SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of June 2, 1999,
by and among Gum Tech International, Inc., a Utah corporation, with headquarters
located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇ (the "COMPANY"), and the
investors listed on the Schedule of Buyers attached hereto (individually, a
"BUYER" and collectively, the "BUYERS"). Capitalized terms used in this
Agreement shall have the meanings defined herein; ANNEX I contains an Index of
the location of such defined terms.
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D ("REGULATION D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 ACT");
B. The Company has authorized the issuance of up to Two Thousand (2,000)
shares of a new series of preferred stock, no par value per share: the Company's
Series A Preferred Stock (the "PREFERRED STOCK"), in substantially the form of
the Company's Certificate of Designations, Preferences and Rights of the
Preferred Stock, attached hereto as EXHIBIT A (the "CERTIFICATE OF
DESIGNATIONS");
C. The Company has authorized the issuance of up to Four Million Dollars
($4,000,000) original principal amount of Eight Percent (8%) Senior Secured
Redeemable Notes (the "NOTES") of the Company in substantially the form attached
hereto as EXHIBIT B.
D. The Company has authorized the issuance of Warrants (the "WARRANTS") to
purchase up to 300,000 shares of the Company's Common Stock, in substantially
the form attached hereto as EXHIBIT C.
E. The Buyers wish to purchase in the aggregate, upon the terms and
conditions set forth herein, (i) 2,000 shares of the Preferred Stock (the
"PREFERRED SHARES"), (ii) Four Million Dollars ($4,000,000) original principal
amount of Notes and (iii) Warrants to purchase 300,000 shares of Common Stock
(as adjusted pursuant to the terms of the Warrant), each in the amounts set
forth opposite such Buyer's name under the headings "Preferred Shares," "Notes"
and "Warrants" on the Schedule of Buyers attached hereto as ANNEX II (the
"SCHEDULE OF BUYERS"); and
F. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as EXHIBIT D (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws for shares of the
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Company's Common Stock, no par value per share (the "COMMON STOCK"), that may be
issued to the Buyers (i) upon repurchase of the Preferred Stock and/or
redemption of the Notes (the "REDEMPTION SHARES"), (ii) in lieu of cash payment
of interest on the Notes (the "COUPON SHARES") and (iii) upon exercise of the
Warrant (the "WARRANT SHARES", and together with the Redemption Shares and the
Coupon Shares, the "UNDERLYING SHARES").
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES, NOTES AND WARRANTS.
a. PURCHASE OF PREFERRED SHARES, NOTES AND WARRANTS. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below,
the Company shall issue and sell to each Buyer, and each Buyer severally agrees
to purchase from the Company, the respective number of Preferred Shares, Notes
and Warrants set forth opposite such Buyer's name under the headings "Preferred
Shares," "Notes" and "Warrants" on the Schedule of Buyers (the "CLOSING"). The
aggregate purchase price (the "PURCHASE PRICE") of the Preferred Shares, Notes
and Warrants at the Closing shall be Six Million Ten Dollars $6,000,010
allocated as set forth under the headings "Preferred Share Purchase Price,"
"Note Purchase Price,"and "Warrant Purchase Price" on the Schedule of Buyers.
b. CLOSING DATE. The date and time of the Closing (the "CLOSING DATE")
shall be 10:00 a.m. Central Time, three (3) business days following the date
hereof, subject to notification of satisfaction (or waiver) of the conditions to
the Closing set forth in Sections 6 and 7 below (or such later date as is
mutually agreed to by the Company and the Buyers). The Closing shall occur on
the Closing Date at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇ & Zavis, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇.
c. FORM OF PAYMENT. On the Closing Date, (i) each Buyer shall pay the
Purchase Price to the Company for the Preferred Shares, Notes and Warrants to be
issued and sold to such Buyer at the Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions, and
(ii) the Company shall deliver to each Buyer, (x) stock certificates (the
"PREFERRED STOCK CERTIFICATES") representing such number of the Preferred Shares
which such Buyer is then purchasing, (y) Notes in the aggregate principal amount
of the Notes which such Buyer is purchasing, and (z) Warrants representing the
number of Warrant Shares which such Buyer is purchasing (each as indicated
opposite such Buyers' name on the Schedule of Buyers), duly executed on behalf
of the Company and registered in the name of such Buyer or its designee.
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2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
a. INVESTMENT PURPOSE. Such Buyer (i) is acquiring the Preferred
Shares, the Notes and the Warrants, (ii) upon redemption of the Preferred Shares
and/or the Notes, will acquire the Redemption Shares then issuable, (iii) upon
payment of interest on the Notes, will acquire the Coupon Shares then issuable,
and (iv) upon exercise of the Warrants, will acquire the Warrant Shares issuable
upon exercise thereof (the Preferred Shares, the Notes, the Warrants and the
Underlying Shares collectively are referred to herein as the "SECURITIES"), for
its own account for investment only and not with a view towards, or for resale
in connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Buyer 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 under the 1933 Act.
b. ACCREDITED INVESTOR STATUS. Such Buyer is an "accredited investor"
as that term is defined in Rule 501(a)(3) of Regulation D.
c. RELIANCE ON EXEMPTIONS. Such Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such securities.
d. INFORMATION. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below unless the senior officers of such Buyer responsible for
negotiation of the transactions contemplated by this Agreement have actual
knowledge of facts that form the basis of any alleged breach of such
representations and warranties. Such Buyer understands that its investment in
the Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
e. NO GOVERNMENTAL REVIEW. Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the
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investment in the Securities nor have such authorities passed upon or endorsed
the merits of the offering of the Securities.
f. TRANSFER OR RESALE. Such Buyer understands that except as provided
in the Registration Rights Agreement: (i) the Securities have not been and are
not being registered under the 1933 Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a form reasonably acceptable to counsel for the Company,
to the effect that such Securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration,
or (C) such Buyer provides the Company with a copy of Form 144 filed with
respect to the transfer of such Securities and reasonable assurances that such
Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated
under the 1933 Act, as amended, (or a successor rule thereto) ("RULE 144"); (ii)
any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the ▇▇▇▇ ▇▇▇) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other person is under any obligation to
register such securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.
g. LEGENDS. Such Buyer understands that the certificates, notes or
other instruments representing the Preferred Shares, the Notes and the Warrants
and, until such time as the resale of the Underlying Shares has been registered
under the 1933 Act as contemplated by the Registration Rights Agreement, the
stock certificates representing the Underlying Shares, except as set forth
below, shall bear a restrictive legend in substantially the following form (and
a stop-transfer order may be placed against transfer of such stock
certificates):
THE SECURITIES REPRESENTED BY THIS [CERTIFICATE] [NOTE] HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO
COUNSEL FOR THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
SECURED BY THE SECURITIES.
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The legend set forth above shall be removed and the Company shall issue a
certificate or note, as the case may be, 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 1933 Act,
(ii) in connection with a sale transaction, such holder provides the Company
with an opinion of counsel, in a form reasonably acceptable to counsel for the
Company, to the effect that a public sale, assignment or transfer of the
Securities may be made without registration under the 1933 Act, or (iii) such
holder provides the Company with a copy of Form 144 filed with respect to the
transfer of such Securities and reasonable assurances that the Securities can be
sold pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold.
h. VALIDITY; ENFORCEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyer enforceable against such Buyer in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. RESIDENCY. Such Buyer is a resident of that state and/or country
specified in its address on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. ORGANIZATION AND QUALIFICATION. The Company and its "SUBSIDIARIES"
(which for purposes of this Agreement means any entity, including joint
ventures, in which the Company, directly or indirectly, owns capital stock or
holds an equity or similar interest) are corporations or limited liability
companies duly organized and validly existing in good standing under the laws of
the jurisdiction in which they are incorporated, and have the requisite power
and authorization to own their properties and to carry on their business as now
being conducted. Each of the Company and its Subsidiaries is duly qualified as a
foreign corporation or limited liability company to do business and is in good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not
have a Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE
EFFECT" means any material adverse effect on the business, properties, assets,
operations, results of operations, financial condition or prospects of the
Company and its Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements and instruments to be entered into in
connection herewith, or on the authority or ability of the Company to perform
its obligations under the Transaction Documents. The Company has no Subsidiaries
except as set forth on SCHEDULE 3(A).
b. AUTHORIZATION; ENFORCEMENT; VALIDITY. (i) The Company has the
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights
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Agreement, the Irrevocable Transfer Agent Instructions, the Notes, 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 the Securities in accordance with the
terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents and the Certificate of Designations by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including without limitation the issuance of the Preferred Shares, the Notes and
the Warrants and the reservation for issuance and the issuance of the Underlying
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 stockholders, (iii) the Transaction Documents have been duly
executed and delivered by the Company, (iv) the Transaction Documents constitute
the 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, and (v)
prior to the Closing Date, the Certificate of Designations has been filed with
the Secretary of State of the State of Utah and will be in full force and
effect, enforceable against the Company in accordance with its terms.
c. CAPITALIZATION. As of May 1, 1999, the authorized capital stock of
the Company consisted of (i) 20,000,000 shares of Common Stock, of which as of
May 1, 1999, 7,273,087 shares were issued and outstanding, 1,013,750 shares are
reserved for issuance pursuant to the Company's stock option and purchase plans
and 1,124,926 shares are issuable and reserved for issuance pursuant to
securities (other than the Preferred Shares, the Notes and the Warrants)
exercisable or exchangeable for, or convertible into, shares of Common Stock and
(ii) 1,000,000 shares of Preferred Stock, of which as of the date hereof, no
shares are issued and outstanding. All of such outstanding shares have been, or
upon issuance will be, validly issued and are fully paid and nonassessable.
Except as disclosed in SCHEDULE 3(C), (i) since May 1, 1999 there have been no
changes in the number of authorized or issued shares of capital stock as set
forth above, (ii) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company, (iii) there are no outstanding debt
securities, (iv) 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, any shares of capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, (v) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement),
(vi) there are no outstanding securities or instruments of the Company or any of
its Subsidiaries which contain any redemption or similar provisions, and there
are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries, (vii) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the
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issuance of the Securities as described in this Agreement, and (viii) the
Company does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement. The Company has furnished to the
Buyer true and correct copies of the Company's Certificate of Incorporation, as
amended and as in effect on the date hereof (the "CERTIFICATE OF
INCORPORATION"), and the Company's By-laws, as amended and as in effect on the
date hereof (the "BY-LAWS").
d. ISSUANCE OF SECURITIES. The Preferred Shares are duly authorized
and, upon issuance in accordance with the terms hereof, will be (i) validly
issued, fully paid and non-assessable, (ii) free from all taxes, liens and
charges with respect to the issue thereof and (iii) entitled to the rights and
preferences set forth in the Certificate of Designations. One million
(1,000,000) shares of Common Stock (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(f) below) have been duly authorized
and reserved for issuance as Redemption Shares, Coupon Shares or Warrant Shares.
Upon redemption, payment or exercise in accordance with the terms of the
Certificate of Designations, the Notes or the Warrants, as the case may be, the
Underlying Shares will be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock. The
issuance by the Company of the Securities is exempt from registration under the
1933 Act.
e. NO CONFLICTS. Except as disclosed in SCHEDULE 3(E), the execution,
delivery and performance of the Transaction Documents by the Company, the
performance by the Company of its obligations under the Certificate of
Designations and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the reservation
for issuance and issuance of the Underlying Shares) will not (i) result in a
violation of the Certificate of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock of the
Company or the By-laws, (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to which the
Company or any of its Subsidiaries is a party, or result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and the rules and regulations of the Principal
Market (as defined below)) applicable to the Company or any of its Subsidiaries
or by which any property or asset of the Company or any of its Subsidiaries is
bound or affected, except for such conflicts, defaults or violations which would
not have a Material Adverse Effect, or (iii) other than pursuant to the terms of
the Transaction Documents, result in the creation or imposition of any Lien upon
the assets or properties of the Company. Except as disclosed in SCHEDULE 3(E),
neither the Company nor its Subsidiaries is in violation of any term of or in
default under its Certificate of Incorporation, any Certificate of Designation,
Preferences and Rights of any outstanding series of preferred stock of the
Company or By-laws or their organizational charter or by-laws, respectively.
