EXHIBIT 4.9
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CONVERTIBLE DEBENTURE AND WARRANT PURCHASE AGREEMENT
by and between
QUADRANT INTERNATIONAL, INC.
and
ATLANTIC COASTAL VENTURES, L.P.
_______________________________________________________________________
December 17, 1997
AGREEMENT, dated December 17, 1997, by and between QUADRANT INTERNATIONAL,
INC., a Pennsylvania corporation (the "Company"), and ATLANTIC COASTAL VENTURES,
L.P., a Delaware limited partnership (the "Investor").
WITNESSETH
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WHEREAS, the Company is currently negotiating the sale of preferred stock
to one or more investors for an aggregate purchase price of at least $10,000,000
(the "Class B Preferred Stock Financing"), such stock to be designated as Class
B Convertible Preferred Stock of the Company (the "Class B Preferred Stock"),
the preferences, limitations and rights of which are currently being negotiated
but shall provide that the stock be convertible at the option of its holders,
from time to time and at any time, into fully paid, validly issued and
nonassessable shares of the common stock of the Company, par value $.0l per
share (the "Common Stock"), on a share for share basis; and
WHEREAS, the Company desires financing in the amount of $1,500,000 (the
"Bridge Financing") to be used for general corporate purposes, including working
capital, pending the closing of the Class B Preferred Stock Financing; and
WHEREAS, based on and subject to the terms and conditions of this
Agreement, the Investor is willing to provide the Bridge Financing by acquiring
from the Company, at an aggregate purchase price of $I,500,000, a debenture in
the principal amount of $1,500,000 (the "Debenture") convertible as set forth in
the Debenture, into either shares of Class B Preferred Stock or shares of Common
Stock, and warrants (the "Warrants") for the purchase of up to 270,000 shares of
Common Stock.
NOW, THEREFORE, the parties hereto agree as follows:
1. PURCHASE AND SALE OF DEBENTURE AND WARRANTS.
1.1 PURCHASE AND SALE. Subject to the terms and conditions of this
Agreement, the Company hereby issues and sells to the Investor, and the Investor
hereby purchases from the Company, for a purchase price of $1,500,000 (the
"Purchase Price"), the Debenture and the Warrants.
1.2 THE DEBENTURE. The Debenture shall be in the aggregate principal
amount of $1,500,000, shall become due and payable on March 31, 1998 unless
earlier terminated or converted as provided therein (the "Debenture Due Date"),
shall bear interest at the rate of 6% per annum from the date of issuance, which
interest shall be payable in arrears in shares of Common Stock on the Debenture
Due Date, and shall have such other terms and conditions as are set forth in the
form of Debenture attached hereto as Exhibit A.
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1.3 THE WARRANTS. The Warrants shall grant the Investor the right to
purchase from time to time and at any time for a period of three years from the
date of this Agreement up to an aggregate of 270,000 shares of Common Stock, at
an exercise price per share and subject to such other terms and conditions as
are set forth in the form of Warrant attached hereto as Exhibit B.
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2. THE CLOSING.
2.1 DELIVERIES OF THE COMPANY. Concurrently with the execution of
this Agreement, the Company is delivering to the Investor:
(a) the Debenture;
(b) the Warrants;
(c) a certificate, executed by the President of the Company,
dated the date hereof, certifying that there does not exist as of the
date hereof a state of facts that would constitute an "Event of
Default" under this Agreement or the Debenture (collectively, all such
defaults being hereinafter referred to as "Defaults"), or which would,
with notice or lapse of time, or both, constitute such a Default, and
the Company is not in default under the terms, conditions or
provisions of its Articles of Incorporation, as amended, its By-laws,
or any indenture, mortgage or deed of trust or other material
contract, agreement, lease, instrument, court order, judgment,
arbitration award, or decree to which it is a party or by which it is
bound or which state of facts would, with notice or lapse of time, or
both, constitute such a default (collectively, "Other Defaults");
(d) copies of (i) resolutions adopted by the Board of Directors
of the Company authorizing and approving this Agreement, the issuance
of the Debenture, the Warrants, the shares of Class B Preferred Stock
into which the Debenture may be converted. assuming the closing of the
Class B Preferred Stock Financing (the "Conversion Preferred Shares"),
upon the filing of the Articles Amendment (as defined below), the
shares of Common Stock into which the Debenture may be converted as
set forth in the Debenture (the "Conversion Common Shares"), upon the
filing of the Articles Amendment, the shares of Common Stock to be
issued as interest on the Debenture (the "Interest Common Shares")
and, upon the filing of the Articles Amendment, the shares of Common
Stock to be issued upon exercise of the Warrants (the "Warrant Common
Shares"), and the consummation of all other transactions contemplated
hereby, as and to the extent required by applicable law, (ii) action
by partial written consent of the shareholders of the Company
representing more than 50% of the outstanding voting securities of the
Company (the "Majority Shareholders") approving, among other matters,
an amendment (the "Articles Amendment") to the Company's Amended and
Restated Articles of Incorporation, as amended (as further amended by
the Articles Amendment, the "Articles of Incorporation"), to increase
the authorized capital stock of the Company, and (iii) action by
partial written consent of the Majority Shareholders approving a prior
action of the Board of Directors in connection with the increase in
the size of the Board of Directors (the "Board Increase"), all such
resolutions and written consents being certified by the Secretary of
the Company;
(e) copies of the Company's Articles of Incorporation and By-
laws as then in effect, all certified by the Secretary of the Company;
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(f) a Subsistence Certificate for the Company issued by the
Secretary of the Commonwealth of the Commonwealth of Pennsylvania,
dated within 10 days prior to the date hereof;
(g) an opinion letter, from Cozen and ▇'▇▇▇▇▇▇, counsel to the
Company, addressed to the Investor, dated the date hereof, in form and
substance satisfactory to the Investor;
(h) a certificate of incumbency signed by the Secretary of the
Company, certifying the names, titles and signatures of the Company's
officers and directors;
(i) a Shareholders' Letter Agreement between the Company, the
Investor and certain shareholders of the Company, signed by the
holders of at least 75% of the outstanding Common Stock of the
Company;
(j) an unqualified opinion of KPMG Peat Marwick LLP on the
Company's financial statements for the fiscal year ended December 31,
1996; and
(k) a receipt for the full amount of the Purchase Price, before
deduction of the fees and expenses payable under Section 13.6.
2.2 DELIVERIES OF THE INVESTOR AT THE CLOSING. Concurrently with the
execution of this Agreement, the Investor shall (i) pay the Purchase Price (less
fees and expenses payable under Section 13.6 for which the Investor has
submitted invoices at least one business day prior to the date hereof) to the
Company by wire transfer of immediately available funds in accordance with the
Company's written wire instructions, and (ii) deliver to the Company a receipt
for the fees and expenses deducted from the Purchase Price.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As of the date of this
Agreement, the Company represents and warrants to the Investor (regardless of
any investigation made or information obtained by the Investor), as a material
inducement to the Investor to enter into this Agreement, as follows:
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. The Company has all requisite corporate power and
authority to own and lease its properties and to conduct its business as
presently conducted. The Company is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each jurisdiction listed
in Schedule 3.1 attached hereto, such jurisdictions being all the jurisdictions
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in which it owns or leases properties or conducts any business so as to require
such qualification, except where the failure to be so qualified would not have a
material adverse effect on the Company. The minute books and stock records of
the Company are complete and accurate in all material respects and all
signatures included therein are the genuine signatures of the persons whose
signatures are required. As used in this Agreement, "material adverse effect"
means any material adverse effect on the business, properties, assets,
operations, results of operations, liabilities, or financial condition of the
Company, taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith.
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3.2 SUBSIDIARIES, ETC. Except as set forth in Schedule 3.2, the
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Company has no subsidiaries and does not own any capital stock, security,
partnership interest or other interest of any kind in any corporation,
partnership, joint venture, association or other entity.
