in
Section 1.3 hereof) shall be deemed to have become the holder or holders of
record thereof.
1.3. Share Certificates; Cash for Fractional Shares; and Reissuance of
Warrants. As promptly as practicable after the exercise of this Warrant, in
whole or in part, and in any event within five (5) Business Days thereafter
(unless such exercise shall be in connection with a public offering of Shares
subject to this Warrant, in which event concurrently with such exercise), the
Company at its expense (including the payment by it of any applicable issue,
stamp or other taxes) will cause to be issued in the name of and delivered to
the holder hereof or such
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other person as such holder may direct:
(a) a certificate or certificates for the number of Shares to which
such holder shall be entitled upon such exercise plus, in lieu of any fractional
share to which such holder would otherwise be entitled, cash in an amount equal
to the same fraction of the Market Price per Share (determined in accordance
with Section 2.2(f) hereof) on the effective date of such exercise; and
(b) in case such exercise is in part only, a new Warrant or Warrants of
like tenor, calling in, the aggregate on the face or faces thereof for the
number (which may be fractional) of Shares (without giving effect to any
adjustment therein) equal to the number of such Shares called for on the face of
this Warrant minus the number of Shares obtained upon such exercise.
1.4. Acknowledgment of Obligation. The Company will, at the time of or
at any thereafter each exercise of this Warrant, upon the request of the holder
hereof or of any Shares issued upon such exercise, acknowledge in writing its
continuing obligation to afford to such holder all rights (including, without
limitation, any rights to registration of any such Shares pursuant to the
Purchase Agreement) to which such holder shall continue to be entitled under
this Warrant and the Purchase Agreement; provided, that if any such holder shall
fail to make any such request, the failure shall not affect the continuing
obligation of the Company to afford such rights to such holder.
1.5. Notes. The holder shall have the option, but not the obligation,
upon any exercise of this Warrant, to apply to the payment required by Section
1. 1 hereof all or any part of the accrued and unpaid interest on, or principal
of, any Notes at the time held by the holder. The Company will accept the amount
of accrued and unpaid interest or principal, if such election is selected,
specified in the form of subscription in satisfaction of the exercise price for
such Shares to be purchased. The holder shall have the right to apply all or any
portion of such accrued and unpaid interest or principal to exercise all or any
portion of this Warrant whether or not payment on the Notes is otherwise
prohibited.
1.6. Restriction. The holder acknowledges that the Shares acquired upon
exercise of the Warrant will be "restricted securities" as that term is defined
under the regulations promulgated under the Securities Act, will not be saleable
in the absence of an effective registration statement under the Securities Act
or an exemption from registration, and accordingly may be required to be held
for an indefinite period of time. The holder agrees that Shares issued pursuant
hereto may contain the following legend on the face thereof: "This security has
not been registered pursuant to the Securities Act of 1933, as amended, and each
holder of this security by the acceptance hereof agrees that this security shall
not be transferred in violation of said Act." The Company agrees that such
legend shall be removed from any Shares which are no longer subject to such
restrictions.
Each holder of a Warrant by acceptance thereof agrees that it will not
sell or otherwise dispose of any Warrants or Shares unless such Warrants or
Shares have been registered under, or have been sold pursuant to an exemption
from registration under, the Securities Act. As a
E-3
condition to the Company's obligation to issue a new Warrant to a transferee
thereof which (x) is not a holder of a Warrant, the transferor must certify to
the Company the facts on which the transferor is relying for such exemption or
(y) is a holder of a Warrant, the transferor must represent to the Company in
writing that the transfer is so exempt, and in either case the transferor must
provide an opinion from an attorney reasonably satisfactory to the Company that
the requirement for the exemption have been met.
Section 2. Current Exercise Price and Adjustments.
2.1 Current Exercise Price. The term "current exercise price" shall
mean initially $0.35 per Share, subject to adjustment from time to time as
hereinafter provided, in effect at any given time. In determining the current
exercise price, the result shall be expressed to the nearest $.01, but any such
lesser amount shall be carried forward and shall be considered at the time of
and together with the next subsequent adjustment which, together with any
adjustments being carried forward, shall amount to $.01 per Share or more.
