EXHIBIT 4.15
SECURITY AGREEMENT
GRYPHON MASTER FUND, L.P.
AMERICAN TECHNOLOGIES GROUP, INC.
and
EACH ELIGIBLE SUBSIDIARY NAMED THEREIN
Dated: ___________, 2005
1. General Definitions and Terms; Rules of Construction.....................1
2. Loan Facility............................................................2
3. Repayment of the Loans...................................................5
4. Omitted..................................................................5
5. Interest and Payments....................................................5
6. Security Interest........................................................7
7. Representations, Warranties and Covenants Concerning the Collateral......7
8. Payment of Accounts.....................................................10
9. Collection and Maintenance of Collateral................................11
10. Inspections and Appraisals..............................................11
11. Financial Reporting.....................................................11
12. Additional Representations and Warranties...............................12
13. Covenants...............................................................23
14. Further Assurances......................................................29
15. Representations, Warranties and Covenants of Gryphon....................30
16. Power of Attorney.......................................................31
17. Term of Agreement.......................................................32
18. Termination of Lien.....................................................32
19. Events of Default.......................................................33
20. Remedies................................................................35
21. Waivers.................................................................36
22. Expenses................................................................36
23. Assignment By Gryphon...................................................37
24. No Waiver; Cumulative Remedies..........................................37
25. Application of Payments.................................................37
26. Indemnity...............................................................37
27. Revival.................................................................38
28. Borrowing Agency Provisions.............................................38
29. Notices.................................................................39
30. Governing Law, Jurisdiction and Waiver of Jury Trial....................40
31. Limitation of Liability.................................................41
32. Entire Understanding; Maximum Interest..................................41
33. Severability............................................................42
34. Survival................................................................42
35. Captions................................................................42
36. Counterparts; Telecopier Signatures.....................................42
37. Construction............................................................42
38. Publicity...............................................................42
39. Joinder.................................................................42
40. Legends.................................................................43
SECURITY AGREEMENT
This Security Agreement is made as of ____________, 2005 (this
"Agreement") by and among GRYPHON MASTER FUND L.P. ("Gryphon"), AMERICAN
TECHNOLOGIES GROUP, INC., a Nevada corporation (the "Parent"), and each party
listed on Exhibit A attached hereto (each an "Eligible Subsidiary" and
collectively, the "Eligible Subsidiaries") (the Parent and each Eligible
Subsidiary, each a "Company" and collectively, the "Companies").
BACKGROUND
The Companies have requested that Gryphon make advances
available to the Companies; and
Gryphon has agreed to make such advances on the terms and
conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings and the terms and conditions contained herein, the parties hereto
agree as follows:
1. General Definitions and Terms; Rules of Construction.
(a) General Definitions. Capitalized terms used in this
Agreement shall have the meanings assigned to them in Annex A.
(b) Accounting Terms. Any accounting terms used in this
Agreement which are not specifically defined shall have the meanings customarily
given them in accordance with GAAP and all financial computations shall be
computed, unless specifically provided herein, in accordance with GAAP
consistently applied.
(c) Other Terms. All other terms used in this Agreement and
defined in the UCC, shall have the meaning given therein unless otherwise
defined herein.
(d) Rules of Construction. All Schedules, Addenda, Annexes and
Exhibits hereto or expressly identified to this Agreement are incorporated
herein by reference and taken together with this Agreement constitute but a
single agreement. The words "herein", "hereof" and "hereunder" or other words of
similar import refer to this Agreement as a whole, including the Exhibits,
Addenda, Annexes and Schedules thereto, as the same may be from time to time
amended, modified, restated or supplemented, and not to any particular section,
subsection or clause contained in this Agreement. Wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and the plural, and pronouns stated in the masculine,
feminine or neuter gender shall include the masculine, the feminine and the
neuter. The term "or" is not exclusive. The term "including" (or any form
thereof) shall not be limiting or exclusive. All references to statutes and
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related regulations shall include any amendments of same and any successor
statutes and regulations. All references in this Agreement or in the Schedules,
Addenda, Annexes and Exhibits to this Agreement to sections, schedules,
disclosure schedules, exhibits, and attachments shall refer to the corresponding
sections, schedules, disclosure schedules, exhibits, and attachments of or to
this Agreement. All references to any instruments or agreements, including
references to any of this Agreement or the Ancillary Agreements shall include
any and all modifications or amendments thereto and any and all extensions or
renewals thereof.
2. Note.
(a) Subject to the terms and conditions set forth herein and
in the Ancillary Agreements, Gryphon shall make a Convertible Note to the
Companies in an amount equal to $250,000 (the "Note") in the form attached
hereto as Exhibit "B". The Loan shall be advanced on the Closing Date and shall
be, with respect to principal, payable on the terms set forth therein.
3. Repayment of the Loans. The Companies shall pay all amounts
payable hereunder, under the Loans, or under any Ancillary Agreement prior to
12:00 noon (New York time) on the due date thereof in immediately available
funds.
4. [Omitted]
5. Interest and Payments.
(a) Interest.
(i) Except as modified by Section 5(a)(iii) below,
the Companies shall jointly and severally pay interest at the Contract Rate on
the unpaid principal balance of each Loan until such time as such Loan is
collected in full in good funds in dollars of the United States of America.
(ii) Interest and payments shall be computed on the
basis of actual days elapsed in a year of 360 days. At Gryphon's option, Gryphon
may charge Companies' account for said interest.
(iii) Effective upon the occurrence of any Event of
Default and for so long as any Event of Default shall be continuing, the
Contract Rate shall automatically be increased as set forth in each (such
increased rate, the "Default Rate"), and all outstanding Obligations, including
unpaid interest, shall continue to accrue interest from the date of such Event
of Default at the Default Rate applicable to such Obligations.
(iv) In no event shall the aggregate interest
payable hereunder exceed the maximum rate permitted under any applicable law or
regulation, as in effect from time to time (the "Maximum Legal Rate"), and if
any provision of this Agreement or any Ancillary Agreement is in contravention
of any such law or regulation, interest payable under this Agreement and each
Ancillary Agreement shall be computed on the basis of the Maximum Legal Rate (so
that such interest will not exceed the Maximum Legal Rate).
(v) The Companies shall jointly and severally pay
principal, interest and all other amounts payable hereunder, or under any
Ancillary Agreement, without any deduction whatsoever, including any deduction
for any set-off or counterclaim.