3.3 CAPITALIZATION. As of the date of this Agreement, and after
giving effect to the Articles Amendment, the Company's authorized capital stock
consists of (a) 50,000,000 shares of Common Stock, of which 14,183,835 shares
are issued and outstanding, 6,500,000 shares are reserved and available for
issuance pursuant to the Company's stock option and purchase plans, each
outstanding grant of which is described in Schedule 3.3, at the exercise prices
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set forth on Schedule 3.3, and 6,693,351 shares are available for issuance
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pursuant to currently outstanding options and warrants granted outside of the
Company's stock option and purchase plans, each of which is described in
Schedule 3.3, and (b) 31,523,684 shares of Preferred Stock, of which 6,523,684
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shares are designated Class A Convertible Preferred Stock, par value $.01 per
share (the "Class A Preferred Stock"), of which no shares are issued and
outstanding and all of which are reserved for issuance upon the exercise of all
the warrants (collectively, the "Prior Warrants") to purchase Class A Preferred
Stock at the exercise prices set forth in Schedule 3.3. There are no treasury
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shares held by the Company. All outstanding shares of capital stock of the
Company have been, or upon issuance will be, validly issued, fully paid and
nonassessable. Except as disclosed in Schedule 3.3, no shares of capital stock
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of the Company are subject to preemptive rights or any other similar rights or
any liens or encumbrances suffered or permitted by the Company or were issued in
violation of the Securities Act of 1933, as amended (the "Securities Act"), or
applicable state, provincial or municipal securities laws. Except as set forth
in this Section 3.3 or in Schedule 3.3, as of the date of this Agreement, (i)
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there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, any shares of capital stock of the
Company, or contracts, commitments, understandings or arrangements by which the
Company is or may become bound to issue additional shares of capital stock of
the Company or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, any shares of capital stock of the
Company, (ii) there are no outstanding debt securities, (iii) there are no
agreements or arrangements under which the Company is obligated to register the
sale of any of its securities under the Securities Act (except this Agreement)
and (iv) there are no outstanding securities of the Company which contain any
redemption or similar provisions, or any contracts, commitments, understandings
or arrangements by which the Company is or may become bound to redeem or
purchase a security of the Company. Except as disclosed in Schedule 3.3 there
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are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Debenture, the Warrants or any
Conversion Shares (collectively, the "Securities"). The Company has furnished to
the Investor true and correct copies of the Company's Articles of Incorporation
and By-laws, and the terms of all securities convertible into or exercisable for
any shares of capital stock of the Company and the material rights of the
holders thereof in respect thereto. A current shareholders' list giving the
names, addresses and number of shares of capital stock of the Company owned by
each shareholder of the Company is attached hereto as part of Schedule 3.3.
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3.4 AUTHORIZATION. Subject to the filing of the Articles Amendment,
which shall occur on or before December 29, 1997 (the "Filing Date"), and upon
the Board Increase
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becoming effective on or before December 29, 1997 (the "Effective Date"), the
Company has all necessary corporate power and authority to enter into and
perform this Agreement, the Debenture, the Warrants and each of the other
agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "Transaction
Documents"), and to issue and deliver the Securities in accordance with the
terms hereof and thereof. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation of the transactions
contemplated hereby and thereof, including, without limitation, the issuance and
sale of the Debenture and the Warrants, and the issuance of the Conversion
Preferred Shares (assuming the closing of the Class B Preferred Stock
Financing), the Conversion Common Shares, the Interest Common Shares and the
Warrant Common Shares (collectively, the "Conversion Shares"), have been duly
authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
shareholders except in connection with the authorization and issuance of the
Class B Preferred Stock, the terms of which are still being negotiated in
connection with the Class B Preferred Stock Financing. The Transaction Documents
have been duly executed and delivered by the Company. Each of the Transaction
Documents constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to
or affecting generally the enforcement of creditors' rights and remedies.
3.5 ISSUANCE OF SECURITIES. The Debenture and the Warrants are duly
authorized for issuance and sale to the Investor by the Company pursuant hereto
and, upon issuance in accordance with the terms hereof, shall be valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to or affecting
generally the enforcement of creditors' rights and remedies. Upon the filing of
the Articles Amendment on or before the Filing Date, the Conversion Common
Shares will have been duly authorized and reserved for issuance upon conversion
of the Debenture and upon such issuance the Conversion Common Shares will be
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof. Upon the filing of the Articles
Amendment on or before the Filing Date, the Interest Common Shares will have
been duly authorized and reserved for issuance in accordance with the terms and
conditions of this Agreement and the Debenture and, upon such issuance will be
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof. Upon the filing of the Articles Amendment on or
before the Filing Date, the Warrant Common Shares will have been duly authorized
and reserved for issuance upon exercise of the Warrants in accordance with the
terms and conditions of this Agreement and the Warrants, and upon such issuance
will be fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof. Subject to the filing, if required, of a Form
D, the issuance by the Company of the Securities is exempt from registration
under the Securities Act.
3.6 CONTRACTS, LEASES, AGREEMENTS AND OTHER COMMITMENTS. Except as
described on Schedule 3.6, the Company is not a party to or bound by any
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written, oral or implied contract, agreement, lease, power of attorney,
guaranty, surety arrangement, or other commitment in excess of $50,000
including, but not limited to, any contract or agreement for the
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purchase or sale of merchandise or for the rendering of services, but excluding
any purchase orders to the Company in the normal course of its business.
3.7 BREACH. The Company is not in violation or breach of any of the
terms, conditions or provisions of the Articles of Incorporation or the By-laws,
or in material violation or material breach of any indenture, mortgage or deed
of trust or other material contract, agreement, lease, instrument, court order,
judgment, arbitration award or decree to which it is a party or by which it is
bound.
3.8 EMPLOYEES, OFFICERS AND DIRECTORS. A current list of the names
and addresses of all officers and directors of the Company is attached hereto as
Schedule 3.8. Except as described on Schedule 3.8, the Company has not entered
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into any employment or other agreements with any of its employees, officers or
directors, or any of its former employees, officers or directors.
3.9 COMPLIANCE WITH LAWS. Except as described in Schedule 3.9, the
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Company is in compliance with all existing requirements of laws, including but
not limited to federal, state, local and foreign laws, rules and regulations,
and all existing requirements of all governmental bodies or agencies having
jurisdiction over it, the failure to comply with which might have a material
adverse effect on the Company, its assets, business or prospects.
3.10 CONFLICT WITH DOCUMENTS. Except as disclosed in Schedule 3.10 or
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as explicitly provided in this Agreement, the execution, delivery and
performance of the Transaction Documents by the Company and the consummation of
the transactions contemplated hereby and thereby (including, without limitation,
the reservation for issuance and the issuance of the Conversion Shares other
than the Conversion Preferred Shares), either immediately or with the passage of
time or the giving of notice or both, will not:
(a) conflict with or cause a material breach or an Event of
Default under any of the terms, conditions or provisions of, result in
a termination or modification of, or cause any acceleration of any
obligation of the Company under any material contract, lease or other
instrument to which the Company is bound or by which any of the
Company's properties or assets may be affected;
(b) subject to the filing of the Articles Amendment on or before
the Filing Date and the effectiveness of the Board Increase on or
before the Effective Date, result in a violation of the Articles of
Incorporation or the By-laws or any statute, law, rule or regulation
or any order, judgment or decree to which the Company or any of its
properties or assets are subject; or
(c) result in the creation or imposition of any lien, charge or
encumbrance against the Company or any of the Company's material
properties or assets.
3.11 FINANCIAL STATEMENTS. The Company has furnished to the Investor
copies of its audited annual financial statements for the fiscal year ended
December 31, 1996, and its unaudited financial statements for each month in 1997
through October and for the year of 1997 through October 31, 1997, all of which
are attached hereto as Schedule 3.11. The audited and
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unaudited financial statements referred to above are correct and in accordance
with the Company's books and records, and each presents fairly, in all material
respects, the Company's financial position at the end of the period specified
and the results of its operations and financial condition for such period,
subject to normal recurring adjustments.
3.12 TAXES. The Company has filed all applicable federal, state, local
and foreign tax returns required to be filed to date, in accordance with the
provisions of law pertaining thereto, and has paid all taxes, interest,
penalties and assessments required to have been paid to date. The Company has
not been advised that any of its returns, whether federal, state, local or
foreign, have been or are being audited as of the date hereof.
3.13 LITIGATION. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency, self-
regulatory organization or body pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its properties or rights,
the Common Stock or any of the Company's officers or directors in their
capacities as such.
3.14 INTANGIBLE PROPERTY. Except as set forth on Schedule 3.14, the
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Company has all right, title and interest in and to all intangible property and
technology, and to the best of the knowledge of the Company, all permits,
licenses and other authority, necessary to the conduct of its business as
presently constituted and conducted, and as proposed to be constituted and
conducted.