2.2. Adjustment of Current Exercise Price. The current exercise price
shall be subject to adjustment, from time to time (but not below zero), as
follows:
(a) Adjustments for Stock Dividends, Recapitalization, etc. In the
event the Company shall, after the Closing Date, issue any shares of Common
Stock (i) by stock dividend or any other distribution upon the stock of the
Company payable in Common Stock or in securities convertible into or exercisable
or exchangeable for shares of Common Stock or (ii) in subdivision of its
outstanding Common Stock, by reclassification or otherwise, the current exercise
price then in effect shall be reduced proportionately; and, in like manner, in
the event of any combination of shares of Common Stock, by reclassification or
otherwise, the current exercise price then in effect shall be increased
proportionately. An adjustment made pursuant to this Section 2.2(a) shall become
effective retroactively immediately after the record date in the case of a
dividend or other distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination.
(b) Adjustments for Issuance of Additional Stock. Subject to the
exception referred to in Section 2.2(d) hereof and except as otherwise provided
for in Section 2.2(a) hereof, in case the Company shall at any time or from time
to time after the Closing Date issue any additional shares of its Common Stock
("Additional Common Stock") (i) for consideration per share less than the then
current Market Price per share of the Company's Common Stock (determined as
provided in Section 2.2(f) hereof) immediately prior to the issuance of such
Additional Common Stock, or (ii) without consideration, then upon demand of the
Majority Holders (as defined below), in the case of either clause (i) or (ii),
and thereafter successively upon each such issuance, the current exercise price
shall forthwith be reduced to a price determined by multiplying such current
exercise price by a fraction, of which
(A) the numerator shall be (i) the number of shares of the
Company's Common Stock outstanding immediately prior to such
issuance of shares of Additional
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Common Stock plus (ii) the number of shares of the Company's
Common Stock which the aggregate amount of consideration, if
any, received by the Company for the total number of shares of
Additional Common Stock so issued would purchase at the
greater of (x) the Market Price per share of the Company's
Common Stock in effect immediately prior to such issuance of
shares of Additional Common Stock or (y) the exercise price
per Share in effect immediately prior to such issuance of
shares of Additional Common Stock, and
(B) the denominator shall be the number of shares of the
Company's Common Stock outstanding immediately after such
issuance of shares of Additional Common Stock,
provided, however, that such adjustment shall be made only if the current
exercise price determined from the aforesaid fraction shall be less than the
current exercise price in effect immediately prior to the issuance of such
Additional Common Stock. The adjustment described in this Section 2.2(b) shall
be made whenever such Common Stock is issued, and shall become effective
retroactively immediately after the date on which the Company committed to make
such issuance.
(c) Certain Rules in Applying the Adjustment for Additional Stock
Issuances. For purposes of any adjustment as provided in Section 2.2(b), the
following provisions shall also be applicable:
(1) Cash Consideration. In case of the issuance of Additional Common
Stock for cash, the consideration received by the Company therefor shall be
deemed to be the net cash proceeds received by the Company for such Additional
Common Stock after deducting any commissions or other expenses paid or incurred
by the Company for any underwriting of, or otherwise in connection with the
issuance of, such Additional Common Stock.
(2) Non-Cash Consideration. In case of the issuance (other than
application of obligations of the Company) of Additional Common Stock for a
consideration other than cash, or a consideration a part of which shall be other
than cash, the amount of the consideration other than cash so received or to be
received by the Company shall be deemed to be the value of such consideration at
the time of its receipt by the Company as determined in good faith by the Board
of Directors of the Company, provided, that where the non-cash consideration
consists of the cancellation, surrender or exchange of outstanding obligations
of the Company (or where such obligations are otherwise converted into shares of
the Company's Common Stock), the value of the non-cash consideration shall be
deemed to be the amount, including principal and any accrued interest, as of the
time of the Company's receipt, of the obligations canceled, surrendered,
satisfied, exchanged or converted. If the Company receives consideration, part
or all of which consists of publicly traded securities, the value of such
non-cash consideration shall be the aggregate market value of such securities
(based on the latest reported trades) as of the close of the day immediately
preceding the date of their receipt by the Company.