Except as disclosed in SCHEDULE 3(E), neither the Company nor any of its
Subsidiaries is in violation of any term of or in default under any contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or its
Subsidiaries, except for possible conflicts, defaults, terminations or
amendments which would not, individually or in the aggregate, have a Material
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Adverse Effect. The business of the Company and its Subsidiaries is not being
conducted, and shall not be conducted, in violation of any law, ordinance or
regulation of any governmental entity, except for possible violations the
sanctions for which either individually or in the aggregate would not have a
Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents or to perform its obligations under
the Certificate of Designations, in each case in accordance with the terms
hereof or thereof, except for such consents, authorizations, orders, filings and
registrations the failure of which to obtain could not reasonably be expected to
result in a Material Adverse Effect. Except as disclosed in SCHEDULE 3(E), all
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof or will be obtained as of the Closing
Date. The Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company is not in violation
of the listing requirements of the Principal Market (as defined below),
including, without limitation, the requirements set forth in Rule 4460 of the
Principal Market.
f. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since January 1, 1998, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 ACT") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC DOCUMENTS"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstance under which they are or
were made, not misleading.
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g. ABSENCE OF CERTAIN CHANGES. Except as disclosed in SCHEDULE 3(G),
since December 31, 1998 there has been no material adverse change and no
material adverse development in the business, properties, operations, financial
condition, results of operations or prospects of the Company or its
Subsidiaries. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law nor does
the Company or any of its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings. Except
as disclosed in SCHEDULE 3(G), since December 31, 1998 the Company has not
declared or paid any dividends, sold any assets in excess of $25,000 outside of
the ordinary course of business or had capital expenditures, individually or in
the aggregate, in excess of $50,000.
h. ABSENCE OF LITIGATION. Except as disclosed in SCHEDULE 3(H), and
except for such actions, suits, proceedings, inquiries or investigations which,
if determined adversely, could not reasonably be expected to result in a
Material Adverse Effect, 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
or any of its Subsidiaries, threatened against or affecting the Company, or any
of the Company's Subsidiaries or any of the Company's or the Company's
Subsidiaries' officers or directors in their capacities as such.
i. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF SECURITIES. The Company
acknowledges and agrees that each of the Buyers is acting solely in the capacity
of arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that each Buyer is not acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and any advice given by any of the
Buyers or any of their respective representatives or agents to the Company in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to such Buyer's purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
j. NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES.
No event, liability, development or circumstance has occurred or exists, or is
contemplated to occur, with respect to the Company or its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement filed with the SEC relating to an
issuance and sale by the Company of its Common Stock and which has not been
publicly disclosed or announced.
k. NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the ▇▇▇▇ ▇▇▇) in connection with the offer or sale of the
Securities.
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l. NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated, nor will
the Company or any of its Subsidiaries take any action or steps that would
require registration of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.
m. DILUTIVE EFFECT. The Company understands and acknowledges that the
number of Underlying Shares issuable upon redemption of the Preferred Shares
and/or the Notes and the Warrant Shares issuable upon exercise of the Warrants
may increase in certain circumstances. The Company further acknowledges that its
obligation to issue Redemption Shares upon redemption of the Preferred Shares
and/or the Notes in accordance with this Agreement and/or the Certificate of
Designations and its obligation to issue the Warrant Shares upon exercise of the
Warrants in accordance with this Agreement and the Warrants, is, in each case,
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
n. EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries
is involved in any union labor dispute nor, to the knowledge of the Company or
any of its Subsidiaries, is any such dispute threatened. None of the Company's
or its Subsidiaries' employees is a member of a union, neither the Company nor
any of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relations with their employees
are good. No executive officer (as defined in Rule 501(f) of the ▇▇▇▇ ▇▇▇) has
notified the Company that such officer intends to leave the Company or otherwise
terminate such officer's employment with the Company. No executive officer, to
the best knowledge of the Company and its Subsidiaries, is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.
o. INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service ▇▇▇▇ registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights (collectively, the "INTELLECTUAL
PROPERTY") necessary to conduct their respective businesses as now conducted,
and all such Intellectual Property is set forth on SCHEDULE 3(O). Except as set
forth on SCHEDULE 3(O), none of the Company's trademarks, trade names, service
marks, service ▇▇▇▇ registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, government authorizations, trade
secrets or other intellectual property rights have expired or terminated, or are
expected to expire or terminate within two years from the date of this
Agreement. Except as set forth on
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SCHEDULE 3(O), the Company and its Subsidiaries do not have any knowledge of any
infringement by the Company or its Subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
marks, service ▇▇▇▇ registrations, trade secret or other similar rights of
others, or of any such development of similar or identical trade secrets or
technical information by others and, except as set forth on SCHEDULE 3(O), there
is no claim, action or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or its Subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service ▇▇▇▇ registrations, trade secret
or other infringement; and the Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual properties.
p. ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
q. TITLE; NO LIENS; OTHER FINANCING STATEMENTS. The Company and its
Subsidiaries have good and marketable title in fee simple to all real property
listed on SCHEDULE 3(Q) hereto. Any real property and facilities held under
lease by the Company and any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries. All real property listed on
SCHEDULE 3(Q) hereto, together with all real property held by the Company and of
its Subsidiaries (as referred to in the immediately preceding sentence)
constitutes all real property necessary to the business and operations of the
Company as currently conducted. The Company owns and, as to all Collateral
whether now existing or hereafter acquired, will continue to own, each item of
the Collateral free and clear of any and all Liens, rights or claims of all
other Persons other than Permitted Liens, and the Company shall defend the
Collateral against all claims and demands of all Persons at any time claiming
the same or any interest therein adverse to the Buyers other than the holders of
Permitted Liens. No financing statement or other evidence of a Lien covering or
purporting to cover any of the Collateral is on file in any public office other
than (i) financing statements filed or to be filed in connection with the
security interests granted to the Buyers hereunder, (ii) financing statements
for which proper termination statements have been delivered to the Buyers for
filing, and (iii) financing statements filed in connection with Permitted Liens.
r. INSURANCE. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged.
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s. REGULATORY PERMITS. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, except where the failure to posses such certificates, authorizations
or permits would not have, individually or in the aggregate, a Material Adverse
Effect, and neither the Company nor any such Subsidiary has received any notice
of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
t. TAX STATUS. The Company and each of its Subsidiaries has made or
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
u. TRANSACTIONS WITH AFFILIATES. Except as disclosed in SCHEDULE 3(U)
and in the SEC Documents filed at least ten days prior to the date hereof and
other than the grant of stock options disclosed on SCHEDULE 3(C), none of the
officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
v. APPLICATION OF TAKEOVER PROTECTIONS. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the Buyers
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and the Buyer's
ownership of the Securities.
w. RIGHTS AGREEMENT. Except as disclosed in SCHEDULE 3(W), the Company
has not adopted a shareholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Company.
x. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the
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Company or any of its Subsidiaries has, in the course of its actions for, or on
behalf of, the Company, used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political activity;
made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended; or made any unlawful bribe, rebate, payoff, influence payment, kickback
or other unlawful payment to any foreign or domestic government official or
employee.
y. YEAR 2000 COMPLIANCE. The Company has initiated a review and
assessment of all areas within its and each Subsidiaries' business and
operations that could be adversely affected by the "YEAR 2000 PROBLEM" (that is,
the risk that computer applications used by the Company or any of the
Subsidiaries may be unable to recognize and perform properly date- sensitive
functions involving certain dates prior to and any date after December 31,
1999). Based on the foregoing, the Company believes that the computer
applications that are currently material to its or any Subsidiaries' business
and operations are reasonably expected to be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000, except
to the extent that a failure to do so would not reasonably be expected to have a
Material Adverse Effect.
z. NO OTHER AGREEMENTS. The Company has not, directly or indirectly,
made any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.
aa. CREATION OF SECURITY INTEREST. This Agreement is effective to
create in favor of the Buyers a valid security interest in and Lien upon all of
the Company's right, title and interest in and to the Collateral, and, upon the
filing of appropriate Uniform Commercial Code financing statements in the
jurisdictions listed on SCHEDULE 3(AA) attached hereto, Buyers will have valid
first priority perfected security interest in all of the Collateral, subject
only to Permitted Liens.
bb. EQUIPMENT, INVENTORY AND GOODS. All of the Company's and its
Subsidiaries' Equipment, Inventory and Goods are located at the places as
specified on SCHEDULE 3(BB) attached hereto. Except as disclosed on SCHEDULE
3(BB), none of the Collateral is in the possession of any bailee, warehousemen,
processor or consignee. The chief place of business, chief executive office and
the office where the Company keeps its books and records are located at the
place as specified on SCHEDULE 3(BB). The Company (including any Person acquired
by the Company) does not do business and has not done business during the past
five (5) years under any trade name or fictitious business name except as
disclosed on SCHEDULE 3(BB) attached hereto.
cc. DEPOSITARY ACCOUNTS. All depositary, collection, concentration and
other accounts (each a "DEPOSITARY ACCOUNT" and, together with any other
depositary account established by the Company in accordance with the terms of
this Agreement (including, without limitation pursuant to Sections 4.1(m) and
4.2(l) hereof), collectively, the "DEPOSITARY ACCOUNTS") maintained by the
Company and any of its Subsidiaries are described on SCHEDULE 3(CC) hereto,
which description includes for each such account the name on the account, the
name,
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address and telephone and telecopy numbers of the financial institution at which
such account is maintained, the account number and the account officer, if any,
of such account.
dd. INSTRUCTIONS TO OBLIGORS TO PAY TO LOCKBOX ACCOUNT. The Company has
instructed each of its contract manufacturing customers to make all payments in
respect of accounts receivable or other amounts owing to the Company directly to
a lockbox listed on SCHEDULE 3(DD) (each an" EXISTING LOCKBOX", and together
with any New Lockbox established pursuant to Section 4.1(m), collectively the
"LOCKBOX"). All proceeds from each Existing Lockbox are deposited directly by
the banks set forth on SCHEDULE 3(DD) hereto (each such bank, a "COLLECTION
BANK") into a Depositary Account. Each bank at which such a Depositary Account
is located has executed a lockbox collection notice in the form of Exhibit I
hereto (a "LOCKBOX COLLECTION NOTICE"). The Company has not granted any Person,
other than the Buyers as contemplated by this Agreement, dominion and control of
any Depositary Account or the right to take dominion and control of any
Depositary Account at a future time or upon the occurrence of a future event.