3.15 TRADEMARKS, PATENTS, ETC. The corporate names of the Company, and
the trade names, trademarks, and service marks listed on Schedule 3.15 are the
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only names and marks which are used by the Company in the operation of its
business. Except as set forth on Schedule 3.15, no claim has been asserted
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against the Company involving any conflict or claim of conflict of its trade
names, trademarks or service marks or with the trade names, trademarks, service
marks or corporate names of others, and, to the best of the knowledge of the
Company and except as set forth on Schedule 3.15, there is no basis for any such
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claim of conflict. Except as set forth on Schedule 3.15 and to the best of the
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knowledge of the Company, the Company is the sole and exclusive owner of its
trade names, trademarks and service marks and has the sole and exclusive right
to use such trade names, trademarks and service marks. The Company is the
registered owner of the United States and foreign patents listed on Schedule
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3.15 and has applications pending with the U.S. Patent Office and/or foreign
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patent offices for the patents listed on Schedule 3.15 as being patents pending.
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The Company has no knowledge of any adverse claim of any kind with respect to
any of such patents or patent applications, nor does it have any knowledge, or
reason to know, that a patent will not issue on any such patent application.
Except as set forth on Schedule 3.15 and to the best of the knowledge of the
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Company, no process used by the Company or any product manufactured or sold by
the Company infringes upon any patent, patent application, trademark, trade name
or service ▇▇▇▇ of any other party. There has been no claim of infringement of
and, to the best of the knowledge of the Company and except as set forth on
Schedule 3.15, the Company is not infringing on any third party's patent,
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license, trademark, trade name, service ▇▇▇▇, copyright or other proprietary
right.
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3.16 ENVIRONMENTAL LAWS. (i) The Company (x) is in compliance with
any and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety or emissions, discharges,
releases, threatened releases, removal, remediation or abatement of pollutants,
contaminants, chemicals or industrial, hazardous or toxic substances or wastes
into or in the environment (including without limitation air, surface water,
ground water or land), or otherwise used in connection with the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, hazardous or toxic substances or wastes,
as defined under such applicable laws ("Environmental Laws"), (y) has received
all permits, licenses or other approvals required of it under applicable
Environmental Laws to conduct its business and (z) is in compliance with all
terms and conditions of any such permit, license or approval, except to the
extent that the matters within clauses (x), (y) or (z) above would not have a
material adverse effect.
(ii) There is no substance designated a "hazardous substance" by any
Environmental Law, including asbestos, petroleum, urea formaldehyde insulation
and petroleum by-products ("Hazardous Substance") present at any of the real
property currently owned or leased by the Company, except to the extent that
such presence could not reasonably be expected to have a material adverse
effect; and with respect to such real property, to the knowledge of the Company,
there has not occurred (x) any release or any threatened release of a Hazardous
Substance or (y) any discharge or threatened discharge of any Hazardous
Substance into the ground, surface or navigable waters, which discharge or
threatened discharge violates any federal, state, local or foreign laws, rules
or regulations concerning water pollution.
(iii) The Company has not disposed of, transported, or arranged for
the transportation or disposal of any Hazardous Substance where such disposal,
transportation or arrangement would give rise to liability pursuant to any
Environmental Law other than any such liabilities that could not reasonably be
expected to have a material adverse effect.
(iv) To the knowledge of the Company, there are no underground
storage tanks, asbestos-containing materials, polychlorinated biphenyls or urea
formaldehyde insulation at any of the real property currently owned or leased by
the Company in violation of any Environmental Law.
3.17 INSURANCE. The Company maintains insurance on all of its
insurable properties as listed on Schedule 3.17 attached hereto. All such
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insurance policies are in full force and effect and the Company is not in
default of any provision thereof. The Company has not received notice from the
issuer of any such insurance policies of its intention to cancel or refusal to
renew any policy issued by it.
3.18 GOVERNMENTAL CONSENT. No permit, consent, approval or
authorization of, or filing with, any governmental regulatory authority or
agency is required of the Company in connection with the execution, delivery and
performance of the Transaction Documents, or the consummation of the
transactions contemplated hereby and thereby, except as may be required by any
federal or state securities laws, with which the Company will comply.
3.19 LIABILITIES. The Company has no liabilities, whether related to
tax or non-tax matters, known or unknown, due or not yet due, liquidated or
unliquidated, fixed or
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contingent, or otherwise, except (i) as provided in the balance sheet of the
Company as of October 31, 1997 set forth at Schedule 3.11, (ii) as set forth on
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Schedule 3.19 or (iii) for liabilities of a non-material nature incurred in the
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normal course of the Company's business since that date.
3.20 ASSETS. The Company has good and marketable title to all of its
assets free and clear of all liens, charges, claims, encumbrances and defects of
any kind or character, except as set forth on Schedule 3.20 (collectively,
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"Permitted Liens"). To the best of the knowledge of the Company, all equipment,
furniture and fixtures, and other tangible personal property of the Company are
in good operating condition and repair and do not currently require any repairs
other than normal routine maintenance to maintain such property in good
operating condition and repair.
3.21 CONFLICTING INTERESTS. Except as set forth on Schedule 3.21, no
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director, officer, or any relative or affiliate of any director or officer, or,
to the best of the knowledge of the Company, any employee or shareholder of the
Company or any relative or affiliate of any of the employees or shareholders (a)
has any pecuniary interest in any supplier or customer of the Company or in any
other business enterprise with which the Company conducts business or with which
the Company is in competition; or (b) is indebted to the Company for money
borrowed.
3.22 NO PAYMENTS TO SHAREHOLDERS OR OTHERS. Except as set forth on
Schedule 3.22, there has not been any purchase or redemption of any shares of
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stock of the Company by the Company or any transfer, distribution or payment by
it, directly or indirectly, of any money or other property or assets to any
shareholder or to any other person, other than (i) payments made in the ordinary
course of business for goods and services in arm's length transactions, and (ii)
wages paid to non-executive employees. The salaries and benefits payable to the
officers of the Company have not been increased since May 31, 1997.
3.23 ABSENCE OF MATERIAL CHANGES. Except as set forth in Schedule 3.23
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attached hereto, since December 31, 1996:
(a) there has not been and there is not threatened any material
adverse change in the financial condition, business, prospects or
affairs of the Company or any material physical damage or loss to any
of its properties or assets or to the premises occupied by it (whether
or not such damage or loss is covered by insurance);
(b) the Company has not taken any action outside of the ordinary
and usual course of its business, except as related to the
transactions contemplated hereby;
(c) the Company has not borrowed any money or become
contingently liable for any obligation or liability of others;
(d) the Company has paid all of its debts and obligations as
they became due;
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(e) except for the Debenture to be issued hereunder, the Company
has not incurred any debt, liability or obligation of any nature to
any party, except for obligations arising from the purchase of goods
or the rendition of services in the ordinary course of business;
(f) the Company has not knowingly waived any right of
substantial value;
(g) the Company has maintained its books, accounts and records
in the usual, customary and ordinary manner; and
(h) the Company has used its best efforts to preserve its
business organization intact, to keep available the services of its
employees, and to preserve its relationships with its customers,
suppliers and others with whom it deals.
3.24 STATEMENTS AND OTHER DOCUMENTS NOT MISLEADING. No provisions in
the Transaction Documents relating to the Company or any other document,
schedule, exhibit or other information furnished by the Company to the Investor
in connection with the execution, delivery and performance of the Transaction
Documents, or the consummation of the transactions contemplated hereby and
thereby, when taken together as a whole with all other such statements, contains
or will contain any untrue statement of a material fact or omits or will omit to
state a material fact required to be stated in order to make the statement, in
light of the circumstances in which it is made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF INVESTOR AND RESTRICTIONS ON
TRANSFER.
4.1 REPRESENTATIONS AND WARRANTIES BY THE INVESTOR. The Investor
represents and warrants to the Company as follows:
(a) The Investor (i) is acquiring the Debenture and the Warrants
and (ii) upon conversion of the Debenture or the Class B Preferred
Stock, or upon exercise of the Warrants, will acquire the applicable
Conversion Shares then issuable, for investment for its own accounts
and not with a view to, or for resale in connection with, any
distribution of the Securities. The Investor understands that the
Securities have not been registered under the Securities Act, or under
any state securities or "Blue Sky" laws, and, as a result, are subject
to substantial restrictions on transfer. The Investor acknowledges
that the Securities must be held indefinitely unless subsequently
registered under the Securities Act and any applicable state
securities or "Blue Sky" laws, or exemptions from registration under
the Securities Act and such laws are available; provided, however,
that by making the representations herein, the Investor does not agree
to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an
exemption from registration under the Securities Act and any
applicable state securities or "Blue Sky" laws.