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(b) Payments; Certain Closing Conditions.
(i) Closing/Annual Payments. Upon execution of this
Agreement by each Company and Gryphon, the Companies shall jointly and severally
pay to Gryphon a closing payment in an amount equal to three and three-quarters
percent (3.75%) of the Total Investment Amount. Such payment shall be deemed
fully earned on the Closing Date and shall not be subject to rebate or proration
for any reason.
(ii) [Omitted]
(iii) [Omitted]
(iv) Financial Information Default. Without
affecting Gryphon's other rights and remedies, in the event any Company fails to
deliver the financial information required by Section 11 on or before the date
required by this Agreement, the Companies shall jointly and severally pay
Gryphon an aggregate fee in the amount of $250.00 per week (or portion thereof)
for each such failure until such failure is cured to Gryphon's satisfaction or
waived in writing by Gryphon. All amounts that are incurred pursuant to this
Section 5(b)(iv) shall be due and payable by the Companies monthly, in arrears,
on the first business of each calendar month and upon expiration of the Term.
(v) Expenses. The Companies shall jointly and
severally reimburse Gryphon for its reasonable expenses (including reasonable
legal fees and expenses) incurred in connection with the preparation and
negotiation of this Agreement and the Ancillary Agreements, and expenses
incurred in connection with Gryphon's due diligence review of each Company and
its Subsidiaries and all related matters. Amounts required to be paid under this
Section 5(b)(v) will be paid on the Closing Date.
6. Security Interest.
(a) To secure the prompt payment to Gryphon of the
Obligations, each Company hereby assigns, pledges and grants to Gryphon a
continuing security interest in and Lien upon all of the Collateral. All of each
Company's Books and Records relating to the Collateral shall, until delivered to
or removed by Gryphon, be kept by such Company in trust for Gryphon until all
Obligations have been paid in full. Each confirmatory assignment schedule or
other form of assignment hereafter executed by each Company shall be deemed to
include the foregoing grant, whether or not the same appears therein.
(b) Each Company hereby (i) authorizes Gryphon to file any
financing statements, continuation statements or amendments thereto that (x)
indicate the Collateral (1) as all assets and personal property of such Company
or words of similar effect, regardless of whether any particular asset comprised
in the Collateral falls within the scope of Article 9 of the UCC of such
jurisdiction, or (2) as being of an equal or lesser scope or with greater
detail, and (y) contain any other information required by Part 5 of Article 9 of
the UCC for the sufficiency or filing office acceptance of any financing
statement, continuation statement or amendment and (ii) ratifies its
authorization for Gryphon to have filed any initial financial statements, or
amendments thereto if filed prior to the date hereof. Each Company acknowledges
that it is not authorized to file any financing statement or amendment or
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termination statement with respect to any financing statement without the prior
written consent of Gryphon and agrees that it will not do so without the prior
written consent of Gryphon, subject to such Company's rights under Section
9-509(d)(2) of the UCC.
(c) Each Company hereby grants to Gryphon an irrevocable,
non-exclusive license (exercisable upon the termination of this Agreement due to
an occurrence and during the continuance of an Event of Default without payment
of royalty or other compensation to such Company) to use, transfer, license or
sublicense any Intellectual Property now owned, licensed to, or hereafter
acquired by such Company, and wherever the same may be located, and including in
such license access to all media in which any of the licensed items may be
recorded or stored and to all computer and automatic machinery software and
programs used for the compilation or printout thereof, and represents, promises
and agrees that any such license or sublicense is not and will not be in
conflict with the contractual or commercial rights of any third Person;
provided, that such license will terminate on the termination of this Agreement
and the payment in full of all Obligations.
7. Representations, Warranties and Covenants Concerning the
Collateral. Each Company represents, warrants and covenants as follows:
(a) all of the Collateral (i) is owned by it free and clear of
all Liens (including any claims of infringement) except those in Gryphon's favor
and Permitted Liens and (ii) is not subject to any agreement prohibiting the
granting of a Lien or requiring notice of or consent to the granting of a Lien.
(b) it shall not encumber, mortgage, pledge, assign (other
than as expressly permitted under this Agreement) or grant any Lien in any
Collateral or any other assets to anyone other than Gryphon and except for
Permitted Liens.
(c) the Liens granted pursuant to this Agreement, upon
completion of the filings and other actions listed on Schedule 7(c) (which, in
the case of all filings and other documents referred to in said Schedule, have
been delivered to Gryphon in duly executed form) constitute valid perfected
security interests in all of the Collateral in favor of Gryphon as security for
the prompt and complete payment and performance of the Obligations, enforceable
in accordance with the terms hereof against any and all of its creditors and
purchasers and such security interest is prior to all other Liens in existence
on the date hereof other than Premitted Liens.
(d) no effective security agreement, mortgage, deed of trust,
financing statement, equivalent security or Lien instrument or continuation
statement covering all or any part of the Collateral is or will be on file or of
record in any public office, except those relating to Permitted Liens.
(e) it shall not dispose of any of the Collateral whether by
sale, lease or otherwise except for the sale of Inventory in the ordinary course
of business and for the disposition or transfer in the ordinary course of
business during any fiscal year of obsolete and worn-out Equipment having an
aggregate fair market value of not more than $100,000 and only to the extent
that (i) the proceeds of any such disposition are used to acquire replacement
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Equipment which is subject to Gryphon's security interest or are used to repay
Loans or to pay general corporate expenses, or (ii) following the occurrence of
an Event of Default which continues to exist the proceeds of which are remitted
to Gryphon to be held as cash collateral for the Obligations.
(f) it shall defend the right, title and interest of Gryphon
in and to the Collateral against the claims and demands of all Persons
whomsoever, and take such actions, including (i) all actions necessary to grant
Gryphon "control" of any Investment Property, Deposit Accounts, Letter-of-Credit
Rights or electronic Chattel Paper owned by it, with any agreements establishing
control to be in form and substance satisfactory to Gryphon, (ii) the prompt
(but in no event later than five (5) Business Days following Gryphon's request
therefor) delivery to Gryphon of all original Instruments, Chattel Paper,
negotiable Documents and certificated Stock owned by it (in each case,
accompanied by stock powers, allonges or other instruments of transfer executed
in blank), (iii) notification of Gryphon's interest in Collateral at Gryphon's
request, and (iv) the institution of litigation against third parties as shall
be prudent in order to protect and preserve its and/or Gryphon's respective and
several interests in the Collateral.