4. COVENANTS.
Section 4.1. AFFIRMATIVE COVENANTS.
a. BEST EFFORTS. Each party shall use its best efforts to satisfy
timely each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. FORM D AND BLUE SKY. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States, and shall provide evidence of any such action so taken to the Buyers on
or prior to the Closing Date. The Company shall make all filings and reports
relating to the offer and sale of the Securities required under applicable
securities or "Blue Sky" laws of the states of the United States following the
Closing Date.
c. REPORTING STATUS. Until the date on which the Investors shall have
sold all the Underlying Shares issued or issuable upon conversion, payment or
exercise of the Preferred Shares, the Notes and the Warrants or in respect of
dividends or interest on the Preferred Shares or the Notes, as the case may be
(collectively, the "REGISTRATION PERIOD"), the Company shall file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
otherwise permit such termination.
d. USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Preferred Shares, Notes and Warrants for substantially the same purposes and
in substantially the same amounts as indicated in SCHEDULE 4.1(D). Except as
disclosed in SCHEDULE 4.1(D), the
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Company shall not and shall not suffer or permit any of its Subsidiaries to use
any portion of the proceeds of the Notes, directly or indirectly, to purchase or
carry Margin Stock or repay or otherwise refinance Indebtedness of the Company
or others incurred to purchase or carry Margin Stock, or otherwise in any manner
which is in contravention of any applicable law or in violation of this
Agreement. Neither the Company nor any of its Subsidiaries is generally engaged,
nor shall the Company or any of its Subsidiaries engage in the future in the
business of purchasing or selling Margin Stock or extending credit for the
purpose of purchasing or carrying Margin Stock. For the purposes hereof, "MARGIN
STOCK" means "margin stock" as such term is defined in Regulation T, U or X of
Board of Governors of the Federal Reserve System, or any entity succeeding to
any of its principal functions.
e. FINANCIAL INFORMATION. The Company agrees to send the following to
each Investor (as that term is defined in the Registration Rights Agreement) and
Note holder until the later of the end of the Registration Period and the
repayment in full of the Notes: (i) unless the following are filed with the SEC
through ▇▇▇▇▇ and are available to the public through ▇▇▇▇▇, within one (1)
business day after the filing thereof with the SEC, a copy of its Annual Reports
on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form
8-K and any registration statements (other than on Form S-8) or amendments filed
pursuant to the 1933 Act; (ii) promptly (and in no event later than 24 hours
following the release thereof), facsimile copies of all press releases issued by
the Company or any of its Subsidiaries; and (iii) copies of any notices and
other information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.
f. RIGHT OF FIRST OFFER. Subject to the exceptions described below, the
Company and its Subsidiaries shall not negotiate or contract with any party for
any equity financing (including any debt financing with an equity component) or
issue any equity securities of the Company or any Subsidiary or securities
convertible or exchangeable into or for equity securities of the Company or any
Subsidiary (including debt securities with an equity component) in any form
("FUTURE OFFERINGS") during the period beginning on the date hereof and ending
on, and including, the second anniversary of the Closing Date, unless it shall
have first delivered to each Buyer or a designee appointed by such Buyer written
notice (the "FUTURE OFFERING NOTICE") describing the proposed Future Offering,
including the terms and conditions thereof, and providing each Buyer an option
to purchase up to its Aggregate Percentage (as defined below) of the securities
to be issued in such Future Offering, upon consummation of such Future Offering
(the limitations referred to in this sentence are collectively referred to as
the "FUTURE OFFERING LIMITATIONS"). For purposes of this Section 4(f),
"AGGREGATE PERCENTAGE" at any time with respect to any Buyer shall mean the
percentage obtained by dividing (i) the aggregate number of the Preferred Shares
initially issued to such Buyer by (ii) the aggregate number of the Preferred
Shares initially issued to all the Buyers. A Buyer can exercise its option to
participate in a Future Offering by delivering written notice thereof to
participate to the Company within five (5) business days after receipt of a
Future Offering Notice, which notice shall state the quantity of securities
being offered in the Future Offering that such Buyer will purchase, up to its
Aggregate Percentage, and that number of securities it is willing to purchase in
excess of its Aggregate Percentage. In the event that one or more Buyers fail to
elect to purchase up to each such Buyer's Aggregate Percentage, then each Buyer
which has indicated that it is willing to purchase a number
-15-
of securities in such Future Offering in excess of its Aggregate Percentage
shall be entitled to purchase its pro rata portion (determined in the same
manner as described in the preceding sentence) of the securities in the Future
Offering which one or more of the Buyers have not elected to purchase. In the
event the Buyers fail to elect to fully participate in the Future Offering
within the periods described in this Section 4(f), the Company shall have 60
days thereafter to sell the securities of the Future Offering that the Buyers
did not elect to purchase, upon terms and conditions no more favorable to the
purchasers thereof than specified in the Future Offering Notice. In the event
the Company has not sold such securities of the Future Offering within such 60
day period, the Company shall not thereafter issue or sell such securities
without first offering such securities to the Buyers in the manner provided in
this Section 4(f). The Future Offering Limitations shall not apply to (i) a loan
from a commercial bank which does not have any equity feature, (ii) any
transaction involving the Company's or a Subsidiary's issuances of securities
(A) as consideration in a merger or consolidation, (B) in connection with any
strategic partnership or joint venture (the primary purpose of which is not to
raise equity capital), or (C) as consideration for the acquisition of a
business, product, license or other assets by the Company, including without
limitation, issuance of consideration to members of Gel Tech, L.L.C., an Arizona
limited liability company ("GEL TECH"), in connection with the Company's
exercise of its option to purchase the interests of such members pursuant to the
terms of the Gel Tech operating agreement or in connection with the sale by Gel
Tech of up to twenty five percent (25%) of additional membership interests to a
third party, (iii) the issuance of Common Stock in a firm commitment,
underwritten public offering, (iv) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof, as disclosed in Schedule 3(c), (v) the grant
of additional options or warrants, or the issuance of additional securities,
each as disclosed in Schedule 3(c), or under any Company stock option plan,
restricted stock plan or stock purchase plan for the benefit of the Company's
employees or directors in effect as of the date hereof or disclosed in Schedule
3(c), or (vi) the issuance of options to ▇▇▇▇▇▇▇▇▇ Oral Technologies, Inc.
("▇▇▇▇▇▇▇▇▇") to purchase an aggregate of up to 45,000 shares of the Company's
Common Stock at prevailing market prices upon issuance. The Buyers shall not be
required to participate or exercise their right of first refusal with respect to
a particular Future Offering in order to exercise their right of first refusal
with respect to later Future Offerings.
g. LISTING. The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common Stock shall
be so listed, such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents and the Certificate of
Designations. The Company shall maintain the Common Stock's authorization for
quotation on the Nasdaq National Market, The New York Stock Exchange, Inc. or
The American Stock Exchange, Inc. (such market, the "PRINCIPAL MARKET"). Neither
the Company nor any of its Subsidiaries shall take any action which would be
reasonably expected to result in the delisting or suspension of the Common Stock
on the Principal Market unless such Common Stock shall simultaneously be listed
on another market which constitutes a Principal Market. The Company shall
promptly, and in no event later than the following business day, provide to each
Buyer copies of any notices it receives
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from the Principal Market regarding the continued eligibility of the Common
Stock for listing on such automated quotation system or securities exchange. The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(g).
h. EXPENSES. Subject to Section 13(l) below, at the Closing, the
Company shall reimburse the Buyers for the Buyers' reasonable expenses
(including attorneys' fees and expenses) in conducting due diligence and
negotiating and preparing the Transaction Documents and consummating the
transactions contemplated thereby (including the review of any provision of
information for the Registration Statement) up to an aggregate of $50,000.
i. FILING OF FORM 8-K. On or before the fifth (5th) business day
following the Closing Date, the Company shall file a Form 8-K with the SEC
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act.
j. CAPITAL AND SURPLUS; SPECIAL RESERVES. The amount to be represented
in the capital account for the Series A Preferred Stock at all times for each
outstanding Preferred Share shall be an amount equal to the Stated Value (as
defined in the Certificate of Designations).
k. During such time as the Notes shall remain outstanding:
(A) COMPLIANCE CERTIFICATE. Promptly following the delivery (or
filing with the SEC) of the financial statements described in Section
4.1(e) (or, at the request of a Buyer on an earlier date following the
completion of any calendar quarter, but in no event earlier than
forty-five (45) days following the completion of such calendar
quarter), the Company shall deliver to the Buyers a duly executed and
completed copy of a certificate in the form of EXHIBIT H hereto (a
"COMPLIANCE CERTIFICATE"), which certificate shall (i) evidence
compliance with the financial covenants set forth in Section
4.2(a),4.2(b) and 4.2(c) hereof during the quarterly or annual period
covered by the statements then being furnished (including with respect
to each such Section, where applicable, the calculations of the
maximum or minimum amount, ratio or percentage, as the case may be,
permissible under the terms of such Sections, and the calculation of
the amount, ratio or percentage then in existence), and (ii) contain a
statement that the officer executing such Compliance Certificate has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and
conditions of the Company and its Subsidiaries from the beginning of
the quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall
not have disclosed the existence during such period of any condition
or event that constitutes a Default or an Event of Default (as defined
herein) or, if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action
the Company shall have taken or proposes to take with respect thereto.
(B) INSPECTION. The Company shall permit the representatives of
each holder of Notes (x) if no Default or Event of Default then
exists, at the expense of
-17-
such holder and upon reasonable prior notice to the Company, to visit
the principal executive office of the Company, to discuss the affairs,
finances and accounts of the Company and its Subsidiaries with the
Company's officers, and (with the consent of the Company, which
consent will not be unreasonably withheld) its independent public
accountants, and (with the consent of the Company, which consent will
not be unreasonably withheld) to visit the other offices and
properties of the Company and each Subsidiary, all at such reasonable
times and as often as may be reasonably requested in writing; and (y)
if a Default or Event of Default then exists, at the expense of the
Company to visit and inspect any of the offices or properties of the
Company or any Subsidiary, to examine all their respective books of
account, records, reports and other papers, to make copies and
extracts therefrom, and to discuss their respective affairs, finances
and accounts with their respective officers and independent public
accountants (and by this provision the Company authorizes said
accountants to discuss the affairs, finances and accounts of the
Company and its Subsidiaries), all at such times and as often as may
be requested.
(C) [INTENTIONALLY OMITTED]
(D) DELIVERY OF PLEDGED STOCK. To the extent the Company has on
the date hereof any Subsidiaries, or subsequent to the date hereof,
forms or acquires any Subsidiaries, the Company shall promptly deliver
to the Buyers, the stock certificates evidencing the stock of such
Subsidiary, together with stock powers duly executed in blank,
PROVIDED, HOWEVER, the Buyers acknowledge and agree that the Company
cannot, and shall not be required to pledge to the Buyers, the
Company's interest in Gel Tech.
(E) NAME CHANGE; LOCATION; BAILEES.
(i) The Company will notify the Buyers promptly in writing
prior to any change in the Company's name, identity or corporate
structure or the proposed use by the Company of any trade name or
fictitious business name other than any such name set forth on
SCHEDULE 3(BB) attached hereto.
(ii) Except for the sale of Inventory in the ordinary course
of business, the Company will keep the Collateral at the
locations specified in SCHEDULE 3(BB). The Company will give the
Buyers thirty (30) day's prior written notice of any change in
the Company's principal place of business or of any new location
for any of the Collateral. On or prior to the effectiveness of
any such change in location, the Company shall deliver to the
Buyers, updated or revised SCHEDULES 3(AA) AND 3(BB).
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(iii) If any Collateral is at any time in the possession or
control of any warehousemen, bailee, consignee or processor, the
Company shall, upon the request of the Buyers or their
representatives, notify such warehousemen, bailee, consignee or
processor of the Lien and security interest created hereby and
shall instruct such Person to hold all such Collateral for the
Buyers' account subject to the Buyers' instructions.
(F) DEPOSITS INTO DEPOSITARY ACCOUNTS.
(i) The Company will immediately deposit all cash payments
for Inventory or other cash payments constituting proceeds of
Collateral in the identical form in which such payment was made,
whether by cash or check, in each case into one of the Depositary
Accounts. From and after receipt by any Collection Bank of
written notice from the Buyers to such Collection Bank that an
Event of Default has occurred and is continuing, all amounts held
or deposited in the related Depositary Account held by such
Collection Bank shall be held by such Collection Bank subject
pending instructions from the Buyers. Pending such instructions
after an Event of Default, funds on deposit in such Depositary
Accounts shall be the sole and exclusive property of the Buyers
to be applied to any accrued and unpaid interest and then to any
unpaid principal then due and owing in each case with respect to
the Notes.
(l) RIGHTS AGREEMENT. In connection with the adoption of any
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change of control of the Company, the
Company and its board of directors agree to take all necessary action, if any,
to render such shareholder rights plan or similar arrangement inapplicable to
the transactions contemplated by this Agreement including, without limitation,
the Company's issuance of the Securities and the Buyer's ownership of the
Securities.