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(3) Options, Warrants, Convertibles, etc. In case of the issuance
(other than by way of a Distribution on Common Stock pursuant to Section 2.2(b)
hereof), whether by distribution or sale to holders of its Common Stock or to
others, by the Company of (i) any security that is convertible into the
Company's Common Stock or (ii) any rights, options or warrants to purchase the
Company's Common Stock (except for the Warrants), if inclusion thereof would
result in a current exercise price lower than if excluded, the Company shall be
deemed to have issued, for the consideration described below, the number of
shares of the Company's Common Stock into which such convertible security may be
converted when first convertible, or the number of shares of the Company's
Common Stock deliverable upon the exercise of such rights, options or warrants
when first exercisable, as the case may be (and such shares shall be deemed to
be Additional Common Stock for purposes of Section 2.2(b) hereof). The
consideration deemed to be received by the Company at the time of the issuance
of such convertible securities or such rights, options or warrants shall be the
consideration so received determined as provided in Sections 2.2(c)(1) and (2)
hereof deducting any commissions or other expenses paid or incurred by the
Company for any underwriting of, or otherwise in connection with, the issuance
of such convertible securities or rights, options or warrants, plus (x) any
consideration or adjustment payment to be received by the Company in connection
with such conversion, or, as applicable, (y) the aggregate price at which shares
of the Company's Common Stock are to be delivered upon the exercise of such
rights, options or warrants when first exercisable (or, if no price is specified
and such shares are to be delivered at an option price related to the Market
Price of the subject Common Stock, an aggregate option price bearing the same
relation to the Market Price of the subject Common Stock at the time such
rights, options or warrants were granted). In case any such securities, rights,
options or warrants shall be issued in connection with the issue or sale of
other securities of the Company comprising one integral transaction in which no
specific consideration is allocated to such securities, rights, options or
warrants, such securities, rights, options or warrants shall be deemed to have
been issued without consideration. If, subsequently, (1) such number of shares
into which such convertible security is convertible, or which are deliverable
upon the exercise of such right, options or warrants, is increased or (2) the
conversion or exercise price of such convertible security, rights, options or
warrants is decreased, then the calculations under the preceding two sentences
(and any resulting adjustment to the current exercise price under 2.2(b) hereof)
with respect to such convertible security, rights, options or warrants, as the
case may be, shall be recalculated as of the time of such issuance but giving
effect to such changes (but any such recalculation shall not result in the
current exercise price being higher than that which would be calculated without
regard to such issuance). On the expiration or termination of such rights,
options or warrants, or rights to convert, the current exercise price hereunder
shall be readjusted (up or down as the case may be) to such current exercise
price as would have been obtained had the adjustments made upon the issuance of
such rights, options, warrants or convertible securities been made upon the
basis of the delivery of only the number of shares of the Company's Common Stock
actually delivered upon the exercise of such rights, options or warrants or upon
the conversion of any such securities and at the actual exercise or conversion
prices (but any such recalculation shall not result in the current exercise
price being higher than that which would be calculated without regard to such
issuance).
(4) Number of Shares Outstanding. The number of shares of the Company's
Common
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Stock as at the time outstanding shall exclude all shares of the Company's
Common Stock then owned or held by or for the account of the Company or any of
its Subsidiaries but shall include the aggregate number of shares of the
Company's Common Stock at the time deliverable in respect of the convertible
securities, rights, options and warrants referred to in Section 2.2(c)(3));
provided, that to the extent that such rights, options, warrants or conversion
privileges are not exercised, such shares of Common Stock shall be deemed to be
outstanding only until the expiration dates of the rights, warrants, options or
conversion privileges or the prior cancellation thereof.