(g) it shall promptly, and in any event within five (5)
Business Days after the same is acquired by it, notify Gryphon of any commercial
tort claim (as defined in the UCC) acquired by it and unless otherwise consented
by Gryphon, it shall enter into a supplement to this Agreement granting to
Gryphon a Lien in such commercial tort claim.
(h) it shall place notations upon its Books and Records and
any of its financial statements to disclose Gryphon's Lien in the Collateral.
(i) if it retains possession of any Chattel Paper or
Instrument with Gryphon's consent, upon Gryphon's request such Chattel Paper and
Instruments shall be marked with the following legend: "This writing and
obligations evidenced or secured hereby are subject to the security interest of
Gryphon Master Fund, L.P." Notwithstanding the foregoing, following the
indefeasible payment in full of all obligations and liabilities owing by the
Companies to Laurus Master Fund, Ltd. (the "Laurus Debt"), upon the reasonable
request of Gryphon, such Chattel Paper and Instruments shall be delivered to
Gryphon.
(j) it shall perform in a reasonable time all other steps
requested by Gryphon to create and maintain in Gryphon's favor a valid perfected
first Lien in all Collateral subject only to Permitted Liens.
(k) it shall notify Gryphon promptly and in any event within
three (3) Business Days after obtaining knowledge thereof (i) of any event or
circumstance that, to its knowledge, would cause Gryphon to consider any then
existing Account and/or Inventory as no longer constituting an Eligible Account
or Eligible Inventory, as the case may be; (ii) of any material delay in its
performance of any of its obligations to any Account Debtor; (iii) of any
assertion by any Account Debtor of any material claims, offsets or
counterclaims; (iv) of any allowances, credits and/or monies granted by it to
any Account Debtor; (v) of all material adverse information relating to the
financial condition of an Account Debtor; (vi) of any material return of goods;
and (vii) of any loss, damage or destruction of any of the Collateral.
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(l) it shall keep and maintain its Equipment in good operating
condition, except for ordinary wear and tear, and shall make all necessary
repairs and replacements thereof so that the value and operating efficiency
shall at all times be maintained and preserved. It shall not permit any such
items to become a Fixture to real estate or accessions to other personal
property.
(m) it shall maintain and keep all of its Books and Records
concerning the Collateral at its executive offices listed in Schedule 12(aa).
(n) it shall maintain and keep the tangible Collateral at the
addresses listed in Schedule 12(bb), provided, that it may change such locations
or open a new location, provided that it provides Gryphon at least thirty (30)
days prior written notice of such changes or new location and (ii) prior to such
change or opening of a new location where Collateral having a value of more than
$50,000 will be located, it executes and delivers to Gryphon such agreements
deemed reasonably necessary or prudent by Gryphon, including landlord
agreements, mortgagee agreements and warehouse agreements, each in form and
substance satisfactory to Gryphon, to adequately protect and maintain Gryphon's
security interest in such Collateral.
(o) Schedule 7(p) lists all banks and other financial
institutions at which it maintains deposits and/or other accounts, and such
Schedule correctly identifies the name, address and telephone number of each
such depository, the name in which the account is held, a description of the
purpose of the account, and the complete account number. It shall not establish
any depository or other bank account with any financial institution (other than
the accounts set forth on Schedule 7(p)) without Gryphon's prior written
consent.
(p) All Inventory manufactured by it in the United States of
America shall be produced in accordance with the requirements of the Federal
Fair Labor Standards Act of 1938, as amended and all rules, regulations and
orders related thereto or promulgated thereunder.
8. Payment of Accounts.
(a) Following the indefeasible payment in full of the Laurus
Debt, each Company will irrevocably direct all of its present and future Account
Debtors and other Persons obligated to make payments constituting Collateral to
make such payments directly to the lockboxes maintained by such Company (the
"Lockboxes") with Frost National Bank or such other financial institution
accepted by Gryphon in writing as may be selected by such Company (the "Lockbox
Bank") pursuant to the terms of the certain agreements among one or more
Companies, Gryphon and/or the Lockbox Bank. On or prior to the Closing Date,
each Company shall and shall cause the Lockbox Bank to enter into all such
documentation acceptable to Gryphon pursuant to which, among other things, the
Lockbox Bank agrees to: (a) sweep the Lockbox on a daily basis and deposit all
checks received therein to an account designated by Gryphon in writing and (b)
comply only with the instructions or other directions of Gryphon concerning the
Lockbox. All of each Company's invoices, account statements and other written or
oral communications directing, instructing, demanding or requesting payment of
any Account of any Company or any other amount constituting Collateral shall
conspicuously direct that all payments be made to the Lockbox or such other
address as Gryphon may direct in writing. If, notwithstanding the instructions
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to Account Debtors, any Company receives any payments, such Company shall
immediately remit such payments to Gryphon in their original form with all
necessary endorsements. Until so remitted, such Company shall hold all such
payments in trust for and as the property of Gryphon and shall not commingle
such payments with any of its other funds or property.
(b) Following the indefeasible payment in full of the Laurus
Debt, at Gryphon's election, following the occurrence of an Event of Default
which is continuing, Gryphon may notify each Company's Account Debtors of
Gryphon' security interest in the Accounts, collect them directly and charge the
collection costs and expenses thereof to Company's and the Eligible Subsidiaries
joint and several account.
9. Collection and Maintenance of Collateral.
(a) Gryphon may verify each Company's Accounts from time to
time, but not more often than once every three (3) months, unless an Event of
Default has occurred and is continuing or Gryphon believes that such
verification is necessary to preserve or protect the Collateral, utilizing an
audit control company or any other agent of Gryphon.
(b) Proceeds of Accounts received by Gryphon will be deemed
received on the Business Day after Gryphon's receipt of such proceeds in good
funds in dollars of the United States of America to an account designated by
Gryphon. Any amount received by Gryphon after 12:00 noon (New York time) on any
Business Day shall be deemed received on the next Business Day.