(m) INSTRUCTIONS TO OBLIGORS TO PAY TO LOCKBOX ACCOUNT. Unless
instructed prior to the date hereof, the Company will instruct all contract
manufacturing customers to make all payments in respect of accounts receivable
or other amounts owing to the Company directly to an Existing Lockbox. If
payments from all of the Company's contract manufacturing customers are less
than 90% of the Company's Net Revenue in any calendar quarter, the Company will
instruct such other customers and obligors whose payments in that quarter, when
added to the payments made by the Company's contract manufacturing customers,
equaled at least ninety percent (90%) of the Company's Net Revenue in that
quarter, to make all future payments in respect of accounts receivable or other
amounts owing to the Company directly to a Lockbox. The Company hereby agrees
that any Existing Lockbox hereunder shall only receive payments from customers
and obligors of the Company and its Subsidiaries (other than Gel Tech) and shall
not receive payments from Gel Tech customers or obligors (whether in the form of
a separate check from a Gel Tech customer or a single check representing payment
for obligations owed to both the Company and Gel Tech). Notwithstanding the
foregoing, if the Company is required to instruct any of its customers and
obligors to make payments to a Lockbox pursuant to the second sentence of this
Section 4.1(m),
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but is prohibited by the provisions of the preceding sentence from instructing
such customers and obligors to make payment to an Existing Lockbox, the Company
shall be obligated to immediately establish a new lockbox (the "NEW LOCKBOX"),
and the Company shall instruct such customers and obligors to make all future
payments to the New Lockbox. Contemporaneously with the establishment of the New
Lockbox, the Company shall establish a new depositary account (the "NEW
DEPOSITARY ACCOUNT"), and all proceeds from such New Lockbox shall be deposited
directly by the bank at which such New Depositary Account is located (such bank,
the "NEW COLLECTION BANK") into the New Depositary Account. Prior to
establishing any such New Depositary Account with any bank, the Company shall
cause such New Collection Bank to execute a lockbox collection notice in the
form of Exhibit I hereto (a "NEW COLLECTION NOTICE").
Each of the Buyers hereby acknowledges and agrees that certain of the
funds deposited into the New Depositary Account will represent proceeds from
accounts receivable of Gel Tech, and as such, Buyers shall have no interest in
the proceeds of such Gel Tech accounts receivable. To the extent any Buyer has
delivered to the New Collection Bank a notice in the form of Annex A to the New
Collection Notice, the Company agrees to hold proceeds of Gel Tech's accounts
receivable in trust for Gel Tech, and upon receipt of an accounting in form and
substance satisfactory to the Buyers setting forth, in detail, the amount of Gel
Tech accounts receivable which have been deposited into the New Depositary
Account, the Buyers shall turn over to Gel Tech the proceeds of such accounts
receivable.
(n) FINANCIAL DISCLOSURE. During the periods for which Compliance
Certificates are required to be delivered to each of the Buyers hereunder, the
Company agrees to include all information required by and/or contained in such
Compliance Certificates in its annual and quarterly filings on Forms 10-K and
10-Q.
(o) PROXY STATEMENT. The Company shall provide each stockholder
entitled to vote at the Company's annual meeting of stockholders to be held in
calendar year 2000 a proxy statement, which has been previously reviewed by the
Buyers and a counsel of their choice, soliciting each such stockholder's
affirmative vote at such annual stockholder meeting for approval of the
Company's issuance of all of the Securities as contemplated by this Agreement
(the "STOCKHOLDER APPROVAL"). The Company shall use its best efforts to solicit
its stockholders' approval of such issuance of the Securities and cause the
Board of Directors of the Company to recommend to the stockholders that they
approve such proposal.
Section 4.2. NEGATIVE COVENANTS OF THE COMPANY. For purposes of this
Agreement:
"CASH EQUIVALENTS" means: (a) securities issued or fully guaranteed or
insured by the United States Government or any agency thereof having maturities
of not more than six (6) months from the date of acquisition; (b) certificates
of deposit, time deposits, repurchase agreements, reverse repurchase agreements,
or bankers' acceptances, having in each case a tenor of not more than six (6)
months, issued by any U.S. commercial bank or any branch or agency of a non-U.S.
bank licensed to conduct business in the U.S. having combined capital and
surplus of not less than $250,000,000; (c) commercial paper of an issuer rated
at least A-1 by Standard &
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Poor's Corporation or P-1 by ▇▇▇▇▇'▇ Investors Service Inc. and in either case
having a tenor of not more than three (3) months, and (d) reputable and
nationally recognized money market funds with a minimum of $100,000,000 in
assets, and pursuant to which the Company may withdraw its investment at any
time without penalty.
"CAPITAL LEASE OBLIGATIONS" means all monetary obligations of the
Company or any of its Subsidiaries under any leasing or similar arrangement
which, in accordance with GAAP, is classified as a capital lease.
"CONTINGENT OBLIGATION" means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person: (i) with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; (ii) with
respect to any letter of credit issued for the account of that Person or as to
which that Person is otherwise liable for reimbursement of drawings; (iii) under
any interest rate swap or hedging contracts; (iv) to make take-or-pay or similar
payments if required regardless of nonperformance by any other party or parties
to an agreement; or (v) for the obligations of another through any agreement to
purchase, repurchase or otherwise acquire such obligation or any property
constituting security therefor, to provide funds for the payment or discharge of
such obligation or to maintain the solvency, financial condition or any balance
sheet item or level of income of another Person. The amount of any Contingent
Obligation shall be equal to the amount of the obligation so guaranteed or
otherwise supported or, if not a fixed and determined amount, the maximum amount
so guaranteed or supported.
"GAAP" means generally accepted accounting principles, consistently
applied for the periods covered thereby.
"INDEBTEDNESS" of any Person means, without duplication: (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business); (c) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and other
similar instruments; (d) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses; (e) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property); (f) all
Capital Lease Obligations; (g) all indebtedness referred to in clauses (a)
through (f) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien upon or
in any property or assets (including accounts and contracts rights) owned by any
Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness; and (h)
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all Contingent Obligations described in clause (i) of the definition thereof in
respect of indebtedness or obligations of others of the kinds referred to in
clauses (a) through (g) above.
The Company covenants that so long as the Notes are outstanding:
a. NET REVENUE. The Company shall not permit Net Revenue for any
quarterly period set forth below to fall below the amount set forth in the table
below with respect to such quarterly period:
QUARTERLY PERIOD NET REVENUE
---------------- -----------
June 30, 1999 $1,400,000
September 30, 1999 $1,750,000
December 31, 1999 $2,000,000
March 31, 2000 $2,500,000
June 30, 2000 $3,000,000
September 30, 2000 $3,500,000
December 31, 2000 $4,000,000
For the purposes hereof "NET REVENUE" shall have the meaning set forth in the
Compliance Certificate.
b. EBITDA. The Company shall not permit EBITDA for any quarterly period
set forth below to fall below the amount set forth in the table below with
respect to such quarterly period:
QUARTERLY PERIOD EBITDA
---------------- ------
June 30, 1999 $(550,000)
September 30, 1999 $(500,000)
December 31, 1999 $(400,000)
March 31, 2000 $(200,000)
June 30, 2000 $ 50,000
September 30, 2000 $ 400,000
December 31, 2000 $ 700,000
For the purposes hereof "EBITDA" shall have the meaning set forth in the
Compliance Certificate.
c. CASH BALANCE. The Company shall not permit the aggregate amount of
cash and Cash Equivalents of the Company and its Subsidiaries (excluding cash
and Cash Equivalents of Gel Tech) to fall below the amount set forth in the
table below as of each of the dates set forth below:
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DATE CASH BALANCE
---- ------------
June 30, 1999 $1,000,000
September 30, 1999 $1,000,000
December 31, 1999 $1,000,000
March 31, 2000 $1,000,000
June 30, 2000 $1,250,000
September 30, 2000 $1,500,000
December 31, 2000 $2,000,000
In determining the amount of the Company's cash and Cash Equivalents, the
Company shall not include in its calculation, any cash or Cash Equivalents which
are restricted or encumbered (other than cash and Cash Equivalents which are
restricted by the terms of this Agreement or encumbered by a Lien in favor of
the Buyers).
d. LIENS. The Company will not, and will not permit any Subsidiary to,
permit to exist, create, assume or incur, directly or indirectly, any mortgage,
lien, pledge, charge, security interest or other encumbrance (collectively, a
"LIEN") on its properties or assets, whether now owned or hereafter acquired,
except (the following, collectively, "PERMITTED LIENS"):
(A) Liens existing on property or assets of the Company or any
Subsidiary as of the date of this Agreement that are described in
SCHEDULE 4.2(D)(A);
(B) Liens for taxes, assessments or governmental charges not then
due and payable;
(C) Liens incidental to the conduct of business or the ownership
of properties and assets (including landlords', lessors', carriers',
warehousemen's, mechanics', materialmen's and other similar liens) to
secure amounts not yet due and payable and Liens to secure the
performance of bids, tenders, leases or trade contracts, or to secure
statutory obligations, surety or appeal bonds or other Liens of like
general nature incurred in the ordinary course of business and not in
connection with the borrowing of money;
(D) any attachment or judgment Lien, unless such Lien has not,
within 60 days after the entry thereof, been suspended, discharged or
stayed pending appeal, or has not been discharged within 60 days after
the expiration of any such stay or suspension;
(E) Liens securing Indebtedness of a Subsidiary to the Company,
which Indebtedness of such Subsidiary is permitted by Section 4.2(h).
(F) encumbrances in the nature of leases, subleases, zoning
restrictions, easements, rights of way and other rights and
restrictions of record on the use of real property and defects in
title arising or incurred in the ordinary course of
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business, which, individually and in the aggregate, do not materially
impair the use or value of the property or assets subject thereto;
(G) Liens resulting from extensions, renewals or replacements of
Liens permitted by paragraph (A) provided that (i) there is no
increase in the principal amount or decrease in maturity of the
Indebtedness secured thereby at the time of such extension, renewal or
replacement, (ii) any new Lien attaches only to the same property
theretofore subject to such earlier Lien and (iii) immediately after
such extension, renewal or replacement no Default or Event of Default
would exist;
(H) Liens on the assets of Gel Tech, but only to the extent such
lien secures Indebtedness of Gel Tech permitted under Section 4.2(h)
hereof;
(I) Liens securing Indebtedness permitted by Section 4.2(h)(C);
(J) Liens incurred pursuant to the execution, delivery and
performance of this Agreement; or
(K) Liens on a cash collateral account located at ▇▇▇▇▇▇▇ Bank in
favor of Textron Financial Corporation in respect of the letter of
credit referred to in Section 4.2(h)(F), PROVIDED THAT the amount on
deposit in such cash collateral account subject to such Lien shall not
exceed (i) $250,000 for the period from the Closing Date to January
15, 2000, (ii) $125,000 for the period from January 1, 2000 to July
15, 2000 and (iii) $50,000 for the period from July 1, 2000 until
January 15, 2001.
e. MERGERS, CONSOLIDATIONS, ETC. The Company will not, and will not
permit any Subsidiary to, consolidate with or merge with any other Person or
convey, transfer, sell or lease all or substantially all of its assets in a
single transaction or series of transactions to any Person without the prior
written consent of the holders of Notes constituting two-third (2/3) of the
remaining principal amount of the Notes then outstanding, PROVIDED THAT any
wholly owned Subsidiary of the Company may merge into the Company.