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(b) This Agreement has been duly executed and delivered by the
Investor and constitutes a valid and legally binding obligation of the
Investor, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws
of general applicability relating to or affecting creditors rights and
to general equity principles.
(c) The Investor is an "accredited investor," as that term is
defined in Rule 501(a) of Regulation D under the Securities Act.
(d) The Investor is an "institutional buyer" and, accordingly,
the offer and sale of the Securities to the Investor is an exempt
transaction pursuant to Section 7309(b)(8) of the Delaware Securities
Act.
4.2 LEGENDS. The Investor understands that the certificates or other
instruments representing the Debenture and the Warrants and, until such time as
the sale of the Conversion Shares have been registered under the Securities Act,
the stock certificates representing the Conversion Shares, except as set forth
below, shall bear a restrictive legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND SUCH LAWS.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped if, unless otherwise required by state securities laws, (i) such
Securities are registered for sale under the Securities Act, (ii) in connection
with a sale transaction, such holder provides the Company with an opinion of
counsel, in a form reasonably acceptable to the Company's counsel, to the effect
that a public sale, assignment or transfer of such Securities may be made
without registration under the Securities Act, or (iii) such holder provides the
Company with an opinion of counsel, in a form reasonably acceptable to the
Company's counsel, that such Securities can be sold pursuant to Rule 144(k)
promulgated under the Securities Act (or a successor rule thereto) ("Rule 144").
The Investor acknowledges, covenants and agrees to sell the Securities
represented by a certificate(s) from which the legend has been removed, only
pursuant to (i) a registration statement effective under the Securities Act, or
(ii) advice of counsel that such sale is exempt from registration required by
Section 5 of the Securities Act.
5. CONTINUATION AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties shall survive the consummation of the
transactions provided for in the Transaction Documents for a period beginning on
the date hereof up to and including the earlier of the conversion of all Class B
Preferred Stock held by the Investor into Common Stock or December 31, 1999;
provided, however, that such period shall not end prior to December 31, 1998. No
such representation or warranty shall be deemed to have been waived, affected or
impaired by any investigation made by any person or persons.
11
6. AFFIRMATIVE COVENANTS OF THE COMPANY. The Company hereby covenants to
comply with the following affirmative covenants, unless waived by the Investor,
as long as the Debenture remains outstanding; provided, however, that in the
event the Debenture is converted into shares of Class B Preferred Stock, the
Company shall provide to the Investor all such information and rights as the
Company provides to any other holder of Class B Preferred Stock, whether
pursuant to the Company's Articles of Incorporation, as amended, contract or
otherwise; and provided, further, that the Company shall comply with Section
6.2, unless waived by the Investor, until the earlier of (i) such time as the
Investor owns no Debenture, no Warrants, no Class B Preferred Stock and fewer
than 100,000 shares of Common Stock or (ii) the closing of an underwritten
initial public offering of any of the Company's securities under the Securities
Act (or any successor statute), yielding gross proceeds to the Company of at
least $7,500,000.
6.1 FINANCIAL STATEMENTS. The Company shall furnish to the Investor
the following financial statements, reports and other documents, such financial
statements to be prepared in accordance with generally accepted accounting
principles consistently applied, certified by the Company's chief executive or
financial officer:
(a) as soon as available, and in any event within 90 days after
the end of each fiscal year of the Company, a balance sheet of the
Company as of the end of such fiscal year and related statements of
operations, shareholders' equity and cash flows for such fiscal year,
all in reasonable detail and setting forth in comparative form the
figures as of the end of and for the previous fiscal year, which
financial statements shall have been audited, and shall be accompanied
by an unqualified opinion addressed to the Company from "Big Six"
independent auditors or other independent auditors that are reasonably
satisfactory to the Investor, together with a copy of such auditors'
letter to Company's management;
(b) as soon as available, and in any event within 20 days after
the end of each month for such month and for the year to date, an
unaudited balance sheet and unaudited statements of operations,
shareholders' equity and cash flows, together with a comparison of
such financial statements with the budget of the Company for such
period; and
(c) as soon as available, and in any event at least 60 days prior
to the end of each fiscal year of the Company, an annual budget and
business plan for the subsequent fiscal year, which budget and
business plan shall include a monthly breakdown of financial
statements, which breakdown shall include the underlying assumptions
and a brief qualitative description of the Company's plan by the
Company's Chief Executive Officer in support of such budget and
business plan, which also shall have been approved and accepted by the
Board of Directors of the Company. If during the course of operations
for any such month it becomes apparent that deviations from such
financial statements, budget and business plan have occurred, the
Company shall submit to its Board of Directors a statement of such
deviation within five business days from the date of the Company's
knowledge of such deviation (the "Statement"). The Statement shall
detail the manner in which a new financial projection deviates from
the annual business plan and the reason therefor. The Board of
Directors shall have the right to ask
12
questions or request any other reasonable additional information with
respect to the Statement. Any and all subsequent deviations from such
financial statements shall be resubmitted to the Board of Directors of
the Company for approval and acceptance or for required further
revision until such approval and acceptance is obtained.
In the event that the Company at any time hereafter is required, by law or by
generally accepted accounting principles, to consolidate its financial
statements with those of a subsidiary corporation, the Company shall thereafter
furnish the financial statements required by this Section 6.1 on a consolidated
basis, and the monthly and annual financial statements specified above shall be
furnished with consolidating financial statements.
6.2 BOARD OF DIRECTORS, MEETINGS. The Company shall maintain By-laws
provisions satisfactory to the Investor in its sole discretion with respect to
the following provisions and use its best efforts to achieve the following
objectives:
(a) Subject to the terms of this Agreement, the Investor shall
have the right to designate one person to serve as a member of the
Board of Directors (the "Designated Director"). The Investor hereby
designates ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ as its first Designated Director and
the Company hereby agrees to ▇▇. ▇▇▇▇▇▇▇▇▇▇ to be elected to the
Company's Board of Directors as promptly as possible. The Investor
shall also have the right to replace the Designated Director from time
to time and at any time during the Applicable Period. In that regard,
the Company agrees to take all necessary action to cause any person
named by the Investor during the Applicable Period as a replacement
Designated Director to be elected to the Company's Board of Directors
in replacement of the previous Designated Director as promptly as
possible thereafter. In the event the Company establishes an
Executive Committee of the Board of Directors (or any other similar
committee), one member of any such committee shall be the Designated
Director. The Company shall reimburse the Designated Director for all
reasonable travel and other expenses incurred in connection with such
Director's participation on the Board of Directors or any committee of
the Board of Directors.
(b) The Company shall not hold any meetings of the Board of
Directors (or any other similar meetings) until such time as the
Designated Director has been elected to the Company's Board of
Directors.
(c) The Company shall permit the Designated Director to invite
one or more additional individuals to any and all meetings of the
Board of Directors or of the shareholders of the Company; provided,
however, that the individual invited must be a director, officer,
consultant or employee of the Investor. Such individuals may
participate in discussions and express their views on matters before
the Board of Directors, but shall not be entitled to vote. Such
attendance may be either in person or by telephone.
13
6.3 ADDITIONAL INFORMATION.
(a) The Company shall, as promptly as possible (but, in any
event, within ten days) after obtaining knowledge of the occurrence of
any "Default" (as such term is defined in Section 2.1(c) above), or
any other material adverse development or event, furnish the Investor
with a detailed written notice of such default or event and the
proposed response of Company management.
(b) The Company shall, as promptly as possible (but, in any
event, within ten days) after the commencement thereof, furnish the
Investor with notice of all material actions, suits and proceedings
before any court or governmental agency, commission, board, bureau,
department or instrumentality, domestic or foreign, affecting the
Company.
(c) The Company shall promptly furnish the Investor with all
notices for and minutes of meetings of the shareholders and/or
directors of the Company, and all written consents taken by the
shareholders and/or directors of the Company.
(d) The Company shall, as promptly as possible (but, in any
event, within ten days) after sending, making available, or filing the
same, furnish the Investor with all reports and financial statements
that the Company shall send or make available to the shareholders or
the directors of the Company or the Securities and Exchange
Commission.