(c) As Gryphon receives the proceeds of Accounts of any
Company, it shall (i) apply such proceeds, as required, to amounts outstanding
under the Note, and (ii) remit all such remaining proceeds (net of interest,
fees and other amounts then due and owing to Gryphon hereunder) to Company Agent
(for the benefit of the applicable Companies) upon request (but no more often
than twice a week). Notwithstanding the foregoing, following the occurrence and
during the continuance of an Event of Default, Gryphon, at its option, may (a)
apply such proceeds to the Obligations in such order as Gryphon shall elect, (b)
hold all such proceeds as cash collateral for the Obligations and each Company
hereby grants to Gryphon a security interest in such cash collateral amounts as
security for the Obligations and/or (c) do any combination of the foregoing.
10. Inspections and Appraisals. At all times during normal
business hours, and upon reasonable notice (provided that no such prior notice
shall be required to be given in the event Gryphon believes such access is
necessary to preserve or protect the Collateral or following the occurrence and
during the continuance of an Event of Default) Gryphon, and/or any agent of
Gryphon shall have the right to (a) have access to, visit, inspect, review,
evaluate and make physical verification and appraisals of each Company's
properties and the Collateral, (b) inspect, audit and copy (or take originals if
necessary) and make extracts from each Company's Books and Records, including
management letters prepared by the Accountants, and (c) discuss with each
Company's directors, principal officers, and independent accountants, each
Company's business, assets, liabilities, financial condition, results of
operations and business prospects. Each Company will deliver to Gryphon any
instrument necessary for Gryphon to obtain records from any service bureau
maintaining records for such Company. If any internally prepared financial
information, including that required under this Section is unsatisfactory in any
manner to Gryphon, Gryphon may request that the Accountants review the same.
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11. Financial Reporting. Company Agent will deliver, or cause
to be delivered, to Gryphon each of the following, which shall be in form and
detail acceptable to Gryphon:
(a) As soon as available, and in any event within ninety (90)
days after the end of each fiscal year of the Parent, each Company's audited
financial statements with a report of independent certified public accountants
of recognized standing selected by the Parent and acceptable to Gryphon (the
"Accountants"), which annual financial statements shall be without qualification
and shall include each Company's balance sheet as at the end of such fiscal year
and the related statements of each Company's income, retained earnings and cash
flows for the fiscal year then ended, prepared, if Gryphon so requests, on a
consolidating and consolidated basis to include all Subsidiaries and Affiliates
of each Company, all in reasonable detail and prepared in accordance with GAAP,
together with (i) if and when available, copies of any management letters
prepared by the Accountants; and (ii) a certificate of the Parent's President,
Chief Executive Officer or Chief Financial Officer stating that such financial
statements have been prepared in accordance with GAAP and whether or not such
officer has knowledge of the occurrence of any Default or Event of Default
hereunder and, if so, stating in reasonable detail the facts with respect
thereto;
(b) As soon as available and in any event within forty five
(45) days after the end of each quarter, an unaudited/internal balance sheet and
statements of income, retained earnings and cash flows of each Company as at the
end of and for such quarter and for the year to date period then ended,
prepared, if Gryphon so requests, on a consolidating and consolidated basis to
include all Subsidiaries and Affiliates of each Company, in reasonable detail
and stating in comparative form the figures for the corresponding date and
periods in the previous year, all prepared in accordance with GAAP, subject to
year-end adjustments and accompanied by a certificate of the Parent's President,
Chief Executive Officer or Chief Financial Officer, stating (i) that such
financial statements have been prepared in accordance with GAAP, subject to
year-end audit adjustments, and (ii) whether or not such officer has knowledge
of the occurrence of any Default or Event of Default hereunder not theretofore
reported and remedied and, if so, stating in reasonable detail the facts with
respect thereto;
(c) Within thirty (30) days after the end of each month (or
more frequently if Gryphon so requests), agings of each Company's Accounts,
unaudited trial balances and their accounts payable and a calculation of each
Company's Accounts, Inventory and/or Eligible Inventory, provided, however, that
if Gryphon shall request the foregoing information more often than as set forth
in the immediately preceding clause, each Company shall have thirty (30) days
from each such request to comply with Gryphon's demand; and
(d) Promptly after (i) the filing thereof, copies of the
Parent's most recent registration statements and annual, quarterly, monthly or
other regular reports which the Parent files with the Securities and Exchange
Commission (the "SEC"), and (ii) the issuance thereof, copies of such financial
statements, reports and proxy statements as the Parent shall send to its
stockholders.
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12. Additional Representations and Warranties. Each Company
hereby represents and warrants to Gryphon as follows:
(a) Organization, Good Standing and Qualification. It and each
of its Subsidiaries is a corporation, partnership or limited liability company,
as the case may be, duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization. It and each of its Subsidiaries
has the corporate, limited liability company or partnership, as the case may be,
power and authority to own and operate its properties and assets and, insofar as
it is or shall be a party thereto, to (i) execute and deliver this Agreement and
the Ancillary Agreements, (ii) to issue the Convertible Note and the shares of
Common Stock issuable upon conversion of the Convertible Note (the "Note
Shares"), (iii) to issue and grant the Option and the shares of Common Stock
issuable upon exercise of the Option (the "Option Shares"), (iv) to issue the
Warrant and the shares of Common Stock issuable upon conversion of the Warrants
(the "Warrant Shares"), and to (v) carry out the provisions of this Agreement
and the Ancillary Agreements and to carry on its business as presently
conducted. It and each of its Subsidiaries is duly qualified and is authorized
to do business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature or location of its activities and of its properties (both owned and
leased) makes such qualification necessary, except for those jurisdictions in
which failure to do so has not had, or could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(b) Subsidiaries. Each of its direct and indirect
Subsidiaries, the direct owner of each such Subsidiary and its percentage
ownership thereof, is set forth on Schedule 12(b).
(c) Capitalization; Voting Rights.
(i) The authorized capital stock of the Parent, as
of the date hereof consists 1,010,502,000 of which 1,000,000,000 are shares of
Common Stock, par value $0.001 per share, 99,776,704 shares of which of which
are issued and outstanding and 10,502,000 are shares of preferred stock, par
value $0.001 per share of which 378,061 shares of Series A preferred stock are
issued and outstanding. The authorized, issued and outstanding capital stock of
each Subsidiary of each Company is set forth on Schedule 12(c).
(ii) Except as disclosed on Schedule 12(c), other
than: (i) the shares reserved for issuance under the Parent's stock option
plans; and (ii) shares which may be issued pursuant to this Agreement and the
Ancillary Agreements, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal), proxy
or stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Parent of any of its securities. Except as
disclosed on Schedule 12(c), neither the offer or issuance of any of the Note,
the Options or the Warrants, or the issuance of any of the Note Shares, the
Option Shares or the Warrant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or number of any
securities of the Parent outstanding, under anti-dilution or other similar
provisions contained in or affecting any such securities.