f. DISPOSITION OF STOCK OF THE COMPANY AND ITS SUBSIDIARIES. The
Company will not, nor will it permit any Subsidiary to, issue, convey, transfer
or sell capital stock, or issue any warrants, rights or options to purchase, or
securities convertible into or exchangeable for, such capital stock, to any
Person other than to the Company or another Subsidiary, except in connection
with (i) the transactions to be consummated pursuant to this Agreement, (ii) the
Company's issuance of securities representing in the aggregate less than 10% of
the Company's outstanding Common Stock as of the date of this Agreement (A) in
connection with any strategic partnership or joint venture related to the
Company's business or (B) as consideration for the acquisition of a business,
product, license, service or other asset related to the Company's business,
(iii) the Company's issuance of Common Stock to the other members of Gel Tech
pursuant to Section 9.2 of the operating agreement of Gel Tech, (iv) Gel Tech's
issuance of up to 25% of the total profits and capital interests in Gel Tech to
a third party, (v) the issuance of Common Stock in a firm
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commitment, underwritten public offering, (vi) the issuance of securities upon
exercise or conversion of the Company's options, warrants, or other convertible
securities outstanding as of the date hereof, as disclosed in Schedule 3(c),
(vii) the grant of additional options or warrants, or the issuance of additional
securities, each as disclosed in Schedule 3(c), or under any Company stock
option plan, restricted stock plan, or stock purchase plan for the benefit of
the Company's employees or directors in effect as of the date hereof or
disclosed in Schedule 3(c), or (viii) the issuance of options to ▇▇▇▇▇▇▇▇▇ to
purchase an aggregate of up to 45,000 shares of the Company's Common Stock at
prevailing market prices. If a Subsidiary at any time ceases to be such as a
result of a sale or issuance of its capital stock, any Liens on property of such
Subsidiary securing Indebtedness owed to the Company or another Subsidiary,
which is not contemporaneously repaid, together with such Indebtedness, shall be
deemed to have been incurred by the Company at the time such Subsidiary ceases
to be a Subsidiary.
g. LOANS AND INVESTMENTS. The Company shall not and shall not suffer or
permit any of its Subsidiaries to (i) purchase or acquire, or make any
commitment therefor, any capital stock, equity interest, or any obligations or
other securities of, or any interest in, any Person, including the establishment
or creation of a Subsidiary, or (ii) make or commit to make any acquisition of
all or substantially all of the assets of another Person, or of any business or
division of any Person, including without limitation, by way of merger,
consolidation or other combination or (iii) make or commit to make any advance,
loan, extension of credit or capital contribution to or any other investment in,
any Person including any Affiliate of the Company (the items described in
clauses (i), (ii) and (iii) are referred to as "INVESTMENTS"), except for:
(A) Investments in Gel Tech in the amount of up to $3,500,000;
(B) Investments pursuant to transactions permitted pursuant to
Sections 4.2(f) and/or 4.2(h); or
(C) Investments in Cash Equivalents; or
(D) secured extensions of credit by the Company to any of its
Subsidiaries (provided that the obligations of each obligor shall be
evidenced by notes, which secured notes shall be pledged to Buyers,
and have such other terms as Buyers may reasonably require), but only
to the extent that prior to any such extension of credit to such
Subsidiary, (i) the Buyers shall have a valid first priority perfected
security interest in all of the stock of such Subsidiary, and (ii)
such extension of credit shall be secured by a blanket lien on all
assets of such Subsidiary which security interest shall be assigned to
the Buyers free and clear of all Liens other than Permitted Liens.
h. LIMITATION ON INDEBTEDNESS. The Company shall not, and shall not
suffer or permit any of its Subsidiaries to, create, incur, assume, suffer to
exist, or otherwise become or remain directly or indirectly liable with respect
to, any Indebtedness, except:
(A) Indebtedness incurred pursuant to this Agreement;
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(B) Indebtedness existing on the Closing Date and set forth in
SCHEDULE 4.2(H)(B) including extensions and refinancings thereof which
do not increase the principal amount of such Indebtedness as of the
date of such extension or refinancing;
(C) Indebtedness not to exceed $250,000 in the aggregate at any
time outstanding consisting of Capital Lease Obligations or purchase
money secured indebtedness, excluding (for the purposes of calculating
such Indebtedness) any Indebtedness described in subsections
4.2(h)(B), (E), (F) and (G);
(D) secured intercompany Indebtedness permitted pursuant to
Section 4.2(g)(D);
(E) other unsecured Indebtedness for which, prior to the Maturity
Date (as defined below), (x) no payments of principal are due and (y)
interest payments, in the aggregate, do not exceed $150,000 per
calendar quarter;
(F) Indebtedness of the Company in respect of that certain letter
of credit issued by ▇▇▇▇▇▇▇ Bank in favor of Textron Financial
Corporation, which Indebtedness shall not exceed (i) $250,000 for the
period from the Closing Date to January 15, 2000, (ii) $125,000 for
the period from January 1, 2000 to July 15, 2000 and (iii) $50,000 for
the period from July 1, 2000 until January 15, 2001.
(G) other Indebtedness of Gel Tech not to exceed the sum of (i)
$500,000 in the aggregate at any one time outstanding PLUS (ii) an
amount equal to 80% of the fair market value of all inventory and
accounts receivable of the Company.
i. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not
suffer or permit any of its Subsidiaries to, enter into any transaction with any
Affiliate of the Company or of any such Subsidiary, except:
(A) as expressly permitted by this Agreement;
(B) in the ordinary course of business and pursuant to the
reasonable requirements of the business of the Company or such
Subsidiary; or
(C) transactions contemplated by the Gel Tech operating agreement
in as in effect on the Closing Date;
and, in the case of clause (B), upon fair and reasonable terms no less favorable
to the Company or such Subsidiary than would obtain in a comparable arm's-length
transaction with a Person not an Affiliate of the Company or such Subsidiary and
which are disclosed in writing to each of the Buyers. For the purposes of this
Agreement, "AFFILIATE" means, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such Person. A Person shall be deemed to control another Person if the
controlling Person
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possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of the other Person, whether through the ownership
of voting securities, by contract or otherwise. Without limitation, any
director, executive officer or beneficial owner of five percent (5%) or more of
the equity of a Person shall for the purposes of this Agreement, be deemed to
control the other Person.
j. CHANGE IN BUSINESS. The Company shall not, and shall not permit any
of its Subsidiaries to, engage in any material line of business substantially
different from those lines of business carried on by it on the date hereof.
k. CHANGE IN CONSTITUENT DOCUMENTS. Except as contemplated by this
Agreement, the Company shall not, and shall not permit any of its Subsidiaries
to materially amend, restate or otherwise modify their respective certificate of
incorporation, articles or by-laws without the prior written consent of the
Buyers, which consent will not be unreasonably withheld.
l. CHANGE IN PAYMENT INSTRUCTIONS TO CUSTOMERS; CHANGES TO DEPOSITARY
ACCOUNTS. The Company will not add or terminate any bank as a Collection Bank
from those listed on SCHEDULE 3(DD), add or make any change in any Depositary
Account or make any change in its instructions to its customers or obligors
regarding payments to be made to the Company or payments to be made to any
Depositary Account or Collection Bank, unless the Buyers shall have received, at
least 10 days before the proposed effective date therefor, (i) written notice of
such addition, termination or change (with such additional information with
respect to such account as the Buyer from time to time reasonably may request),
(ii) with respect to the addition of a Collection Bank or a Depositary Account,
an executed account agreement from, and executed copies of a Lockbox Collection
Notice to, the Collection Bank and (iii) updated or revisions to SCHEDULES 3(CC)
AND 3(DD), as the case may be, together with an effective date for such updated
or revised Schedules; PROVIDED, HOWEVER, that the Company may make changes in
instructions to its customers and obligors regarding payments if such new
instructions require such customers or obligors to make payments to another
existing Collection Account or Depositary Account.
4.3 NEGATIVE COVENANTS OF THE BUYERS.
a. LIMITATIONS ON RESALE OF REDEMPTION SHARES AND SHORT SALES OF COMMON
STOCK; OTHER RESTRICTIONS. Each of the Buyers agrees that such Buyer shall not
sell more than (i) five percent (5%) of the Redemption Shares received by such
Buyer in respect of any prepayment of the Notes or (ii) twenty percent (20%) of
the Redemption Shares received by such Buyer in respect of redemption of the
Preferred Shares on any Trading Day (as defined below). Except as otherwise
provided herein, no Buyer will maintain at the time of Closing, nor will it
create or maintain at any time following the Closing until the first date on
which such Buyer no longer owns any Warrants, Notes, or Preferred Shares, a
"short position" in the Common Stock; PROVIDED, HOWEVER, that any Buyer which
holds Warrants may create or maintain a short position in the Common Stock up to
the number of shares of Common Stock represented by such Buyer's Warrants
(assuming the full conversion or exercise of such Warrants); PROVIDED FURTHER,
that any such Buyer will not create any short position with respect to shares of
Common Stock represented by such Warrants on or after the date of this Agreement
and prior to the date that is one (1) year
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from the date of this Agreement. For purposes hereof, a "short position" shall
be deemed to have been maintained or created by a Buyer if such Buyer (i) enters
into a "short sale" (as such term is defined in Rule 3b-3 under the Exchange
Act), (ii) purchases a put option to sell shares of Common Stock or (iii) enters
into a derivative or other similar transaction whereby the Buyer will be
compensated in the event of a decline in the price of the Common Stock;
PROVIDED, HOWEVER, that such term shall not include any short sales effected as
a result of the Company's failure to deliver Underlying Shares in accordance
with the terms of this Agreement, the Warrants or the Certificate of
Designations.
b. SECURITIES LAWS MATTERS. Each Buyer agrees to comply with all
applicable provisions of Federal and state securities laws with respect to
trading in securities of the Company to the extent that such Buyer receives
material non-public information concerning the Company or any of its
Subsidiaries as a result of (i) the exercise of any remedies provided for
pursuant to the terms of this Agreement, (ii) receipt of the Compliance
Certificates, or (iii) the inspections provided in Section 4.2(k).
4.4 NASDAQ RULE 4460. The Buyers acknowledge and agree that the Company
shall not be obligated to issue more than one million four hundred fifty four
thousand six hundred seventeen (1,454,617) Underlying Shares pursuant to the
terms of this Agreement, the Notes, the Certificate of Designations or the
Warrants, (i) until such time as the Company obtains the Stockholder Approval or
receives a waiver from the National Association of Securities Dealers of the
application of Rule 4460 of the Principal Market to the transactions
contemplated hereby, (ii) until such time as the Company's Common Stock is no
longer listed on the NASDAQ National Market System or (iii) unless the
provisions of Rule 4460 of the Principal Market do not apply or would permit the
Company to issue a greater number of shares. Notwithstanding the foregoing, the
Company and the Buyers agree that nothing contained in this Section 4.4 shall
(i) affect or modify the Company's obligation to make all payments required by
this Agreement, the Notes, the Certificate of Designations and the Warrants or
(ii) limit or restrict the exercise of a Buyer's rights upon an Event of Default
(as defined herein and in the Certificate of Designations).
5. TRANSFER AGENT INSTRUCTIONS FOR WARRANTS AND PREFERRED SHARES.
The Company shall issue irrevocable instructions to its transfer agent,
and any subsequent transfer agent, to issue certificates, registered in the name
of each Buyer or its respective nominee(s), for the Underlying Shares in such
amounts as specified from time to time by each Buyer to the Company upon
conversion of the Preferred Shares or exercise of the Warrants (the "IRREVOCABLE
TRANSFER AGENT INSTRUCTIONS"). Prior to registration of the Underlying Shares
under the 1933 Act, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(f)
hereof (in the case of the Underlying Shares, prior to registration of the
Underlying Shares under the ▇▇▇▇ ▇▇▇) will be given by the Company to its
transfer agent and that the Securities shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this
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Section 5 shall affect in any way each Buyer's obligations and agreements set
forth in Section 2(g) to comply with all applicable prospectus delivery
requirements, if any, upon resale of the Securities. If a Buyer provides the
Company with an opinion of counsel, in a generally acceptable form, to the
effect that a public sale, assignment or transfer of the Securities may be made
without registration under the 1933 Act or the Buyer provides the Company with a
copy of Form 144 filed with respect to the transfer of such Securities and a
written representation that the Securities can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, in the case of the Underlying Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Buyer and without any restrictive legend. The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyers shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Preferred
Shares, Notes and Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:
a. Such Buyer shall have executed each of the Transaction Documents to
which it is a party and delivered the same to the Company.
b. The Certificate of Designations shall have been filed with the
Secretary of State of the State of Utah.
c. Such Buyer shall have delivered to the Company the Purchase Price
for the Preferred Shares, Notes and Warrants being purchased by such Buyer at
the Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
d. The representations and warranties of such Buyer shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date), and such Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by such
Buyer at or prior to the Closing Date.