(e) The Company shall, as promptly as possible (but, in any
event, within ten days) after the occurrence thereof, furnish the
Designated Director with prompt written notice of all material
developments and transactions outside of the ordinary course of
business or which might otherwise have a significant effect on the
Company's business prospects or financial condition or on the
Investor's investment in the Company.
(f) The Company shall promptly furnish the Investor or the
Designated Director with copies of all material contracts, indentures,
instruments and agreements the Company provides to any investor in the
Class B Preferred Stock Financing or in any other additional bridge
financing, when such documents are provided to such investor.
(g) The Company shall furnish the Investor with such other
information with respect to the business, properties, assets, or the
condition of operations, financial or otherwise, of the Company as the
Investor may, from time to time, reasonably request.
(h) The Investor agrees not to disclose to third parties any
information concerning the Company which is furnished to the Investor
by the Company and designated as confidential, except as required by
law, legal process or its fiduciary duty to report financial and
business information to its partners, shareholders, directors or
affiliates and to such other persons as the Investor, in the exercise
of
14
its prudent business judgment, may select and shall use reasonable
commercial efforts to have such persons maintain such confidentiality
of the confidential information. The term "confidential information"
does not include information which (i) was or becomes generally
available to the public other than as a result of a disclosure by the
Investor, or (ii) was or becomes available to the Investor on a non-
confidential basis from a source other than the Company, provided that
such source is not bound by a confidentiality agreement with the
Company.
6.4 INSPECTION. The Company shall permit, at any reasonable time and
from time to time upon reasonable advance notice, the Investor or its duly
authorized agents or representatives to examine and make copies of, and extracts
from, the Company's records, books of account, documents and other materials, to
visit its properties, and to discuss the affairs, finances and accounts of the
Company with any of the Company's officers, consultants, directors or
independent accountants.
6.5 LIFE INSURANCE. The Company shall use its best efforts to obtain
and maintain at its expense, a key man life insurance policy or policies, with
an insurance company or association satisfactory to the Investor, on the life of
▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, each in the amount of $1,500,000 payable, until
conversion or payment of the Debenture, to the Investor, and the amount of the
insurance so obtained shall not be decreased or cancelable other than due to the
non-payment of premiums or prior conversion or repayment of the Debenture.
Assuming issuance of such a life insurance policy or policies as to which the
Investor is the beneficiary, upon the death of ▇▇. ▇▇▇▇▇ or ▇▇. ▇▇▇▇▇▇, the
Investor shall accelerate the Debenture and the proceeds of such policy shall be
used to repay all then outstanding principal and interest under the Debenture,
to the extent of such policy or policies. To the extent the proceeds of such
life insurance policy exceed all amounts due under the Debenture, the Investor
shall remit to the Company such excess remaining after all amounts due on the
Debenture have been fully satisfied.
6.6 COMPLIANCE WITH ARTICLES OF INCORPORATION AND BY-LAWS. The
Company shall perform and observe all the obligations and provisions set forth
in the Articles of Incorporation and the Bylaws.
6.7 MAINTAIN RIGHTS AND FACILITIES. The Company shall maintain and
preserve its corporate existence and all permits, rights and franchises
necessary to the conduct of its business in full force and effect and adequate
for its business as presently conducted and proposed to be conducted. The
Company shall maintain complete and exclusive ownership of, but shall have the
right to license or sublicense, its patents, trademarks, trade names, service
marks, and other proprietary rights.
6.8 BOOKS AND RECORDS. The Company shall make and keep books,
records and accounts, which, in reasonable detail accurately and fairly reflect
its transactions, and shall devise and maintain a system of internal accounting
controls sufficient to provide reasonable assurances that: (a) transactions are
executed in accordance with management's general or specific authorization; (b)
transactions are recorded as necessary to permit preparation of the financial
statements required herein and to maintain accountability for assets; and (c)
access to assets is permitted only in accordance with management's general or
specific instructions and
15
recorded assets are compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any difference.
6.9 OTHER INSURANCE. The Company shall maintain insurance against
such risks and in at least such amounts as is customarily carried by companies
engaged in the same or a similar business, under valid and enforceable policies
issued by insurers of recognized responsibility.
6.10 CONTRACTS AND AGREEMENTS. The Company shall comply in all
material respects with the provisions of all material contracts, indentures,
instruments and agreements to which it is a party or by which the Company or its
properties are bound, and with all other material obligations which the Company
incurs or to which it becomes subject.
6.11 TAXES. The Company shall pay and discharge when due all federal,
state, local, and foreign taxes, assessments, penalties, interest and
governmental charges which become payable by the Company or which shall be
imposed upon its properties, and all claims for labor, materials or supplies
which if unpaid might by law become a lien upon any of its properties; provided,
however, that the Company may in good faith contest any tax, assessment,
penalty, or charge, provided that such contest is asserted in accordance with
applicable procedures.
6.12 COMPLIANCE WITH LAWS. The Company shall comply with all laws,
rules and regulations of all governmental authorities and agencies applicable to
the Company, its business or its properties, the failure to comply with which
might have a material adverse effect on the Company.
7. NEGATIVE COVENANTS. The Company hereby covenants that as long as the
Debenture remains outstanding the Company shall comply with the following
negative covenants unless such covenant is waived by the Investor or the
proposed action is approved by the Designated Director:
7.1 CONDUCT OF BUSINESS. The Company shall not:
(a) (i) merge or consolidate with or into, or permit any
subsidiary to merge or consolidate with or into, any other corporation
or other entity or entities; (ii) reorganize, dissolve or liquidate
the Company, or adopt any plan of reorganization, dissolution or
liquidation of the Company; (iii) sell, assign or otherwise dispose of
all or any substantial portion of its assets; or (iv) acquire all or
any substantial portion of the voting stock or assets of another
corporation or other entity or entities; provided, however, the
Company may complete its proposed acquisition of ▇▇▇▇▇ Development
Hard- & Software Engineering, GmbH, with the cash portion of the
purchase price not to exceed $2,500,000 (excluding any applicable
taxes that the Company has agreed to assume);
(b) except as otherwise required, permitted or acknowledged by
this Agreement or any Schedule hereto, create, authorize or issue any
additional shares of capital stock or any rights to acquire any shares
of capital stock or any other security, or repurchase any shares of
its capital stock except from employees upon termination of
employment;
16
(c) incur, create, assume or guarantee any indebtedness which
ranks senior or pari passu in the right of payment to the Debenture,
other than additional pari passu bridge financing of up to $1,000,000
on the same terms and considerations contemplated hereby, which the
Company may obtain following the execution of this Agreement;
(d) except as contemplated by this Agreement, amend the Articles
of Incorporation or the By-laws; or
(e) effect any material change in the nature of the business of
the Company, or apply the assets of the Company other than for the
conduct of the business of the Company, as such business is conducted
and proposed to be conducted.
7.2 LIENS AND ENCUMBRANCES. Except for Permitted Liens (as defined
in Section 3.20), the Company shall not create, assume, or permit to exist any
lien, security interest, pledge or other encumbrance, under conditional or
installment sale arrangements or otherwise, with respect to its properties or
assets, whether tangible or intangible, now owned or hereafter acquired, except
for liens for current taxes not delinquent.
7.3 DIVIDENDS. The Company shall not declare or pay any dividend
payable in cash or other property or make or authorize any other distribution,
directly or indirectly, on any class of the Company's capital stock or redeem or
purchase any of the securities of the Company, other than as required, permitted
or acknowledged by this Agreement or the Articles of Incorporation.
7.4 AGREEMENTS. The Company shall not enter into any contract,
agreement, lease or other instrument which, by its terms, restricts, in any
material respect, the Company's ability to make payment on the Debenture, or
which otherwise restricts, in any material respect, the Company's ability to
perform under the Transaction Documents.
7.5 INSIDER TRANSACTIONS. Except as disclosed in Schedules 3.21 and
--------------
3.22, the Company shall not enter into any transaction with any of its officers,
----
directors or shareholders, unless such transaction is an arm's-length
transaction on fair and reasonable terms, and shall not increase in any way the
compensation payable, directly or indirectly, to any of the Company's officers.
7.6 CAPITAL EXPENDITURES. The Company shall not incur, in any
twelve-month period, capital expenditures (including expenditures for
capitalized leases) in excess of $150,000 or any single capital expenditure in
excess of $60,000, unless such expenditures were explicitly included in an
approved budget of the Company. Notwithstanding the foregoing, the Company
shall obtain the prior written approval of the Investor or the Designated
Director with respect to any expenditure submitted to NEPA Venture Fund II, L.P.