(d) Exclusions from the Adjustment for Additional Stock Issuances. No
adjustment of the current exercise price under Section 2.2(b) hereof shall be
made as a result of or in connection with the issuance of Shares upon exercise
of the Warrants or the exercise of options to purchase shares of the Company's
Common Stock pursuant to options granted to certain employees or agents of the
Company pursuant to the Company's stock option plans. To the extent that the
issuance (or deemed issuance) of the Company's Common Stock shall not result in
any adjustment of the current exercise price pursuant to the provisions of this
Section 2.2(d), then such Common Stock shall not be taken into account for
purposes of determining any fraction referred to in Section 2.2(b) hereof.
(e) Accountants' Certification. Whenever the current exercise price is
adjusted as provided in this Section 2.2, the Company will promptly obtain a
certificate of a firm of independent public accountants of recognized national
standing selected by the Board of Directors of the Company (who may be the
regular auditors of the Company) setting forth the current exercise price as so
adjusted, the computation of such adjustment and a brief statement of facts
accounting for such adjustment, and will mail to the holders of the Warrants a
copy of such certificate from such firm of independent public accountants.
(f) Determination of Market Price. The current "Market Price" per share
of the Company's Common Stock on any date shall be deemed to be the average of
the daily closing prices for the twenty (20) consecutive trading dates ending on
the trading day before such date. The closing price for each day shall be the
last reported sale price or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, in either case on the principal
national United States securities exchange on which the Company's Common Stock
is listed or admitted to trading, or if the Company's Common Stock is not listed
or admitted to trading on any such national securities exchange, the average of
the highest reported bid and lowest reported asked prices as furnished by the
National Association of Securities Dealers Inc., Automated Quotation System
Level I, or comparable system. If the closing price cannot be so determined, the
Market Price shall be determined:
(x) by the written agreement of the Company and the holders of
Warrants representing a majority of the Shares then obtainable
from the exercise of outstanding Warrants (the "Majority
Holders"); or
(y) in the event that no such agreement is reached within
fifteen (15) days after the
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event giving rise to the need to determine the Market Price,
by a nationally recognized U.S. investment banking firm,
selected by the Company ("Company Appraiser") not more than 5
Business Days after the end of such 15 day period. Any
appraiser appointed pursuant to this paragraph shall be
instructed to make its determination as promptly as possible
and in any event within 30 days of appointment. If no such
selection is made within such period, then the Majority
Holders shall as promptly as possible select such a firm whose
determination shall be final and binding. If such selection is
timely made by the Company, and the Majority Holders do not
object to the Market Price as determined by the Company
Appraiser within 10 days of receipt of notice thereof by all
holders of Warrants, then the Market Price as determined by
the Company Appraiser shall be the Market Price. If the
Majority Holders do so object to the Company Appraiser's
determination of Market Price, then the Majority Holders can
select a nationally recognized U.S. investment banking firm
("Alternate Appraiser") to review the Company Appraiser's
report and other relevant information. Within 10 days after
receipt by the Alternate Appraiser of such report and such
other information as is reasonably requested by the Alternate
Appraiser, the Company Appraiser and Alternate Appraiser shall
communicate and/or meet to resolve any questions or
differences with respect to the Market Price. If such
appraisers agree on a Market Price, such Market Price shall be
the Market Price. If no agreement is reached then the Company
Appraiser and Alternate Appraiser shall select a third
nationally recognized firm ("Third Appraiser"). If the Company
Appraiser and the Alternate Appraiser cannot agree on a Third
Appraiser within 20 days of the end of such 10 day period,
either may apply to the American Arbitration Association to
appoint the Third Appraiser. The Third Appraiser shall, within
30 days of its hire, issue a report with its determination of
Market Price which shall be conclusive and binding. All
expenses of the Company Appraiser shall be borne by the
Company. All expenses of the Alternate Appraiser shall be
borne by the holders of the Warrants. All expenses of the
Third Appraiser shall be borne equally by the Company and the
holders of the Warrants.
Market Price shall be determined on the basis of the fair
market value of the Company as if it were sold as a going
concern on the date of valuation and without regard to the
lack of any trading market for, or the lack of liquidity in,
the Common Stock of the Company.
The Company shall cooperate, and shall provide all necessary
information and assistance, to permit any determination under
the preceding clause (x) or (y).