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7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Preferred
Shares, Notes and Warrants at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for each Buyer's sole benefit and may be waived by such
Buyer at any time in its sole discretion by providing the Company with prior
written notice thereof:
a. The Company shall have executed each of the Transaction Documents
and delivered the same to such Buyer.
b. The Certificate of Designations shall have been filed with the
Secretary of State of the State of Utah, and a copy thereof certified by such
Secretary of State shall have been delivered to such Buyer.
c. The Common Stock shall be authorized for quotation on the Principal
Market, trading in the Common Stock shall not have been suspended by the SEC or
the Principal Market and the Underlying Shares shall be listed upon the
Principal Market.
d. The representations and warranties of the Company shall be true and
correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Closing Date. Such
Buyer shall have received a certificate, executed by the President or Chief
Financial Officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by such Buyer
including, without limitation, an update as of the Closing Date regarding the
representation contained in Section 3(c) above, in the form attached here to as
EXHIBIT E.
e. Such Buyer shall have received the opinion of the Company's counsel
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to such Buyer and in substantially the form of EXHIBIT F attached
hereto.
f. The Company shall have executed and delivered to such Buyer the
Warrants, Notes and Preferred Stock Certificates (each in such denominations or
principal amounts as such Buyer shall request) for the Warrants, Notes and
Preferred Shares being purchased by such Buyer at the Closing.
g. The Board of Directors of the Company shall have adopted resolutions
consistent with Section 3(b)(ii) above and in a form reasonably acceptable to
such Buyer.
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h. As of the Closing Date, the Company shall have reserved out of its
authorized and unissued Common Stock, solely for the purpose of issuing
Redemption Shares, Coupon Shares and Warrant Shares, at least 1,000,000 shares
of Common Stock.
i. The Irrevocable Transfer Agent Instructions, in the form of EXHIBIT
G attached hereto, shall have been delivered to and acknowledged in writing by
the Company's transfer agent.
j. The Company shall have delivered to such Buyer a copy of a
certificate evidencing the incorporation and good standing of the Company and
each Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within 30 days of
the Closing Date.
k. The Company shall have delivered to such Buyer a copy of a certified
copy of the Articles of Incorporation as certified by the Secretary of State of
the State of Utah within 30 days of the Closing Date.
l. The Company shall have delivered to such Buyer a secretary's
certificate, dated as of the Closing Date, as to (i) the resolutions described
in Section 7(g), (ii) the Articles of Incorporation and (iii) the Bylaws, each
as in effect at the Closing.
m. The Company shall have delivered to such Buyer a letter from the
Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five days of the Closing Date.
n. The Company shall have made all filings under all applicable federal
and state securities laws necessary to consummate the issuance of the Securities
pursuant to this Agreement in compliance with such laws.
o. All consents, approvals and actions of, filings with and notices to
any governmental or regulatory authority necessary to permit the Buyers and the
Company to perform their obligations under the Transaction Documents and to
consummate the transactions contemplated hereby and thereby (i) shall have been
duly obtained, made or given, (ii) shall not be subject to the satisfaction of
any condition that has not been satisfied or waived or (iii) shall be in full
force and effect, and all terminations or expirations of waiting periods imposed
by any governmental or regulatory authority necessary for the consummation of
the transactions contemplated by this Agreement shall have occurred.
p. There shall not have occurred any Material Adverse Effect on the
Company and the Subsidiaries, taken as a whole.
q. There shall not be in effect any order or law restraining, enjoining
or otherwise prohibiting or making illegal the consummations of the transactions
contemplated by the Transaction Documents or which could reasonably be expected
to otherwise result in a material diminution of the benefits of the transactions
contemplated by the Transaction Documents to the
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Buyers, and there shall not be pending or threatened on the Closing Date any
action or proceeding or any other action in, before or by any governmental or
regulatory authority which would reasonably be expected to result in the
issuance of any such order or the enactment, promulgation or deemed
applicability to the Buyers, the Company or any Subsidiary or the transactions
contemplated by the Transaction Documents of any such law.
r. The Company shall have delivered to such Buyer such other documents
relating to the transactions contemplated by this Agreement as such Buyer or its
counsel may reasonably request.
s. With respect to the security interest granted pursuant to this
Agreement, the Company shall have delivered or caused to be delivered to the
each Buyer:
(A) duly executed copies of all UCC-l financing statements to be
filed, registered or recorded in the filing offices set forth on
SCHEDULE 3(AA) hereto, listing the Company as debtor and each Buyer as
secured party, together with any other filings, registrations and
recordings reasonably necessary and advisable to perfect the Liens of
the Buyers in the Collateral;
(B) uniform commercial code financing statement, federal and
state tax lien and judgment searches as the Buyers shall have
reasonably requested of the Company, and such termination statements
or other documents as may be reasonably necessary to confirm that the
Collateral is subject to no other Liens in favor of any Persons (other
than Permitted Liens);
(C) evidence that all other actions reasonably necessary or, in
the reasonable opinion of the Buyers, desirable to perfect and protect
the Liens created hereunder have been taken;
(D) funds sufficient to pay any filing or recording tax or fee in
connection with any and all UCC-1 financing statements; and
(E) such consents, estoppels, subordination agreements and other
documents and instruments executed by landlords, tenants and other
Persons party to material contracts relating to any Collateral as to
which the Buyers shall be granted a Lien, as reasonably requested by
the Buyers.
t. Duly executed Lockbox Collection Notices from each bank at which a
Depositary Account is located.
8. PAYMENT AND PREPAYMENT OF PRINCIPAL ON THE NOTES; PAYMENT OF INTEREST
ON THE NOTES.
a. PAYMENT AT MATURITY. On June 2, 2001 (the "MATURITY DATE") the
Company will pay all of the principal amount of the Notes remaining outstanding,
if any, in cash.
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b. OPTIONAL AND MANDATORY PREPAYMENTS. Subject to the provisions of
this Section 8, the Company may, at its option, upon notice as provided below,
prepay all or any part of the Notes on a pro-rata basis (based upon the
principal amount of the Notes outstanding at the time of prepayment); provided
that the Company agrees to prepay at least fifty percent (50%) of the original
principal amount of the Notes within twelve (12) months after the Closing Date.
Any prepayment of the Notes shall be made at a price equal to 110% of the
principal amount so prepaid, plus accrued interest to the date of prepayment.
The prepayment may be made in cash or (no more often than once in each period of
twenty (20) consecutive days during which securities are normally traded on the
Principal Market (a "TRADING DAY")) by issuance of a number of shares of Common
Stock determined by dividing the prepayment amount by the average of the Closing
Bid Prices (as defined in the Certificate of Designations) of the Common Stock
for the twenty (20) consecutive Trading Days immediately preceding the date of
the Company's notice of prepayment described below in subsection 8(c).
Notwithstanding the foregoing, the Company must prepay the Notes in cash (to the
extent such prepayment is required) if (i) any event constituting an Event of
Default, or an event that with the passage of time would constitute an Event of
Default if not cured, has occurred and is continuing on the date of the
Company's notice of prepayment as provided in Section 8(c) below or on the date
of prepayment, unless otherwise consented to in writing by the holder of the
Notes entitled to receive such prepayment, or (b) the Registration Statement (as
defined below) has not been declared effective by the Securities and Exchange
Commission (the "SEC") on or before the date of prepayment. To the extent the
Company elects or is required to prepay the Notes as provided in this Section
8(b), the Company shall also redeem a proportional amount of Preferred Shares
(based upon the Stated Value (as defined in the Certificate of Designations) of
the Preferred Shares outstanding relative to the principal amount of the Notes
outstanding) as required pursuant to Section 16 of the Certificate of
Designations. If the average of the Closing Bid Prices of the Common Stock used
to determine the number of shares of Common Stock required to prepay the Notes
with respect to any prepayment effected by the Company at its option is more
than the average of the Closing Bid Prices of the Common Stock for the twenty
(20) consecutive Trading Days immediately following the prepayment date, the
Company shall pay to the recipient of such shares, on or prior to the date that
is twenty-five (25) Trading Days after the prepayment date, an amount in cash
equal to the product of the per share difference between such average prices and
the number of shares issued as consideration for repayment of that portion of
the Notes being redeemed and sold during such twenty (20) Trading Day period
immediately following the prepayment date.
c. NOTICE OF PREPAYMENT. The Company will give each holder of Notes two
(2) Trading Days prior written notice of each optional or mandatory prepayment
pursuant to Section 8(b). Any such prepayment notice given by the Company shall
be irrevocable. Each such notice shall specify the prepayment date (which date
shall not be more than three (3) Trading Days following the date of the
prepayment notice), the aggregate principal amount of the Notes to be prepaid on
such date, and the accrued and unpaid interest amount plus any Default Interest
to be paid on the prepayment date with respect to such principal amount of Notes
being prepaid.
d. ALLOCATION OF PARTIAL PREPAYMENTS. In the case of any partial
prepayment of the Notes pursuant to Section 8(b), the proceeds of such
prepayment shall be applied pro-rata (based upon the aggregate principal amount
of each Note then outstanding) to the respective unpaid
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principal amount of each Note then outstanding. To the extent any holder of any
Note receives more than its pro-rata portion of any such prepayment, it shall
immediately turn over to the other holders of the Notes, their respective
portion of such prepayment.
e. EFFECT OF PREPAYMENT; SURRENDER, ETC. In the case of each prepayment
of Notes pursuant to Section 8(b), the principal amount of each Note to be
prepaid shall mature and become due and payable on the date fixed for such
prepayment, together with interest on such principal amount accrued to such
date. From and after such date, unless the Company shall fail to pay such
principal amount when so due and payable, together with the interest as
aforesaid, interest on such principal amount shall cease to accrue. Any Note
paid or prepaid in full shall be surrendered to the Company and canceled and
shall not be reissued, and no Note shall be issued in lieu of any prepaid
principal amount of any Note.
f. LIMIT ON PREPAYMENT AMOUNTS. Notwithstanding anything to the
contrary set forth in this Section 8, the aggregate principal amount of Notes
together with the Stated Value of Preferred Shares to be prepaid and redeemed by
the Company at any one time shall be limited to an aggregate amount that would
result in the issuance of shares of Common Stock not in excess of 200% of the
average daily trading volume of the Common Stock on the Principal Market as
reported by Bloomberg Financial Markets ("BLOOMBERG") over the period of 20
consecutive Trading Days ending on the trading day immediately preceding the
Company's notice of prepayment delivered pursuant to Section 8(c).
g. INTEREST ON THE NOTES. The Notes shall bear interest ("INTEREST") at
a rate of 8.0% per annum, which shall be cumulative, accrue daily from the date
of issuance of the Notes (the "ISSUANCE DATE") and be payable on June 30,
September 30, December 31 and March 31 of each year until the Maturity Date
(each an "INTEREST PAYMENT DATE"). If an Interest Payment Date is not a Business
Day (as defined below) then the Interest shall be due and payable on the
Business Day immediately following the Interest Payment Date. Interest shall be
payable in cash or, at the option of the Company, in shares of Common Stock
based on the Interest Conversion Price (as defined below) on the Interest
Payment Date; provided that the Interest which accrued during any period shall
be payable in shares of Common Stock only if the Company provides written notice
("INTEREST ELECTION NOTICE") to each holder of Notes at least 10 days prior to
the Interest Payment Date. Notwithstanding the foregoing, the Company must pay
such Interest in cash if (a) any event constituting an Event of Default, or an
event that with the passage of time would constitute an Event of Default if not
cured, has occurred and is continuing on the date of the Company's Interest
Election Notice or on the Interest Payment Date, unless otherwise consented to
in writing by the holder of Notes entitled to receive such Interest, or (b) the
Registration Statement has not been declared effective by the SEC on or before
the Interest Payment Date. Any accrued and unpaid interest which is not paid (in
stock or cash as applicable) within five (5) Business Days after the Interest
Payment Date for such accrued and unpaid interest shall bear interest at the
rate of 15% per annum from such Interest Payment Date until the same is paid in
full (the "DEFAULT INTEREST"). For purposes of this Agreement, the "INTEREST
CONVERSION PRICE" means the average Closing Bid Price (as defined in the
Certificate of Designations) of the Common Stock for the (5) five trading days
immediately preceding the Interest Election Notice. If the average of the
Closing Bid Prices of the Common Stock used to determine the number of shares of
Common Stock required to pay
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interest on the Notes with respect to any interest payment is more than the
average of the Closing Bid Prices of the Common Stock for the five (5)
consecutive Trading Days immediately following the Interest Payment Date, the
Company shall pay to the recipient of such shares, on or prior to the date that
is ten (10) Trading Days after the Interest Payment Date, an amount in cash
equal to the product of the per share difference between such average prices and
the number of shares issued as consideration for interest being paid on the Note
and sold during such five (5) Trading Day period.