("NEPA II") for its approval.
7.7 PAYMENTS, NO DEFAULT. The Company shall make all required
payments of rent, taxes, debts and other material obligations of the Company
promptly when due. The
17
Company shall not be in default with respect to any material contracts,
agreements or instruments to which the Company is a party or by which the
Company is bound.
7.8 MATERIAL CONTRACTS. The Company shall not, during any fiscal
year of the Company, enter into material contracts, other than in the ordinary
course of business, pursuant to which the Company would incur liabilities in
excess of $50,000 individually or $100,000 in the aggregate, unless the Board of
Directors of the Company has previously approved the execution of such contracts
or such contracts were explicitly included in an approved budget of the Company.
Notwithstanding the foregoing, the Company shall obtain the prior written
approval of the Investor or the Designated Director with respect to any material
contracts submitted to NEPA II for its approval.
8. REGISTRATION AND RELATED RIGHTS.
8.1 PIGGYBACK REGISTRATION.
(a) As used in this Section 8.1, "Registration Stock" shall mean
any Securities or any other shares of Common Stock, Class B Preferred
Stock or other securities received by holders of the Securities upon
any stock split, stock dividend, recapitalization, merger,
consolidation or similar event; provided, however, that Registration
Stock shall not include any Securities or such other securities
disposed of pursuant to one or more registration statements under the
Securities Act, or which have been sold pursuant to Rule 144 (as
previously defined) or which have otherwise been sold without
registration under the Securities Act. For purposes of this Section
8, any record holder of securities convertible into Registration Stock
(or exercisable for or payable in Registration Stock) shall be deemed
to be the holder of the Registration Stock issuable upon such
conversion and/or exercise and/or payment.
(b) If the Company should seek to register under the Securities
Act or qualify any of the securities holdings of the Company or any of
its shareholders (except in connection with any stock option plan,
stock purchase plan, savings or similar plan or an acquisition, merger
or exchange of stock, to be registered on Forms ▇-▇, ▇-▇ or any
successor forms under the Securities Act) and if the form of
registration statement proposed to be used otherwise may be used for
the registration of the Registration Stock, then, on each such
occasion, the Company shall furnish the Investor with at least 30 days
prior written notice thereof. At the written request of the Investor,
given within 20 days after the receipt of such notice, the Company
will use its best efforts to cause all of the Registration Stock for
which registration shall have been requested by the Investor to be
included in such registration statement. In the event that the
proposed registration by the Company is, in whole or in part, an
underwritten public offering of securities of the Company, and the
managing underwriter determines and advises in writing that the
inclusion of all Registration Stock proposed to be included in the
underwritten public offering and other issued and outstanding shares
of Common Stock proposed to be included therein by persons other than
(i) holders of Registration Stock or (ii) holders of Subordinate
Shares (as defined in Section
18
8.4) with rights equal to those of the holders of Registration Stock
("Other Registration Stock") (such other shares which are not
Registration Stock or Other Registration Stock being the "Other
Shares") would interfere with the successful marketing (including
pricing) of the securities, then the number of shares of Registration
Stock, Other Registration Stock and Other Shares to be included in
such underwritten public offering shall be reduced first, pro rata
among the holders of Other Shares; second, if necessary, pro rata
among the holders of Registration Stock and Other Registration Stock
combined, based on the number of shares requested by holders thereof
to be registered in such underwritten public offering; and lastly, if
necessary, among the Company's shares requested by the Company to be
registered; provided, however, that the holders of Registration Stock
do not then elect to exercise their rights under Section 8.2; and,
further provided, that in no event, without the consent of the holders
of at least 67% of the Registration Stock, shall the percentage of the
Registration Stock that is included in such registration statement be
less than the percentage of the securities of any other shareholder
included therein. In the event that the Company offers any of its
securities in an offering exempt from registration under the
Securities Act pursuant to Regulation A, the Company will provide to
the holders of Registration Stock rights comparable to those provided
herein.
8.2 DEMAND REGISTRATION.
(a) After the closing of an underwritten offering of the Common
Stock, if at any time the Company is requested in writing by the
holders of not less than 67% of the Registration Stock to effect the
registration under the Securities Act of at least 33 1/3% of the
Registration Stock, the Company shall promptly give written notice of
such proposed registration to all record holders of Registration
Stock. Such holders shall have the right, by giving written notice to
the Company within 30 days from receipt of the Company's notice, to
elect to have included in such registration such of their Registration
Stock as such holders may request in such notice of election.
Thereupon, the Company shall, as expeditiously as possible, use its
best efforts to effect the registration, on a form of general use
under the Securities Act of all shares of Registration Stock which the
Company has been requested to register; provided, however, that if the
holders of not less than 67% of the Registration Stock shall so
request (and at least 50% of the Registration Stock is being
registered), the Company shall file such registration statement
pursuant to Rule 415 or any successor rule or regulation under the
Securities Act, so as to permit the continuous or delayed offering of
the Registration Stock in accordance with the intended method of
disposition specified in the notice of the exercise of rights under
this Section 8.2(a), to the extent such offering qualifies under such
rule or regulation, but in no event shall the Company be required to
maintain the effectiveness of such registration statement beyond a two
year period. The Company shall be obligated to cause to become
effective one registration statement pursuant to which Registration
Stock is sold under this Section 8.2(a).
19
(b) In addition and not in limitation of the rights set forth in
Sections 8.1 (b) and 8.2(a), at such time as the Company shall have
qualified for the use of a short form Form S-3 in an offering solely
for the accounts of persons other than the Company (or any similar
form or forms promulgated by the Securities and Exchange Commission),
the holders of not less than 67% of the Registration Stock shall have
the right to request an unlimited number of registrations on Form S-3
or other similar forms. Such holders shall have the right, by giving
written notice to the Company within 20 days from receipt of the
Company's notice, to elect to have included in such registration such
of their Registration Stock as such holders may request in such notice
of election. Thereupon, the Company shall, as expeditiously as
possible, use its best efforts to effect the registration, on Form S-3
of all shares of Registration Stock which the Company has been
requested to register. The Company shall not be required to effect
any such registration more than once every twelve months.
Registrations effected on Form S-3 shall not be considered to be
demand registrations pursuant to Section 8.2(a) hereof.
(c) The Company may include in a registration requested under
this Section 8.2 any additional authorized shares of the Common Stock
of the Company, whether or not issued, for sale by the Company or for
sale by others; provided, however, that such shares shall not be
included to the extent that the holders of a majority of the shares of
Registration Stock included therein determine in good faith that the
inclusion of such shares will interfere with the successful marketing
of the shares of Registration Stock to be included therein; and,
provided, further, that, upon the election of the holders of a
majority of the shares of Registration Stock included therein, or if
the number of shares to be so included equals or exceeds the number of
shares of Registration Stock included therein by the holders of
Registration Stock, such registration shall be deemed to be a
registration pursuant to Section 8.1(b) hereof.
(d) The underwriter and the terms of the underwriting for any
registration pursuant to this Section 8.2 shall be mutually acceptable
to the Company and the Investor.
(e) Notwithstanding anything contained in this Agreement to the
contrary:
(i) The Company reserves the right to delay any such
registration pursuant to Section 8 for a period of not more
than sixty days, or to withhold efforts to cause such
registration statement to become effective for a period of
not more than sixty days, if the Board of Directors of the
Company determines in good faith that such registration might
(A) interfere with or affect the negotiation or completion of
any material transaction that is being contemplated by the
Company, or (B) involve initial or continuing disclosure
obligations materially adverse to the best interests of the
Company's shareholders. If, after a registration statement
becomes effective, the Company advises the holders of the
Registration
20
Stock covered by such registration statement that the Company
considers it appropriate for the registration statement to be
amended, the holders of such shares shall suspend any further
sales of their registered shares until the Company advises
them that the registration statement has been amended. The
time periods referred to in this Section 8 shall be extended
for an additional number of business days during which the
rights to sell shares was suspended.
(ii) The Company shall not be obligated to file a
registration statement pursuant to Section 8.2 within three
months after the effective date of any registration under
which piggyback rights were granted pursuant to Section 8.1.