Each Appraiser shall be instructed to use its best efforts to
give the Company and all holders reasonable advance notice of
the Market Price and the contents of its report (by delivering
a draft report) before the report is delivered in final form.
Any communications or reports by an Appraiser to either the
Company or any of the holders regarding Market Price shall be
given simultaneously to both the
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Company and all of the holders.
(g) Reorganization Adjustments. In case of any capital reorganization
or reclassification of the capital stock of the Company (other than a change in
par value or a stock split-up), the holder of this Warrant shall thereafter be
entitled to purchase for the current exercise price the securities and property
receivable upon such capital reorganization or reclassification by a holder of
the number of shares of Common Stock which this Warrant entitled the holder
hereof to purchase immediately prior to such capital reorganization or
reclassification. In the event that at any time, as a result of an adjustment
made pursuant to this Section 2.2(h), the holder of this Warrant shall become
entitled to purchase any other securities or property other than Common Stock,
thereafter the number of such other securities or property so purchasable upon
exercise of this Warrant and the current exercise price shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in this
Section 2.2.
(h) Other Adjustments. Without limiting any provisions of this Section
2.2 or any other provisions of this Warrant, in case any event shall occur as to
which any of the provisions of this Section 2.2 are not strictly applicable but
the failure to make any adjustment would not fairly protect the exercise rights
represented by the Warrants in accordance with the intent and principles of this
Section 2.2, the Company shall at its expense appoint a firm of independent
public accountants of recognized national standing selected by the Board of
Directors of the Company (who may be the regular auditors of the Company), and
reasonably satisfactory to the Majority Holders, which shall give their opinion
upon the adjustment, if any, on a basis consistent with the intent and
principles established in this Section 2.2, necessary to preserve, without
dilution, the economic and other rights represented by the Warrants. Upon
receipt of such opinion, the Company will promptly mail copies thereof to the
holders of the Warrants and shall make the adjustments described therein.
(i) Meaning of "Issuance". References in this Warrant to "issuance" of
stock by the Company include issuances by the Company of previously unissued
shares and issuances, sales or other transfers by the Company of treasury stock.
Section 3. Company's Consolidation or Merger. If the Company shall at
any time consolidate with or merge into another entity (where the Company is not
the continuing corporation after such merger or consolidation), the holder of a
Warrant shall thereafter be entitled to receive, upon the exercise thereof in
whole or in part, the securities or other property to which (and upon the same
terms and with the same rights as) a holder of the number of Shares then
deliverable upon the exercise thereof would have been entitled upon such
consolidation or merger (subject to adjustments under Section 2.2 hereof), and
the Company shall take such steps in connection with such consolidation or
merger as may be necessary to assure such holder that the provisions of the
Warrants and the Purchase Agreement shall thereafter be applicable in relation
to any securities or property thereafter deliverable upon the exercise of this
Warrant, including, but not limited to, obtaining a written acknowledgment from
the continuing entity of its obligation to supply such securities or property
upon such exercise and to be so bound by the
E-9
Warrant and the Purchase Agreement. A sale, transfer or lease (in one, or a
series of related, transactions) of all or substantially all of the assets of
the Company to another person shall be deemed a consolidation or merger for the
foregoing purposes.
Section 4. Notice to Holders of Warrants.
In case at any time:
(i) the Company shall take any action which would require an adjustment
in the current exercise price pursuant to Section 2.2(a), (b), (j), (h) or (i);
or
(ii) there shall be any capital reorganization or reclassification of
the Company's Common Stock (other than a change in par value or from par value
to no par value or from no par value to par value of the Common Stock), or any
consolidation or merger to which the Company is a party and for which approval
of any stockholders of the Company is required, or any sale, transfer or lease
(in one, or a series of related, transactions) of all or substantially all of
the assets of the Company; or
(iii) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give written notice to
the holders of the Warrants, not less than twenty (20) days before any record
date or other date set for definitive action, of the date on which such action,
reorganization, reclassification, sale, transfer, lease, consolidation, merger,
dissolution, liquidation or winding-up, as the case may be, and the terms
thereof.