9. SECURITY FOR THE NOTE.
Section 9.1 GRANT OF SECURITY INTEREST. As collateral security for the
prompt payment in full when due (whether at stated maturity, by acceleration or
otherwise) of all principal and interest due on the Notes, and all other amounts
from time to time due and owing with respect to the Notes, the Company hereby
pledges and grants to the holder of the Notes, a Lien on and security interest
in and to all of the Company's right, title and interest in the following
property and interests in property, whether now owned by the Company or
hereafter acquired and whether now existing or hereafter coming into existence
and wherever located (all being collectively referred to herein as
"COLLATERAL"):
(a) the "INSTRUMENTS" (as such term is defined in the Uniform
Commercial Code as in effect from time to time in the State of New York ("UCC"),
including, without limitation, promissory notes, drafts, bills of exchange,
trade acceptances, letters of credit and "CHATTEL PAPER" (as such term is
defined in the UCC)) of the Company, together with all payments thereon or
thereunder:
(b) all "ACCOUNTS" (as such term is defined in the UCC);
(c) all "INVENTORY" (as such term is defined in the UCC);
(d) all "GENERAL INTANGIBLES" (as such term is defined in the UCC, and,
in any event, including, without limitation, all right, title and interest in or
under any Contract, models, drawings, materials and records, claims, literary
rights, goodwill, rights of performance, warranties, rights under insurance
policies, rights of indemnification and any other rights or interest in or
relating to Intellectual Property);
(e) all "EQUIPMENT" (as such term is defined in the UCC, and, in any
event, including all motor vehicles);
(f) all "DOCUMENTS" (as such term is defined in the UCC, and including,
without limitation, "ALL DOCUMENTS OF TITLE" (as defined in the UCC) bills of
lading or other receipts evidencing or representing Inventory or Equipment).
(g) all "CONTRACTs" (which for purposes of this Agreement, means all
contracts, undertakings, or other agreements (other than rights evidenced by
Chattel Paper, Documents or Instruments) in or under which the Company may now
or hereafter have any
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right, title or interest, including, without limitation, with respect to an
Account, any agreement relating to the terms of payment or the terms of
performance thereof);
(h) all "GOODS" (as such term is defined in the UCC);
(i) all "INVESTMENT PROPERTY" (as such term is defined in the UCC);
(j) all "FIXTURES" (which for purposes of this Agreement means all of
the following now owned or hereafter acquired by the Company: plant fixtures,
other fixtures and storage facilities wherever located, and all additions and
accessions thereto and replacements therefor);
(k) all bank and depositary accounts and the balance from time to time
in all such bank and depositary accounts maintained by the Company;
(l) all other stock or other securities owned by the Company,
including, without limitation, any stock of any subsidiaries of the Company; and
(m) all other tangible and intangible property of the Company,
including, without limitation, all proceeds, products, accessions, rents,
profits, income, benefits, substitutions, additions and replacements of and to
any of the property of the Company described in the preceding clauses of this
Section 9 (including, without limitation, any proceeds of insurance thereon and
all rights, claims and benefits against any Person relating thereto) and all
books, correspondence, files, records, invoices and other papers, including
without limitation all tapes, cards, computer runs, computer programs, computer
files and other papers, documents and records in the possession or under the
control of the Company or any computer bureau or service company from time to
time acting for the Company.
Notwithstanding the foregoing, the Buyers acknowledge and agree that
the definition of Collateral shall not include the Company's interest in Gel
Tech.
Section 9.2 BUYERS SECURED PARI-PASSU IN THE COLLATERAL. By its
execution hereof, each of the Buyers hereby agrees that, vis-a-vis all other
Buyers hereunder, its security interest ranks pari-passu with all others Buyers,
and the fact that each Buyer received its own respective UCC-1 financing
statements, which financing statement may have been filed prior to another
Buyer's financing statement hereunder, is not intended to confer, as between the
Buyers, any superior or prior perfected security interest. Such individual
filings in favor of each Buyer were undertaken for administrative convenience
purposes so that the Buyers would not need to appoint a collateral agent to act
for all Buyers and, as between the Buyers, each Buyer has an equivalent security
interest in all of the Collateral. If any Buyer hereunder receives more than its
allocable portion of the Collateral hereunder, it shall immediately turn-over to
the other Buyers their applicable portion of such Collateral or proceeds
thereof.
10. EVENT OF DEFAULT; REMEDIES.
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10.1 EVENT OF DEFAULT. For purpose of this Agreement "DEFAULT" or
"EVENT OF DEFAULT" shall exist if any of the following conditions or events
shall occur and be continuing:
(A) the Company defaults in the payment of any principal on any
Note when the same becomes due and payable, whether at maturity or at
a date fixed for prepayment or by declaration or otherwise (including,
without limitation the mandatory prepayment of fifty percent (50%) of
the original principal amount of the Notes within twelve (12) months
following the Closing Date as provided in Section 8(b)); or
(B) the Company defaults in the payment of any interest on any
Note for more than five business days after the same becomes due and
payable; or
(C) the Company defaults in the performance of or compliance with
any term contained in Sections 4.2(a), (b), (c), (e), (f) or (j); or
(D) the Company defaults in the performance of or compliance with
any term contained in this Agreement, the Notes or the Registration
Rights Agreement (other than those referred to in paragraphs (A), (B)
and (C) of this definition) and such default is not remedied within 30
days after the earlier of (i) an officer of the Company obtaining
actual knowledge of such default and (ii) the Company receiving
written notice of such default from any holder of a Note, PROVIDED
HOWEVER, that the Company shall not be entitled to any cure period or
grace period in the case of a breach of Section 4.2(k) hereof, to the
extent such breach results in, or is reasonably likely to result in, a
termination, liquidation, dissolution or cessation of existence of the
Company or any of its Subsidiaries; or
(E) any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company in this
Agreement or in any agreement, document, certificate or instrument
furnished in connection with the transactions contemplated hereby
proves to have been false or incorrect in any material respect on the
date as of which made, PROVIDED HOWEVER, that the Buyers agree that
there shall not be any Event of Default hereunder based upon a claim
that any projections prepared by the Company were materially
misleading so long as at the time such projections were prepared, the
Company had a reasonable basis for making such projections; or
(F) the Company or any Subsidiary (i) is generally not paying, or
admits in writing its inability to pay, its debts as they become due,
(ii) files, or consents by answer or otherwise to the filing against
it of, a petition for relief or reorganization or arrangement or any
other petition in bankruptcy, for liquidation or to take advantage of
any bankruptcy, insolvency, reorganization, moratorium or other
similar law of any jurisdiction, (iii) makes an assignment for the
benefit of its creditors, (iv) consents to the appointment of a
custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part
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of its property, (v) is adjudicated as insolvent or to be liquidated,
or (vi) takes corporate action for the purpose of any of the
foregoing; or
(G) a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the Company or any
Subsidiary, a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial
part of its property, or constituting an order for relief or approving
a petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy
or insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of the Company or any Subsidiary, or any
such petition shall be filed against the Company or any Subsidiary and
such petition shall not be dismissed within 60 days; or
(H) a final judgment or judgments for the payment of money
aggregating in excess of $750,000 are rendered against one or more of
the Company and its Subsidiaries and which judgments are not, within
60 days after entry thereof, bonded, discharged or stayed pending
appeal, or are not discharged within 60 days after the expiration of
such stay, PROVIDED HOWEVER, that any judgement which is covered by
insurance or an indemnity from a credit worthy party shall not be
included in calculating the $750,000 amount set forth above so long as
the Company provides to the Buyers a written statement from such
insurer or indemnity provider (which written statement shall be
reasonably satisfactory to the Buyers) to the effect that such
judgement is covered by insurance or an indemnity and the Company will
receive the proceeds of such insurance or indemnity within 30 days of
the issuance of such judgement; or
(I) the failure of the Registration Statement required to be
filed pursuant to the Registration Rights Agreement (the "Registration
Statement") to be declared effective by the SEC on or prior to the
date that is 130 days after the original date of issuance of the
Notes; or
(J) while the Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement
(and subject to the Allowable Grace Period set forth in Section 3(u)
thereof), the effectiveness of the Registration Statement lapses for
any reason (including, without limitation, the issuance of a stop
order) or is unavailable to the holder of the Notes for sale of all of
the Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights
Agreement, provided that the cause of such lapse or unavailability is
not due to factors solely within the control of such holder of Notes;
or
(K) the suspension from trading or failure of the Common Stock to
be listed on the Nasdaq National Market, the New York Stock Exchange,
Inc. or The American Stock Exchange, Inc. for a period of five
consecutive Trading Days or for more than an aggregate of 10 Trading
Days in any 365-day period; or
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(L) on or prior to December 31, 2000, ▇▇▇▇ ▇. ▇▇▇▇▇ shall cease
to be employed in the capacity of an executive officer of the Company
with substantial responsibility for day-to-day operation of the
Company's gum business.
10.2 REMEDIES. Upon the occurrence and during the continuance of any
Event of Default:
a. ACCELERATION; DEFAULT INTEREST.
(A) If an Event of Default with respect to the Company described
in paragraph (F) or (G) of the definition of Event of Default
contained in Section 10.1 has occurred, all the Notes then outstanding
shall automatically become immediately due and payable.
(B) If any Event of Default described in paragraph (A) or (B) of
the definition of Event of Default contained in Section 10.1 has
occurred and is continuing, any holder or holders of Notes at the time
outstanding affected by such Event of Default may at any time, at its
or their option, by notice or notices to the Company, declare all the
Notes held by it or them to be immediately due and payable.
(C) If any other Event of Default has occurred and is continuing,
the Buyers which hold more than 51% of the aggregate outstanding
principal amount of the Notes (the "MAJORITY BUYERS") may at any time
at its or their option, by notice or notices to the Company, declare
all the Notes then outstanding to be immediately due and payable.
(D) To the extent permitted by applicable law, upon the
occurrence and continuance of an Event of Default, for the period from
the date of such Event of Default to and including the date such Event
of Default is either cured or waived, the interest rate applicable to
the Notes shall be increased from 8% to 15%, and in the case of any
Event of Default arising as a result of the failure to make an
interest payment, such increased interest rate of 15% shall be
applicable to the amount of such defaulted interest payment.