8.3 FURTHER OBLIGATIONS OF THE COMPANY. Whenever the Company is
required to register any of the Registration Stock pursuant to any of the
provisions of this Section 8, the Company shall also be obligated to:
(a) prepare for filing and file with the Securities and Exchange
Commission promptly thereafter a registration statement and such
amendments and supplements to said registration statement and the
prospectus used in connection therewith as may be necessary to keep
said registration statement effective and to comply with the
provisions of the Securities Act with respect to the sale of
securities covered by said registration statement for the period
necessary (but, other than as otherwise provided in Section 8.2(a), in
no event more than nine months) to complete the proposed public
offering;
(b) furnish to each selling holder so requesting such copies of
preliminary and final prospectus and such other documents as said
holder may reasonably request to facilitate the public offering of
such holder's Registration Stock;
(c) use its best efforts to register or qualify the Registration
Stock covered by said registration statement under the securities or
"Blue Sky" laws of such jurisdictions as the holders of Registration
Stock may reasonably request, to keep such registration or
qualification in effect for so long as such registration statement
remains in effect, and do any and all other acts and things that may
be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of its Registration
Stock covered by such registration statement, except that the Company
shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would
not, but for the requirements of this subdivision (c), be obligated to
be so qualified, or to subject itself to taxation in any such
jurisdiction, or to consent to general service of process in any such
jurisdiction;
(d) furnish to the selling holders, and any underwriters or
broker-dealers through whom the Registration Stock may be sold, an
opinion or opinions
21
of counsel for the Company and a "cold comfort" letter or letters of
the independent auditors for the Company, in form and substance
customary for similar offerings;
(e) permit each selling holder or the selling holder's counsel or
other representatives, at the selling holder's expense, to inspect and
copy such corporate documents and records as may reasonably be
requested by them;
(f) if so requested, furnish to each selling holder a copy of all
documents filed and all correspondence to or from the Securities and
Exchange Commission in connection with any such offering;
(g) immediately notify each seller of Registration Stock covered
by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon
discovery that, or upon 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 the light of the
circumstances then existing, and at the request of any such seller or
holder, prepare and furnish to such seller and holder a reasonable
number of copies of a supplement to or an amendment of such prospectus
as may be necessary so that, as thereafter delivered to the purchasers
of such Registration Stock, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing;
(h) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and
make available to its security holders, as soon as reasonably
practicable, an earnings statement covering a period of at least
twelve months, but not more than eighteen 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 13(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"); and
(i) provide and cause to be maintained a transfer agent and
registrar for all registrable securities covered by such registration
statement from and after a date not later than the effective date of
such registration statement.
If requested by the Company, each seller of Registration Stock as to which any
registration is being effected shall furnish the Company with such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing as shall be required by law or
by the Securities and Exchange Commission in connection therewith.
22
8.4 REGISTRATION RIGHTS EQUAL OR SUPERIOR. The Company shall not
grant any registration rights or register any securities for the account of any
person other than holders of Registration Stock unless permitted to do so by (i)
the written consent of the holders of not less than 67% of the Registration
Stock, and (ii) the consent of the Designated Director; provided, however, that
the Company shall be entitled to grant registration rights or register any
securities for the account of any person other than holders of Registration
Stock without the consent of the Designated Director as long as such rights
applicable to such securities are made subject and subordinate to, or no more
than equal to the rights of the holders of Registration Stock under Sections 8.1
and 8.2 (such securities being the "Subordinate Shares").
8.5 EXPENSES, ETC. All expenses in connection with the preparation
and filing of any registration statement under this Section 8, any registration
or qualification under the securities or "Blue Sky" laws of states in which the
offering will be made under such registration statement, and any filing fee of
the National Association of Securities Dealers, Inc. relating to such offering,
shall be borne in full by the Company, except for any (i) underwriters' or
brokers' commissions applicable to the shares to be sold by a holder of
Registration Stock, (ii) fees required to be paid by a selling shareholder
rather than the Company in order to comply with "Blue Sky" or state securities
laws, (iii) other fees or expenses expressly applicable to securities being sold
by the selling shareholder, and (iv) fees or expenses of any selling
shareholders' counsel.
8.6 INDEMNIFICATION. The Company shall indemnify the selling holders
of Registration Stock, and, to the extent required in any agreement with any
underwriter or broker-dealer through whom the Registration Stock may be sold,
any such underwriter or broker-dealer and each person, if any, who controls any
such underwriter or broker-dealer (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities, expenses or actions in respect
thereof (under the Securities Act or common law or otherwise) caused by any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement under which such Registration Stock were registered under
the Securities Act, any preliminary or final prospectus contained therein, or
any amendment or supplement thereto (unless cured by an amendment or supplement
to the prospectus delivered to the selling holders prior to the sales of the
Registration Stock that are subject to the claimed right of indemnification), or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading (unless cured by an amendment or supplement to the prospectus
delivered to the selling holders prior to the sales of the Registration Stock
that are subject to the claimed right of indemnification); and will reimburse
the selling holders of Registration Stock for any legal or other out-of-pocket
expenses reasonably incurred by such selling holders in connection with
investigating or defending against such loss, claim, damage, liability or
action; except insofar as such losses, claims, damages, liabilities or expenses
are caused by any untrue statement or omission contained in information
furnished in writing to the Company by such selling holders expressly for use
therein. In connection with any such registration statement, the selling
holders of Registration Stock will furnish the company in writing such
information as may reasonably be requested by the company for use in any such
registration statement or prospectus and will indemnify the Company, its
directors and officers, and, to the extent required in any agreement with any
underwriter or broker-dealer, each such underwriter or broker-dealer and each
person, if any, who controls the Company or any underwriter or broker-dealer
(within the meaning of the Securities Act) against any losses,
23
claims, damages, liabilities, expenses and actions in respect thereof (under the
Securities Act or common law or otherwise) resulting from any untrue statement
or alleged untrue statement of a material fact required to be stated in such
registration statement or prospectus and necessary to make the statements
therein not misleading; and will reimburse the Company for any legal or other
out-of-pocket expenses reasonably incurred by it in connection with
investigating or defending against such loss, claim, damage, liability or
action; but only to the extent that such untrue statement or omission was
contained in information so furnished in writing by the selling holders of
Registration Stock expressly for use therein, and only to the extent of proceeds
received by the selling holders of Registration Stock in the offering. The
Company further agrees and the selling shareholders shall agree that, in
connection with any underwritten public offering, the Company also will enter
into customary contribution arrangements with the selling holders of
Registration Stock and the underwriters or broker-dealers through whom the
Registration Stock may be sold, with respect to situations in which
indemnification is potentially unavailable.
8.7 WITHDRAWAL. If a public offering is not completed within nine
months after the effective date of any registration statement filed by the
Company pursuant to Section 8.1 (b), other than an offering under Rule 415 as
described in Section 8.2(a), the Company reserves the right, at its option, to
withdraw from registration any securities offered by the Company which have not
been sold during such period, provided that no securities offered by any holder
of Registration Stock shall be withdrawn without the consent of the holders of
50% of the Registration Stock.
8.8 EXCHANGE ACT. As promptly as possible following receipt of a
written request therefor from the holders of 50% of the outstanding Registration
Stock at any time while the Company either (a) is subject to periodic reporting
pursuant to Section 15(d) of the Exchange Act or (b) has 300 or more
shareholders of record, the Company shall register its Common Stock under
Section 12 of the Exchange Act, arrange for its Common Stock to be listed on a
national stock exchange or included for quotation on the Nasdaq National Market,
as requested, and shall keep effective such registration and maintain such
listing or inclusion, and shall use its best efforts timely to file such
information, documents and reports as the Securities and Exchange Commission may
require or prescribe that the Company file in connection therewith. The Company
will, at the request of any holder of Registration Stock, advise such holder in
writing as to whether all reports required to be filed by the Company under
Section 13 of the Exchange Act during the 12 months preceding such request (or
for such shorter period as the Company was required to file such reports) have
been filed, and any other information which the holder may reasonably require in
order to comply with Rule 144, or any other comparable rule, as then in effect.
9. EVENTS OF DEFAULT.
Each of the following shall constitute an Event of Default under this
Agreement:
9.1 DEFAULT ON PAYMENTS TO THE INVESTOR. The failure of the Company
to make (a) any principal or interest payment on the Debenture when due, or (b)
any other payment upon any other written obligation of the Company to the
Investor within 15 days after written notice from the Investor to the Company;
regardless of whether any such failure to make the
24
payments described in (a) and (b) above is due to a legal inability or the
incapacity of the Company to make any such payments.