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(iii) All issued and outstanding shares of the
Parent's Common Stock: (i) have been duly authorized and validly issued and are
fully paid and nonassessable; and (ii) were issued in compliance with all
applicable state and federal laws concerning the issuance of securities.
(iv) The rights, preferences, privileges and
restrictions of the shares of the Common Stock are as stated in the Parent's
Certificate of Incorporation (the "Charter"). The Note Shares, the Option Shares
and the Warrant Shares have been duly and validly reserved for issuance. When
issued in compliance with the provisions of this Agreement and the Parent's
Charter, the Securities will be validly issued, fully paid and nonassessable,
and will be free of any liens or encumbrances; provided, however, that the
Securities may be subject to restrictions on transfer under state and/or federal
securities laws as set forth herein or as otherwise required by such laws at the
time a transfer is proposed.
(d) Authorization; Binding Obligations. All corporate,
partnership or limited liability company, as the case may be, action on its and
its Subsidiaries' part (including their respective officers and directors)
necessary for the authorization of this Agreement and the Ancillary Agreements,
the performance of all of its and its Subsidiaries' obligations hereunder and
under the Ancillary Agreements on the Closing Date and, the authorization,
issuance and delivery of the Note, the Options and the Warrants have been taken
or will be taken prior to the Closing Date. This Agreement and the Ancillary
Agreements, when executed and delivered and to the extent it is a party thereto,
will be its and its Subsidiaries' valid and binding obligations enforceable
against each such Person in accordance with their terms, except:
(i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and
(ii) general principles of equity that restrict the
availability of equitable or legal remedies.
The issuance of the Note and the subsequent conversion of the Note into Note
Shares are not and will not be subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with. The issuance
of the Warrants and the subsequent exercise of the Warrants for Warrant Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with.
(e) Liabilities. Neither it nor any of its Subsidiaries has
any liabilities, except current liabilities incurred in the ordinary course of
business and liabilities disclosed in any Exchange Act Filings.
(f) Agreements; Action. Except as set forth on Schedule
12(f) or as disclosed in any Exchange Act Filings:
(i) There are no agreements, understandings,
instruments, contracts, proposed transactions, judgments, orders, writs or
decrees to which it or any of its Subsidiaries is a party or to its knowledge by
which it is bound which may involve: (i) obligations (contingent or otherwise)
of, or payments to, it or any of its Subsidiaries in excess of $75,000 (other
than obligations of, or payments to, it or any of its Subsidiaries arising from
purchase or sale agreements entered into in the ordinary course of business); or
10
(ii) the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from it (other than licenses arising from the purchase
of "off the shelf" or other standard products); or (iii) provisions restricting
the development, manufacture or distribution of its or any of its Subsidiaries'
products or services; or (iv) indemnification by it or any of its Subsidiaries
with respect to infringements of proprietary rights.
(ii) Since June 30, 2005 (the "Balance Sheet Date")
neither it nor any of its Subsidiaries has: (i) declared or paid any dividends,
or authorized or made any distribution upon or with respect to any class or
series of its capital stock; (ii) incurred any indebtedness for money borrowed
or any other liabilities (other than ordinary course obligations) individually
in excess of $50,000 or, in the case of indebtedness and/or liabilities
individually less than $50,000, in excess of $100,000 in the aggregate; (iii)
made any loans or advances to any Person not in excess, individually or in the
aggregate, of $100,000, other than ordinary advances for travel expenses; or
(iv) sold, exchanged or otherwise disposed of any of its assets or rights, other
than the sale of its Inventory in the ordinary course of business.
(iii) For the purposes of subsections (i) and (ii)
of this Section 12(f), all indebtedness, liabilities, agreements,
understandings, instruments, contracts and proposed transactions involving the
same Person (including Persons it or any of its applicable Subsidiaries has
reason to believe are affiliated therewith or with any Subsidiary thereof) shall
be aggregated for the purpose of meeting the individual minimum dollar amounts
of such subsections.
(iv) The Parent maintains disclosure controls and
procedures ("Disclosure Controls") designed to ensure that information required
to be disclosed by the Parent in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized, and reported, within the time
periods specified in the rules and forms of the SEC.
(v) The Parent makes and keeps books, records, and
accounts, that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of its assets. It maintains internal control over
financial reporting ("Financial Reporting Controls") designed by, or under the
supervision of, its principal executive and principal financial officers, and
effected by its board of directors, management, and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
GAAP, including that:
(1) transactions are executed in accordance
with management's general or specific authorization;
(2) unauthorized acquisition, use, or
disposition of the Parent's assets that could have a material effect on the
financial statements are prevented or timely detected;
(3) transactions are recorded as necessary
to permit preparation of financial statements in accordance with GAAP, and that
its receipts and expenditures are being made only in accordance with
authorizations of the Parent's management and board of directors;
11
(4) transactions are recorded as necessary
to maintain accountability for assets; and
(5) the recorded accountability for assets
is compared with the existing assets at reasonable intervals, and appropriate
action is taken with respect to any differences.
(vi) There is no weakness in any of its Disclosure
Controls or Financial Reporting Controls that is required to be disclosed in any
of the Exchange Act Filings, except as so disclosed.
(g) Obligations to Related Parties. Except as set forth on
Schedule 12(g), neither it nor any of its Subsidiaries has any obligations to
their respective officers, directors, stockholders or employees other than:
(i) for payment of salary for services rendered and
for bonus payments;
(ii) reimbursement for reasonable expenses incurred
on its or its Subsidiaries' behalf;
(iii) for other standard employee benefits made
generally available to all employees (including stock option agreements
outstanding under any stock option plan approved by its and its Subsidiaries'
Board of Directors, as applicable); and
(iv) obligations listed in its and each of its
Subsidiary's financial statements or disclosed in any of the Parent's Exchange
Act Filings.