Section 5. Number of Shares. No adjustment of the current exercise
price will increase the number of Shares which a holder will be entitled to
purchase.
Section 6. No Rights or Liabilities as Stockholder. Nothing contained
in this Warrant shall be construed as conferring upon the holder hereof any
rights as a stockholder of the Company (prior to exercise of all or a portion of
this Warrant) or as imposing any liabilities on such holder to purchase any
securities or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors or stockholders of the Company or
otherwise.
Section 7. Ownership; Transfer. The Company may treat the Person in
whose name this Warrant is registered pursuant to the Purchase Agreement as the
owner and holder of this Warrant for all purposes, and the Company shall not be
affected by any notice to the contrary (except that the Company shall comply
with the provisions of the Purchase Agreement regarding the issuance of a new
Warrant or Warrants to transferees). This Warrant is transferable upon the
conditions specified in the Purchase Agreement.
E-10
Section 8. Covenants
8.1. Information Requirements. The Company will provide to each holder
of Warrants or Shares, promptly after the same are available, copies of each
annual report, proxy or financial statement or other communication sent to the
Company's or a Subsidiary's stockholders and copies of all annual, regular,
periodic and special reports and registration statements which the Company may
file or be required to file with the Securities and Exchange Commission or with
any securities exchange or the National Association of Securities Dealers, Inc.
8.2. Reservation of Shares. There have been reserved, and the Company
shall at all times keep reserved, out of its authorized Common Stock, a number
of shares of Common Stock sufficient to provide for the exercise of the rights
of purchase represented by the then outstanding Warrants.
8.3. No Dilution or Impairment. The Company will not, by amendment of
its Certificate of Incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant. The Company will at all times in good faith
assist in the carrying out of all such terms, and in the taking of all such
action, as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not permit the par value
of any shares of Common Stock receivable upon the exercise of this Warrant to
exceed the amount payable therefor upon such exercise, (b) will take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of the Company's Common
Stock, free from all taxes, Liens and charges with respect to the issue thereof,
upon the exercise of this Warrant from time to time outstanding and (c) will not
take any action which results in any adjustment of this current exercise price
under this Warrant if the total number of shares of the Company's Common Stock
(or other securities) issuable after the action upon the exercise of all of the
Warrants would exceed the total number of shares of Common Stock (or other
securities) then authorized by the Company's Certificate of Incorporation and
available for the purpose of issue upon such exercise.
8.4. Listing of Shares. If the Company shall list any shares of its
Common Stock on any national securities exchange, it will take such action as
may be necessary, from time to time, to list the Shares, subject to issuance, on
such exchange.
8.5. Securities Exchange Act Registration. At any time that the Company
either files and such filing becomes effective, or is required to file, a
registration statement with respect to Common Stock of the Company under Section
5 of the Securities Act or Section 12(b) or Section 12(g) of the Securities
Exchange Act, then thereafter:
(a) The Company will maintain effective a registration statement
(containing such information and documents as the Commission shall specify and
otherwise complying with the
E-11
Securities Exchange Act) with respect to the Common Stock of the Company under
Section 12(b) or Section 12(g), whichever is applicable, of the Securities
Exchange Act and will file on time such information, documents and reports as
the Commission may require or prescribe for companies whose stock has been
registered pursuant to such Section 12(b) or Section 12(g), whichever is
applicable.
(b) The Company will, upon the request of the holder hereof or of any
Shares, make whatever other filings with the Commission, or otherwise make
generally available to the public such financial and other information, as any
such holder may deem reasonably necessary or desirable in order to enable such
holder to be permitted to sell Shares pursuant to the provisions of Rule 144
under the Securities Act (or any successor statute, rule or regulation to Rule
144).
8.6. Delivery of Information for Rule 144A Transactions. If a holder of
Warrants or Shares proposes to transfer any such Warrants or Shares pursuant to
Rule 144A under the Securities Act (as in effect from time to time), the Company
agrees to provide (upon the request of such holder or the prospective
transferee) to such holder and (if requested) to the prospective transferee any
financial or other information concerning the Company and its Subsidiaries which
is required to be delivered by such holder to any transferee of such Warrants or
Shares pursuant to such Rule 144A.