9.2 INFORMATION, REPRESENTATIONS AND WARRANTIES. Any information
furnished or representation or warranty made or given by the Company herein
shall prove to have been untrue when made or given in any material respect or
shall have omitted to state a material fact respecting the matters set forth
therein necessary to make the matters set forth therein not misleading.
9.3 COVENANTS AND AGREEMENTS. The failure of the Company to observe,
perform or abide by any other covenant, warranty, agreement or provision in any
of the Transaction Documents, which failure is not cured to the Investor's
reasonable satisfaction within 30 days after written notice from the Investor to
the Company of its occurrence; provided, however, that no Event of Default shall
be considered to have occurred if the failure is not the failure to pay money
and is of such a nature that it reasonably cannot be cured within the Cure
Period, but if it is curable and the Company in good faith begins efforts to
cure it within the Cure Period and continues diligently to do so, the Company
shall have an additional 30 days from the date on which the Cure Period ends to
effect the cure. If the failure continues after the expiration of such
additional 30 day period, regardless of whether such failure might be curable at
some time beyond such additional 30 day period, such failure shall nevertheless
be considered an Event of Default.
9.4 DEFAULT ON OTHER OBLIGATIONS. The occurrence of a material
default following the expiration of any applicable cure period, if any, in any
material obligation of the Company or any violation of law or refusal of
regulatory permission which has a material adverse effect on the Company's
operations.
9.5 CERTAIN EVENTS AS TO THE COMPANY. The Company shall (A) admit in
writing its inability to pay its debts generally as they become due; (B) file a
petition or answer or consent seeking relief under the Federal Bankruptcy Code,
as now constituted or hereafter amended, or any other applicable federal or
state bankruptcy or insolvency law or other similar law, not discharged or
vacated or set aside or stayed within 45 days; (C) consent to the institution of
proceedings under any law referenced in (B) above, not discharged or vacated or
set aside or stayed within 45 days, or to the filing of any such petition, not
discharged or vacated or set aside or stayed within 45 days or to the
appointment or taking possession of a receiver, liquidator, assignee, trustee,
custodian (or other similar official) of the Company or any subsidiary or of any
substantial part of their property; (D) fail generally to pay its debts as such
debts become due, or take corporate action in furtherance of any such action;
(E) make an assignment for the benefit of its creditors; or (F) fail to meet any
of its material monetary obligations; provided, however, that no Event of
Default shall be considered to have occurred under subsection 9.5(F) if the
failure to meet such material monetary obligations is due to a good faith
dispute between such parties, which dispute shall continue for no more than 30
days; provided further, that upon the expiration of such 30 day period, the
Company shall have, upon notice to the Investor an additional 30 day period to
resolve the dispute. If the dispute is not resolved after the expiration of
such additional 30 day period, regardless whether such dispute may be resolved
at some time beyond such additional 30 day period, such failure under subsection
9.5(F) shall nevertheless be considered an Event of Default.
25
9.6 CERTAIN EVENTS AS TO ▇▇▇▇▇ ▇▇▇▇▇. ▇▇▇▇▇ ▇▇▇▇▇ dies, is disabled
for a period in excess of 120 days during which ▇▇. ▇▇▇▇▇ is unable to perform
his duties as an officer of the Company for a full eight hour day (the
"disability" of ▇▇. ▇▇▇▇▇), terminates his employment with the Company or has
his employment terminated by the Company.
10. RIGHTS OF INVESTOR UPON DEFAULT.
10.1 RIGHTS ON DEFAULT. If there shall occur and be continuing an
Event of Default as defined in the foregoing Section 9, as long as the Debenture
is outstanding, the Investor may, by written notice to the Company, declare the
Company to be in default hereunder, whereupon, if the Investor so specifies in
such notice, the Debenture and all other indebtedness of the Company to the
Investor now or hereafter incurred, shall become immediately due and payable
without further demand, presentation or notice of any kind.
10.2 ADDITIONAL RIGHTS. The Investor shall have such additional
rights and remedies as are contained herein, in the Debenture, the Warrants, the
Class B Preferred Stock, or in any other documents and agreements delivered or
given in connection herewith, and all rights which it might have at law or
equity, all of which rights and remedies shall be cumulative.
11. LOCK-UP AGREEMENT. In the event that the Company determines to effect
an underwritten initial public offering, the Investor agrees that, for a period
of 180 days following the effective date of any registration filed in connection
therewith, the Investor will not directly or indirectly sell, transfer or
otherwise dispose of, any shares of Class B Preferred Stock, any shares of
Common Stock, or any right to acquire shares of Common Stock owned by the
Investor without the prior written consent of the underwriter(s) of such initial
public offering. The Company agrees to use its best efforts to cause such
underwriter not to unreasonably withhold such consent.
12. FURTHER ASSURANCE. The Company and the Investor agree to execute and
deliver all such other instruments and take all such other actions as any party
may reasonably request from time to time after the date hereof and without
payment of further consideration, in order to effectuate the transactions
provided for herein. The parties shall cooperate fully with each other and with
their respective counsel and accountants in connection with any steps required
to be taken as part of their respective obligations under this Agreement.
13. MISCELLANEOUS.
13.1 WAIVERS AND AMENDMENTS. No waiver by either party of any
condition, or the breach of any term or covenant contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
or construed as a further or continuing waiver of any such condition or breach
or a waiver of any other condition. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated other than by an
agreement in writing signed by all of the parties hereto.
13.2 GOVERNING LAW. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania,
notwithstanding any conflict-of-law provisions to the contrary.
26
13.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties hereto, and their respective representatives, successors and assigns.
13.4 ENTIRE AGREEMENT. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and supersedes all prior agreements, understandings, inducements or conditions,
express or implied, oral or written, except as herein contained. The express
terms hereof control and supersede any course of performance and/or usage of
trade inconsistent with any of the terms hereof.
13.5 NOTICES. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly made and received when personally served, or when
mailed by first class mail or overnight, by courier service such as Federal
Express, postage prepaid, or telecopied with answer back receipt and hard copy
sent in the manner set forth above, addressed as set forth below:
(i) If to the Company, then to:
Quadrant International, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: President
with a copy, given in the manner prescribed above, to:
Cozen and ▇'▇▇▇▇▇▇
The Atrium
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
(ii) If to the Investor, then to:
Atlantic Coastal Ventures, L.P.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
with a copy, given in the manner prescribed above, to:
Kramer, Levin, Naftalis & ▇▇▇▇▇▇▇
27
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇, Esq.
Any party may alter the address to which communications are to be sent by giving
notice of such change of address in conformity with the provisions of this
Section providing for the giving of notice.
13.6 PAYMENT OF EXPENSES. All reasonable legal fees and expenses
incurred by counsel on behalf of the Investor in connection with this Agreement
and the preparation and negotiation hereof shall be paid by the Company from
time to time promptly upon submission of an invoice therefore. In addition, the
Company shall pay the Investor, concurrently with the execution of this
Agreement, the amount of $5,000, as full and final reimbursement for the
Investor's performance of due diligence on the Company.
13.7 BROKERS. Each party represents that it has not retained any
finder or broker in connection with the transactions contemplated by this
Agreement (other than ▇▇▇▇▇▇ Brothers Inc. ("▇▇▇▇▇▇ Brothers")) and neither
party is under any obligation to pay any finder's or broker's fee in connection
herewith (other than 9% of the Purchase Price payable by the Company to ▇▇▇▇▇▇
Brothers). Each party will indemnify, defend and hold the other party harmless
from any claim based on breach of this representation.
13.8 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy upon any breach or default of the other
party under this Agreement, shall impair any such right, power or remedy, nor
shall it be construed to be a waiver of any such breach or default, or any
acquiescence therein, or of any similar breach or default thereafter occurring;
nor shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. It is further
agreed that any waiver, permit, consent or approval of any kind or character of
any breach or default under this Agreement, or any waiver of any provision or
condition of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in writing, and that all remedies, either
under this Agreement or by law or otherwise, shall be cumulative and not
alternative.
13.9 TITLES. The titles of the Sections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.
13.10 PROVISIONS SEPARABLE. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
13.11 EXECUTION; COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof,
28
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as the signatories.
13.12 EXHIBITS; SCHEDULES. All Exhibits and Schedules attached hereto
are hereby incorporated by reference into, and made a part of, this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first written above.
QUADRANT INTERNATIONAL, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Executive Officer
ATLANTIC COASTAL VENTURES, L.P.
By: Atlantic Coastal, L.P.,
its General Manager
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: General Partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: General Partner
29