Except as described above or set forth on Schedule 12(g), none of its officers,
directors or, to the best of its knowledge, key employees or stockholders, any
of its Subsidiaries or any members of their immediate families, are indebted to
it or any of its Subsidiaries, individually or in the aggregate, in excess of
$50,000 or have any direct or indirect ownership interest in any Person with
which it or any of its Subsidiaries is affiliated or with which it or any of its
Subsidiaries has a business relationship, or any Person which competes with it
or any of its Subsidiaries, other than passive investments in publicly traded
companies (representing less than one percent (1%) of such company) which may
compete with it or any of its Subsidiaries. Except as described above, none of
its officers, directors or stockholders, or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
it or any of its Subsidiaries and no agreements, understandings or proposed
transactions are contemplated between it or any of its Subsidiaries and any such
Person. Except as set forth on Schedule 12(g), neither it nor any of its
Subsidiaries is a guarantor or indemnitor of any indebtedness of any other
Person.
(h) Changes. Since the Balance Sheet Date, except as disclosed
in any Exchange Act Filing or in any Schedule to this Agreement or to any of the
Ancillary Agreements, there has not been:
(i) any change in its or any of its Subsidiaries'
business, assets, liabilities, condition (financial or otherwise), properties,
operations or prospects, which, individually or in the aggregate, has had, or
could reasonably be expected to have, a Material Adverse Effect;
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(ii) any resignation or termination of any of its
or its Subsidiaries' officers, key employees or groups of employees;
(iii) any material change, except in the ordinary
course of business, in its or any of its Subsidiaries' contingent obligations by
way of guaranty, endorsement, indemnity, warranty or otherwise;
(iv) any damage, destruction or loss, whether or
not covered by insurance, which has had, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect;
(v) any waiver by it or any of its Subsidiaries of
a valuable right or of a material debt owed to it;
(vi) any direct or indirect material loans made by
it or any of its Subsidiaries to any of its or any of its Subsidiaries'
stockholders, employees, officers or directors, other than advances made in the
ordinary course of business;
(vii) any material change in any compensation
arrangement or agreement with any employee, officer, director or stockholder;
(viii) any declaration or payment of any dividend
or other distribution of its or any of its Subsidiaries' assets;
(ix) any labor organization activity related to it
or any of its Subsidiaries;
(x) any debt, obligation or liability incurred,
assumed or guaranteed by it or any of its Subsidiaries, except those for
immaterial amounts and for current liabilities incurred in the ordinary course
of business;
(xi) any sale, assignment or transfer of any
Intellectual Property or other intangible assets;
(xii) any change in any material agreement to which
it or any of its Subsidiaries is a party or by which either it or any of its
Subsidiaries is bound which, either individually or in the aggregate, has had,
or could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
(xiii) any other event or condition of any
character that, either individually or in the aggregate, has had, or could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect; or
(xiv) any arrangement or commitment by it or any of
its Subsidiaries to do any of the acts described in subsection (i) through
(xiii) of this Section 12(h).
13
(i) Title to Properties and Assets; Liens, Etc. Except as set
forth on Schedule 12(i), it and each of its Subsidiaries has good and marketable
title to their respective properties and assets, and good title to its leasehold
interests, in each case subject to no Lien, other than Permitted Liens.
All facilities, Equipment, Fixtures, vehicles and other properties owned, leased
or used by it or any of its Subsidiaries are in good operating condition and
repair and are reasonably fit and usable for the purposes for which they are
being used. Except as set forth on Schedule 12(i), it and each of its
Subsidiaries is in compliance with all material terms of each lease to which it
is a party or is otherwise bound.
(j) Intellectual Property.
(i) It and each of its Subsidiaries owns or
possesses sufficient legal rights to all Intellectual Property necessary for
their respective businesses as now conducted and, to its knowledge as presently
proposed to be conducted, without any known infringement of the rights of
others. There are no outstanding options, licenses or agreements of any kind
relating to its or any of its Subsidiary's Intellectual Property, nor is it or
any of its Subsidiaries bound by or a party to any options, licenses or
agreements of any kind with respect to the Intellectual Property of any other
Person other than such licenses or agreements arising from the purchase of "off
the shelf" or standard products.
(ii) Neither it nor any of its Subsidiaries has
received any communications alleging that it or any of its Subsidiaries has
violated any of the Intellectual Property or other proprietary rights of any
other Person, nor is it or any of its Subsidiaries aware of any basis therefor.
(iii) Neither it nor any of its Subsidiaries
believes it is or will be necessary to utilize any inventions, trade secrets or
proprietary information of any of its employees made prior to their employment
by it or any of its Subsidiaries, except for inventions, trade secrets or
proprietary information that have been rightfully assigned to it or any of its
Subsidiaries.
(k) Compliance with Other Instruments. Neither it nor any of
its Subsidiaries is in violation or default of (x) any term of its Charter or
Bylaws, or (y) any provision of any indebtedness, mortgage, indenture, contract,
agreement or instrument to which it is party or by which it is bound or of any
judgment, decree, order or writ, which violation or default, in the case of this
clause (y), has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. The execution,
delivery and performance of and compliance with this Agreement and the Ancillary
Agreements to which it is a party, and the issuance of the Note and the other
Securities each pursuant hereto and thereto, will not, with or without the
passage of time or giving of notice, result in any such material violation, or
be in conflict with or constitute a default under any such term or provision, or
result in the creation of any Lien upon any of its or any of its Subsidiary's
properties or assets or the suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to it or
any of its Subsidiaries, their businesses or operations or any of their assets
or properties.
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(l) Litigation. Except as set forth on Schedule 12(l), there
is no action, suit, proceeding or investigation pending or, to its knowledge,
currently threatened against it or any of its Subsidiaries that prevents it or
any of its Subsidiaries from entering into this Agreement or the Ancillary
Agreements, or from consummating the transactions contemplated hereby or
thereby, or which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect, or could result in
any change in its or any of its Subsidiaries' current equity ownership, nor is
it aware that there is any basis to assert any of the foregoing. Neither it nor
any of its Subsidiaries is a party to or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by it or
any of its Subsidiaries currently pending or which it or any of its Subsidiaries
intends to initiate.
(m) Tax Returns and Payments. It and each of its Subsidiaries
has timely filed all tax returns (federal, state and local) required to be filed
by it. All taxes shown to be due and payable on such returns, any assessments
imposed, and all other taxes due and payable by it and each of its Subsidiaries
on or before the Closing Date, have been paid or will be paid prior to the time
they become delinquent. Except as set forth on Schedule 12(m), neither it nor
any of its Subsidiaries has been advised:
(i) that any of its returns, federal, state or
other, have been or are being audited as of the date hereof; or
(ii) of any adjustment, deficiency, assessment or
court decision in respect of its federal, state or other taxes.