Section 9. Headings. The headings and captions in this Warrant are for
convenience of reference only and shall not define, limit or otherwise affect
any of the terms or provisions hereof.
Section 10. Governing Law. This Warrant shall be governed by, and
construed in accordance with, the laws of the State of Michigan (other than any
conflict of laws rule which might result in the application of the laws of any
other jurisdiction).
Section 11. Survival. The obligations of the Company under this Warrant
shall survive its full exercise.
Section 12. Definitions. Terms not otherwise defined herein are defined
in the Purchase Agreement and are used herein with the same definition.
INTEGRAL VISION, INC. has caused this Warrant to be dated and to be
executed and issued on its behalf by its officer thereunto duly authorized.
Integral Vision, Inc.
By:_________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chairman of the Board
E-12
EXHIBIT F
FORM OF CLASS 3 NOTE
No. _________________ $ ________________
INTEGRAL VISION, INC.
Farmington Hills, Michigan
Dated ____________
8 Percent Convertible Subordinated Note
Due January 2, 2009
Integral Vision, Inc., a Michigan corporation, (the "Corporation"), for
value received, promises to pay to _________________ or registered assigns, the
sum of $ _________________ on January 2, 2009, and to pay interest at the rate
of 8 percent per annum semiannually on the first day of July and January of each
year, computed from ________________ (the "issue date"). Payment of principal
and interest shall be made at the offices of the Corporation in Farmington
Hills, Michigan, in lawful money of the United States of America, and shall be
mailed to the registered owner or owners hereof at the address appearing on the
books of the Corporation.
This Note is one of a duly authorized issue of the Corporation's Class
3 Notes dated as of the Closing Date for each Purchaser, all of like tenor and
maturity, except variations necessary to express the number, principal amount
and payee of each Note.
1. Equal rank. All Class 3 Notes of this issue rank equally and ratably
without priority over one another.
2. Conversion. The holder or holders of this Note may at any time prior
to the maturity hereof (except that, if the Corporation has called this Note for
redemption, the right to convert shall terminate at the close of business on the
second business day prior to the day fixed as the date for such redemption),
convert the principal amount hereof into the corporation's common stock at the
conversion ratio of $_____ of Note principal for one share of common stock. To
convert this Note, the holder or holders hereof must surrender the same at the
office of the Corporation, together with a written instrument of transfer in a
form satisfactory to the Corporation, properly completed and executed and with a
written notice of conversion. No accrued interest will be payable on Notes
surrendered for conversion, whether or not notice of redemption has been given
by the Company.
3. Adjustments to conversion. If the Corporation at any time pays to
the holders of its common stock a dividend in common stock, the number of shares
of common stock issuable upon the conversion of this Note shall be
proportionally increased, effective at the close of business on the record date
for determination of the holders of the common stock entitled to the dividend.
F-1
If the Corporation at any time subdivides or combines in a larger or
smaller number of shares its outstanding shares of common stock, then the number
of shares of common stock issuable upon the conversion of this Note shall be
proportionally increased in the case of a subdivision and decreased in the case
of a combination, effective in either case at the close of business on the date
that the subdivision or combination becomes effective.
If the Corporation is recapitalized, consolidated with or merged into
any other corporation, or sells or conveys to any other corporation all or
substantially all of its property as an entity, provision shall be made as part
of the terms of the recapitalization, consolidation, merger, sale, or conveyance
so that the holder or holders of this Note may receive, in lieu of the common
stock otherwise issuable to them upon conversion hereof, at the same conversion
ratio, the same kind and amount of securities or assets as may be distributable
upon the recapitalization, consolidation, merger, sale, or conveyance with
respect to the common stock.
4. Fractional shares. In lieu of issuing any fraction of a share upon
the conversion of this Note, the Corporation shall pay to the holder hereof for
any fraction of a share otherwise issuable upon the conversion cash equal to the
same fraction of the then current per share market price of the common stock.