Upon any Notes becoming due and payable under this Section 10.2(a), whether
automatically or by declaration, such Notes will forthwith mature and the entire
unpaid principal amount of such Notes, plus all accrued and unpaid interest
thereon shall all be immediately due and payable, in each and every case without
presentment, demand, protest or further notice, all of which are hereby waived.
b. REMEDIES WITH RESPECT TO COLLATERAL - During the period an Event of
Default shall have occurred and be continuing, and upon the affirmative vote and
direction of the Majority Buyers:
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(A) the Company shall assemble the Collateral at such place or
places as may be reasonably designated by the Majority Buyers or their
representative;
(B) the Majority Buyers or their representative may make any
reasonable compromise or settlement deemed desirable with respect to
any of the Collateral and may extend the time of payment, arrange for
payment in installments, or otherwise modify the terms of, any of the
Collateral;
(C) the Majority Buyers shall have all of the rights and remedies
with respect to the Collateral of a secured party under the Uniform
Commercial Code (whether or not said Uniform Commercial Code is in
effect in the jurisdiction where the rights and remedies are asserted)
and such additional rights and remedies to which a secured party is
entitled under the laws in effect in any jurisdiction where any rights
and remedies hereunder may be asserted, including, without limitation,
the right, to the maximum extent permitted by law, to exercise all
voting, consensual and other powers of ownership pertaining to the
Collateral as if the holders of the Notes were the sole and absolute
owner thereof (and the Company agrees to take all such action as may
be appropriate to give effect to such right);
(D) the Majority Buyers or their Representative in their
discretion may, in the name of the Majority Buyers or in the name of
the Company or otherwise, demand, ▇▇▇ for, collect or receive any
money or property at any time payable or receivable on account of or
in exchange for any of the Collateral, but shall be under no
obligation to do so;
(E) the Majority Buyers, or their Representative, may take
immediate possession and occupancy of any premises owned, used or
leased by the Company and exercise all other rights and remedies of an
assignee which may be available to the Majority Buyers; and
(F) the Majority Buyers may, upon ten (10) Business Days prior
written notice to the Company of the time and place, with respect to
the Collateral or any part thereof which shall then be or shall
thereafter come into the possession, custody or control of the
Majority Buyers or its Representative, sell, lease, assign or
otherwise dispose of all or any part of such Collateral, at such place
or places as the Majority Buyers deems best, and for cash or for
credit or for future delivery (without thereby assuming any credit
risk), at public or private sale, without demand of performance or
notice of intention to effect any such disposition or of the time or
place thereof (except such notice as is required above or by
applicable statute and cannot be waived), and the Majority Buyers or
anyone else may be the purchaser, lessee, assignee or recipient of any
or all of the Collateral so disposed of at any public sale (or, to the
extent permitted by law, at any private sale) and thereafter hold the
same absolutely, free from any claim or right of whatsoever kind,
including any right or equity of redemption (statutory or otherwise),
of the Company, any such demand, notice and right or equity being
hereby expressly
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waived and released. The Majority Buyers may, without notice or
publication, adjourn any public or private sale or cause the same to
be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to
which the sale may be so adjourned.
Any actions taken by the Majority Buyers pursuant to this Section 10 shall be
taken for the benefit of all holders of the Notes, and the proceeds of each
collection, sale or other disposition of the Collateral under this Section 10
shall be applied in the following order: (i) the cost of collection and
foreclosure upon the Collateral, (ii) to the payment of all accrued and unpaid
interest, (iii) to the payment of all unpaid principal, and (iv) to any other
amounts owing to the holders of the Notes under the Transaction Documents.
c. CONVERSION TO COMMON STOCK. If any Default or Event of Default has
occurred and is continuing, and irrespective of whether any Notes have become or
have been declared immediately due and payable under Section 10.2(a), the holder
of any Note may elect to convert all principal, together with Interest and
Default Interest, outstanding on such Note at the Conversion Price (as defined
in the Certificate of Designations) by delivery of a written facsimile notice
setting out the principal amount, Interest and Default Interest to be converted
as of the date of the notice and the calculation of the Conversion Price. The
Company shall deliver shares of Common Stock in respect of any such conversion
within three (3) days following receipt of such notice.
d. OTHER REMEDIES. If any Default or Event of Default has occurred and
is continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 10.2 (a), the holder of any
Note at the time outstanding may proceed to protect and enforce the rights of
such holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Note, or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law or otherwise.
e. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. No course of
dealing and no delay on the part of any holder of any Note in exercising any
right, power or remedy shall operate as a waiver thereof or otherwise prejudice
such holder's rights, powers or remedies. No right, power or remedy conferred by
this Agreement or by any Note upon any holder thereof shall be exclusive of any
other right, power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise. Without limiting the
obligations of the Company under this Agreement, the Notes or any of the other
Transaction Documents, the Company will pay to the holders of the Notes on
demand such further amount as shall be sufficient to cover all costs and
expenses of such holders incurred in any enforcement or collection under this
Section 10, including without limitation, the reasonable attorney's fees,
expenses and disbursements of one counsel representing such holders.
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11. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES; PLACE OF PAYMENT.
a. REGISTRATION OF NOTES. The Company shall keep at its principal
executive office a register for the registration and registration of transfers
of Notes. The name and address of each holder of one or more Notes, each
transfer thereof and the name and address of each transferee of one or more
Notes shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Note shall be registered
shall be deemed and treated as the owner and holder thereof for all purposes
hereof, and the Company shall not be affected by any notice or knowledge to the
contrary.
b. TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any Note at the
principal executive office of the Company for registration of transfer or
exchange (and in the case of a surrender for registration of transfer, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or his attorney duly authorized in writing and
accompanied by the address for notices of each transferee of such Note or part
thereof), the Company shall execute and deliver, at the Company's expense
(except as provided below), one or more new Notes of the same series (as
requested by the holder thereof) in exchange therefor, in an aggregate principal
amount equal to the unpaid principal amount of the surrendered Note. Each such
new Note shall be payable to such Person as such holder may request, subject to
the limitations on transfer set forth in Section 2(f), and shall be
substantially in the form of EXHIBIT B. Each such new Note shall be dated and
bear interest from the date to which interest shall have been paid on the
surrendered Note or dated the date of the surrendered Note if no interest shall
have been paid thereon. The Company may require payment of a sum sufficient to
cover any stamp tax or governmental charge imposed in respect of any such
transfer of Notes. Notes shall not be transferred in denominations of less than
$100,000, provided that if necessary to enable the registration of transfer by a
holder of its entire holding of Notes, one Note may be in a denomination of less
than $100,000. Notwithstanding the foregoing, Notes may be freely transferred
among affiliates of holders of the Notes on the Closing Date in any
denomination.
c. REPLACEMENT OF NOTES. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note, and (A) in the case of loss, theft or
destruction, of indemnity reasonably satisfactory to it, or (B) in the case of
mutilation, upon surrender and cancellation thereof, the Company at its own
expense shall execute and deliver, in lieu thereof, a new Note, dated and
bearing interest from the date to which interest shall have been paid on such
lost, stolen, destroyed or mutilated Note or dated the date of such lost,
stolen, destroyed or mutilated Note if no interest shall have been paid thereon.
d. PLACE OF PAYMENT. Payments of principal and interest becoming due
and payable on the Notes shall be made in accordance with the terms and
provisions of the Notes. The Company may at any time, by notice to each holder
of a Note, change the place of payment of the Notes so long as such place of
payment shall be either the principal office of the Company in such jurisdiction
or the principal office of a bank or trust company in such jurisdiction.
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e. HOME OFFICE PAYMENT. So long as Buyer or Buyer's nominee shall be
the holder of any Note, and notwithstanding anything contained in Section 11(d)
or in such Note to the contrary, the Company will pay all sums becoming due on
such Note for principal, and interest by the method and at the address specified
for such purpose below Buyer's name in the Schedule of Buyers or by such other
method or at such other address as Buyer shall have from time to time specified
to the Company in writing for such purpose, without the presentation or
surrender of such Note or the making of any notation thereon, except that upon
written request of the Company made concurrently with or reasonably promptly
after payment or prepayment in full of any Note, Buyer shall surrender such Note
for cancellation, reasonably promptly after any such request, to the Company at
its principal executive office or at the place of payment most recently
designated by the Company pursuant to Section 11(d). Prior to any sale or other
disposition of any Note held by Buyer or Buyer's nominee Buyer will, at Buyer's
election, either endorse thereon the amount of principal paid thereon and the
last date to which interest has been paid thereon or surrender such Note to the
Company in exchange for a new Note or Notes pursuant to Section 11(b).
12. INDEMNIFICATION.
In consideration of each Buyer's execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to
all of the Company's other obligations under the Transaction Documents and the
Certificate of Designations, the Company shall defend, protect, indemnify and
hold harmless each Buyer and each other holder of the Securities and all of
their stockholders, officers, directors, employees and direct or indirect
investors and any of the foregoing person's agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Indemnitees")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
the Certificate of Designations or any other certificate, instrument or document
contemplated hereby or thereby or (c) any cause of action, suit or claim brought
or made against such Indemnitee (other than a cause of action, suit or claim
which is, (x) caused by a breach of the Transaction Documents by the Indemnitees
or by the Indemnitees' own gross negligence or willful misconduct, (y) brought
or made by the Company and (z) not a shareholder derivative suit) and arising
out of or resulting from (i) the execution, delivery, performance or enforcement
of the Transaction Documents or the Certificate of Designations or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (iii) the
status of such Buyer or holder of the Securities as an investor in the Company.
To the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law.
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13. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW; JURISDICTION; JURY TRIAL. The corporate laws of the
State of Utah shall govern all issues concerning the relative rights of the
Company and its stockholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting in the City of New York, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party hereby irrevocably waives any right it may have, and agrees not to
request, a jury trial for the adjudication of any dispute hereunder or in
connection with or arising out of this agreement or any transaction contemplated
hereby.
b. COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other
prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least two-thirds (2/3) of the Preferred Shares
then outstanding,
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and no provision hereof may be waived other than by an instrument in writing
signed by the party against whom enforcement is sought.
f. NOTICES. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Gum Tech International, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Chief Financial Officer
With a copy to:
▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
If to the Transfer Agent:
Corporate Stock Transfer
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Ms. ▇▇▇▇▇▇▇ ▇▇▇▇
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, or at such other address and/or facsimile number and/or
to the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
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transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Securities. The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding, including by merger or consolidation. A Buyer may assign some or
all of its rights hereunder without the consent of the Company, provided,
however, that any such assignment shall not release such Buyer from its
obligations hereunder unless such obligations are assumed by such assignee and
the Company has consented to such assignment and assumption. Notwithstanding
anything to the contrary contained in the Transaction Documents, the Buyers
shall be entitled to pledge the Securities in connection with a bona fide margin
account or other loan secured by such Securities.
h. NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. SURVIVAL. Unless this Agreement is terminated under Section 13(l),
the representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5, and
13, and the indemnification provisions set forth in Section 12, shall survive
the Closing until the end of the Registration Period. Each Buyer shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder.
j. PUBLICITY. The Company and each Buyer shall have the right to
approve before issuance any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to make any
press release or other public disclosure with respect to such transactions as is
required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
k. FURTHER ASSURANCES. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. TERMINATION. In the event that the Closing shall not have occurred
with respect to a Buyer on or before five (5) business days from the date hereof
due to the Company's or such Buyer's failure to satisfy the conditions set forth
in Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option
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to terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated pursuant to this Section
13(l), the Company shall remain obligated to reimburse the
nonbreaching Buyers for the expenses described in Section 4(h) above.
m. PLACEMENT AGENT. The Company shall be responsible for the payment of
any placement agent's fees or broker's commissions relating to or arising out of
the transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
attorneys' fees and out of pocket expenses) arising in connection with any such
claim.
n. NO STRICT CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
o. REMEDIES. Each Buyer and each holder of the Securities shall have
all rights and remedies set forth in the Transaction Documents and the
Certificate of Designations and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any Person having any rights under
any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
p. PAYMENT SET ASIDE. To the extent that the Company makes a payment or
payments to the Buyers hereunder or pursuant to the Certificate of Designations
or Warrants or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
* * * * * *
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IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
BUYERS:
▇▇▇▇▇▇ CAPITAL LTD.
By: /s/ ▇▇▇▇▇▇▇ ▇. Simpler
----------------------
Name: ▇▇▇▇▇▇▇ ▇. Simpler
Its: Vice President
▇▇▇▇▇▇▇ CAPITAL LTD.
By: /s/ ▇▇▇▇▇▇▇ ▇. Simpler
----------------------
Name: ▇▇▇▇▇▇▇ ▇. Simpler
Its: Vice President
COMPANY:
GUM TECH INTERNATIONAL, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Its: President