Neither it nor any of its Subsidiaries has any knowledge of any liability of any
tax to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
(n) Employees. Except as set forth on Schedule 12(n), neither
it nor any of its Subsidiaries has any collective bargaining agreements with any
of its employees. There is no labor union organizing activity pending or, to its
knowledge, threatened with respect to it or any of its Subsidiaries. Except as
disclosed in the Exchange Act Filings or on Schedule 12(n), neither it nor any
of its Subsidiaries is a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or
agreement. To its knowledge, none of its or any of its Subsidiaries' employees,
nor any consultant with whom it or any of its Subsidiaries has contracted, is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, it or any of its Subsidiaries because of
the nature of the business to be conducted by it or any of its Subsidiaries; and
to its knowledge the continued employment by it and its Subsidiaries of their
present employees, and the performance of its and its Subsidiaries contracts
with its independent contractors, will not result in any such violation. Neither
it nor any of its Subsidiaries is aware that any of its or any of its
Subsidiaries' employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency that would
interfere with their duties to it or any of its Subsidiaries. Neither it nor any
15
of its Subsidiaries has received any notice alleging that any such violation has
occurred. Except for employees who have a current effective employment agreement
with it or any of its Subsidiaries, none of its or any of its Subsidiaries'
employees has been granted the right to continued employment by it or any of its
Subsidiaries or to any material compensation following termination of employment
with it or any of its Subsidiaries. Except as set forth on Schedule 12(n),
neither it nor any of its Subsidiaries is aware that any officer, key employee
or group of employees intends to terminate his, her or their employment with it
or any of its Subsidiaries, as applicable, nor does it or any of its
Subsidiaries have a present intention to terminate the employment of any
officer, key employee or group of employees.
(o) Registration Rights and Voting Rights. Except as set forth
on Schedule 12(o) and except as disclosed in Exchange Act Filings, neither it
nor any of its Subsidiaries is presently under any obligation, and neither it
nor any of its Subsidiaries has granted any rights, to register any of its or
any of its Subsidiaries' presently outstanding securities or any of its
securities that may hereafter be issued. Except as set forth on Schedule 12(o)
and except as disclosed in Exchange Act Filings, to its knowledge, none of its
or any of its Subsidiaries' stockholders has entered into any agreement with
respect to its or any of its Subsidiaries' voting of equity securities.
(p) Compliance with Laws; Permits. Neither it nor any of its
Subsidiaries is in violation of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 or any SEC
related regulation or rule or any rule of the Principal Market promulgated
thereunder or any other applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No governmental
orders, permissions, consents, approvals or authorizations are required to be
obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement or any Ancillary
Agreement and the issuance of any of the Securities, except such as have been
duly and validly obtained or filed, or with respect to any filings that must be
made after the Closing Date, as will be filed in a timely manner. It and each of
its Subsidiaries has all material franchises, permits, licenses and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could, either individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.
(q) Environmental and Safety Laws. Neither it nor any of its
Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation. Except as set forth on
Schedule 12(q), no Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by it or any of its Subsidiaries or, to its
knowledge, by any other Person on any property owned, leased or used by it or
any of its Subsidiaries. For the purposes of the preceding sentence, "Hazardous
Materials" shall mean:
(i) materials which are listed or otherwise defined
as "hazardous" or "toxic" under any applicable local, state, federal and/or
foreign laws and regulations that govern the existence and/or remedy of
contamination on property, the protection of the environment from contamination,
the control of hazardous wastes, or other activities involving hazardous
substances, including building materials; and
16
(ii) any petroleum products or nuclear materials.
(r) Valid Offering. Assuming the accuracy of the
representations and warranties of Gryphon contained in this Agreement, the offer
and issuance of the Securities will be exempt from the registration requirements
of the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
(s) Full Disclosure. It and each of its Subsidiaries has
provided Gryphon with all information requested by Gryphon in connection with
Gryphon's decision to enter into this Agreement, including all information each
Company and its Subsidiaries believe is reasonably necessary to make such
investment decision. Neither this Agreement, the Ancillary Agreements nor the
exhibits and schedules hereto and thereto nor any other document delivered by it
or any of its Subsidiaries to Gryphon or its attorneys or agents in connection
herewith or therewith or with the transactions contemplated hereby or thereby,
contain any untrue statement of a material fact nor omit to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading. Any financial
projections and other estimates provided to Gryphon by it or any of its
Subsidiaries were based on its and its Subsidiaries' experience in the industry
and on assumptions of fact and opinion as to future events which it or any of
its Subsidiaries, at the date of the issuance of such projections or estimates,
believed to be reasonable.
(t) Insurance. It and each of its Subsidiaries has general
commercial, product liability, fire and casualty insurance policies with
coverages which it believes are customary for companies similarly situated to it
and its Subsidiaries in the same or similar business.
(u) SEC Reports and Financial Statements. Except as set forth
on Schedule 12(u), it and each of its Subsidiaries has filed all proxy
statements, reports and other documents required to be filed by it under the
Exchange Act. The Parent has furnished Gryphon with copies of: (i) its Annual
Report on Form 10-KSB for its fiscal years ended December 31, 2004; and (ii) its
Quarterly Reports on Form 10-QSB for its fiscal quarters ended March 31, 2005
and June 30, 2005, and the Form 8-K filings which it has made during its fiscal
year 2005 to date (collectively, the "SEC Reports"). Except as set forth on
Schedule 12(u), each SEC Report was, at the time of its filing, in substantial
compliance with the requirements of its respective form and none of the SEC
Reports, nor the financial statements (and the notes thereto) included in the
SEC Reports, as of their respective filing dates, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Such financial
statements have been prepared in accordance with GAAP applied on a consistent
basis 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 not include footnotes or may be
condensed) and fairly present in all material respects the financial condition,
the results of operations and cash flows of the Parent and its Subsidiaries, on
a consolidated basis, as of, and for, the periods presented in each such SEC
Report.
17
(v) Listing. The Parent's Common Stock is listed or quoted, as
applicable, on the Principal Market and satisfies all requirements for the
continuation of such listing or quotation, as applicable, and the Parent shall
do all things necessary for the continuation of such listing or quotation, as
applicable. The Parent has not received any notice that its Common Stock will be
delisted from, or no longer quoted on, as applicable, the Principal Market or
that its Common Stock does not meet all requirements for such listing or
quotation, as applicable.