5. Forbearance from suit. No Note holder of this issue may institute
any suit or proceeding for the enforcement of the payment of principal or
interest unless the holders of more than 50 percent in amount of all outstanding
Notes of this issue join in the suit or proceeding.
6. Redemption.
(a) The Company may at its option (subject to the other provisions of
this Section 6) prepay all or part of the principal amount of this Class 3 Note,
at a price equal to the principal amount of the Note to be prepaid plus accrued
interest thereon to the date of prepayment.
(b) The aggregate amount of each prepayment of the principal amount of
affected Class 3 Notes shall be allocated among all affected Class 3 Notes, in
proportion, as nearly as practicable, to the respective unpaid principal amounts
of such Class 3 Notes.
(c) The right of the Company to prepay Class 3 Notes pursuant to this
Section 6 shall be conditioned upon its giving notice of prepayment, signed by
an officer, to the holders of Class 3 Notes not less than thirty (30) days and
not more than sixty (60) days prior to the date upon which the prepayment is to
be made specifying (i) the registered holder of each Class 3 Note to be prepaid,
(ii) the aggregate principal amount being prepaid, (iii) the date of such
prepayment (which must be a Business Day), (iv) the accrued and unpaid interest
(to but not including the date upon which the prepayment is to be made) and (v)
that the prepayment of Class 3 Notes is being made pursuant to this Section 6.
Notice of prepayment having been so given, the aggregate principal amount of the
Class 3 Notes so specified in such notice, and all accrued and unpaid interest
thereon, shall become due and payable on the specified prepayment date, but the
right to convert any or all of the affected Class 3 Notes to Common Stock shall
terminate at the close of
F-2
business on the second business day prior to the date of such prepayment.
(d) The right of the Company to prepay Class 3 Notes pursuant to this
Section 6 shall be further conditioned upon (i) sixteen months shall have
elapsed from the Closing Date for each Class 3 Note affected, (ii) the Common
Stock of the Company shall have been trading at an average Market Price of the
greater of $1 per share or 125% of the conversion price for the Class 3 Notes
being called for the four months prior to the specified prepayment date and
(iii) the Common Stock receivable by the Class 3 Purchasers upon conversion of
their Class 3 Notes having been eligible for public market sale, whether through
registration or an exemption therefrom, for at least four months prior to the
specified prepayment date. The provisions of this section 6(d) shall not be
applicable if the prepayment by the Company is pursuant to the sale by the
Company of substantially all of its assets.
7. Subordination. The rights of the holder or holders of this Note to
receive payment of any principal hereof or interest hereon is subject and
subordinate to the prior payment of the principal of and interest on all
existing or future obligations of the Corporation to any Class 1 or Class 2
Noteholders (the "Senior Indebtedness"). Upon any receivership, insolvency,
assignment for the benefit of creditors, bankruptcy, reorganization, sale of all
or substantially all of the assets, dissolution, liquidation, or any other
marshalling of the assets and liabilities of the Corporation, or in the event
this Note is declared due and payable upon the occurrence of a default as
defined in this Note, then the Corporation shall not pay any amount with respect
to principal and interest on this Note unless and until the principal of, and
interest on, the Senior Indebtedness then outstanding is paid in full.
8. Registered owner. The Corporation may treat the person or persons
whose name or names appear on this Note as the absolute owner or owners hereof
for the purpose of receiving payment of, or on account of, the principal and
interest due on this Note and for all other purposes.
9. Release of shareholders, officers and directors. This Note is the
obligation of the Corporation only, and no recourse shall be had for the payment
of any principal or interest hereon against any shareholder, officer or director
of the Corporation, either directly or through the Corporation, by virtue of any
statute for the enforcement of any assessment or otherwise. The holder or
holders of this Note, by the acceptance hereof, and as part of the consideration
for this Note, release all claims and waive all liabilities against the
foregoing persons in connection with this Note.
F-3
INTEGRAL VISION, INC. has caused this Note to b dated and to executed
and issued on its behalf by its officer thereto duly authorized.
INTEGRAL VISION, INC.
By_______________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chairman of the Board
F-4
EXHIBIT G
Defaults or Potential Defaults of Other Agreements
NONE
G-1