(w) No Integrated Offering. Neither it, nor any of its
Subsidiaries nor any of its Affiliates, nor any Person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would cause
the offering of the Securities pursuant to this Agreement or any Ancillary
Agreement to be integrated with prior offerings by it for purposes of the
Securities Act which would prevent it from issuing the Securities pursuant to
Rule 506 under the Securities Act, or any applicable exchange-related
stockholder approval provisions, nor will it or any of its Affiliates or
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
(x) Stop Transfer. The Securities are restricted securities as
of the date of this Agreement. Neither it nor any of its Subsidiaries will issue
any stop transfer order or other order impeding the sale and delivery of any of
the Securities at such time as the Securities are registered for public sale or
an exemption from registration is available, except as required by state and
federal securities laws.
(y) Dilution. It specifically acknowledges that the Parent's
obligation to issue the shares of Common Stock upon conversion of the Note and
exercise of the Options and the Warrants are binding upon the Parent and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Parent.
(z) Patriot Act. It certifies that, to the best of its
knowledge, neither it nor any of its Subsidiaries has been designated, nor is or
shall be owned or controlled, by a "suspected terrorist" as defined in Executive
Order 13224. It hereby acknowledges that Gryphon seeks to comply with all
applicable laws concerning money laundering and related activities. In
furtherance of those efforts, it hereby represents, warrants and covenants that:
(i) none of the cash or property that it or any of its Subsidiaries will pay or
will contribute to Gryphon has been or shall be derived from, or related to, any
activity that is deemed criminal under United States law; and (ii) no
contribution or payment by it or any of its Subsidiaries to Gryphon, to the
extent that they are within its or any such Subsidiary's control shall cause
Gryphon to be in violation of the United States Bank Secrecy Act, the United
States International Money Laundering Control Act of 1986 or the United States
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. It shall promptly notify Gryphon if any of these representations,
warranties and covenants ceases to be true and accurate regarding it or any of
its Subsidiaries. It shall provide Gryphon with any additional information
regarding it and each Subsidiary thereof that Gryphon deems necessary or
convenient to ensure compliance with all applicable laws concerning money
18
laundering and similar activities. It understands and agrees that if at any time
it is discovered that any of the foregoing representations, warranties and
covenants are incorrect, or if otherwise required by applicable law or
regulation related to money laundering or similar activities, Gryphon may
undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of
Gryphon's investment in it. It further understands that Gryphon may release
confidential information about it and its Subsidiaries and, if applicable, any
underlying beneficial owners, to proper authorities if Gryphon, in its sole
discretion, determines that it is in the best interests of Gryphon in light of
relevant rules and regulations under the laws set forth in subsection (ii)
above.
(aa) Company Name; Locations of Offices, Records and
Collateral. Schedule 12(aa) sets forth each Company's name as it appears in
official filings in the state of its organization, the type of entity of each
Company, the organizational identification number issued by each Company's state
of organization or a statement that no such number has been issued, each
Company's state of organization, and the location of each Company's chief
executive office, corporate offices, warehouses, other locations of Collateral
and locations where records with respect to Collateral are kept (including in
each case the county of such locations) and, except as set forth in such
Schedule 12(aa), such locations have not changed during the preceding twelve
months. As of the Closing Date, during the prior five years, except as set forth
in Schedule 12(aa), no Company has been known as or conducted business in any
other name (including trade names). Each Company has only one state of
organization.
(bb) ERISA. Based upon the Employee Retirement Income Security
Act of 1974 ("ERISA"), and the regulations and published interpretations
thereunder: (i) neither it nor any of its Subsidiaries has engaged in any
Prohibited Transactions (as defined in Section 406 of ERISA and Section 4975 of
the Code); (ii) it and each of its Subsidiaries has met all applicable minimum
funding requirements under Section 302 of ERISA in respect of its plans; (iii)
neither it nor any of its Subsidiaries has any knowledge of any event or
occurrence which would cause the Pension Benefit Guaranty Corporation to
institute proceedings under Title IV of ERISA to terminate any employee benefit
plan(s); (iv) neither it nor any of its Subsidiaries has any fiduciary
responsibility for investments with respect to any plan existing for the benefit
of persons other than its or such Subsidiary's employees; and (v) neither it nor
any of its Subsidiaries has withdrawn, completely or partially, from any
multi-employer pension plan so as to incur liability under the Multiemployer
Pension Plan Amendments Act of 1980.
13. Covenants. Each Company, as applicable, covenants and
agrees with Gryphon as follows:
(a) Stop-Orders. It shall advise Gryphon, promptly after it
receives notice of issuance by the SEC, any state securities commission or any
other regulatory authority of any stop order or of any order preventing or
suspending any offering of any securities of the Parent, or of the suspension of
the qualification of the Common Stock of the Parent for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
(b) Listing. It shall promptly secure the listing or
quotation, as applicable, of the shares of Common Stock issuable upon conversion
of the Note and exercise of the Options and the Warrants on the Principal Market
upon which shares of Common Stock are listed or quoted, as applicable, (subject
to official notice of issuance) and shall maintain such listing or quotation, as
19
applicable, so long as any other shares of Common Stock shall be so listed or
quoted, as applicable. The Parent shall maintain the listing or quotation, as
applicable, of its Common Stock on the Principal Market, and will comply in all
material respects with the Parent's reporting, filing and other obligations
under the bylaws or rules of the National Association of Securities Dealers
("NASD") and such exchanges, as applicable.
(c) Market Regulations. It shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Gryphon
and promptly provide copies thereof to Gryphon.
(d) Reporting Requirements. It shall timely file with the SEC
all reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination.
(e) Use of Funds. It shall use the proceeds of the Loans
solely to fund the transactions contemplated by the Acquisition Documentation
and for general working capital purposes.
(f) Access to Facilities. It shall, and shall cause each of
its Subsidiaries to, permit any representatives designated by Gryphon (or any
successor of Gryphon), upon reasonable notice and during normal business hours,
at Company's expense and accompanied by a representative of Company Agent
(provided that no such prior notice shall be required to be given and no such
representative shall be required to accompany Gryphon in the event Gryphon
believes such access is necessary to preserve or protect the Collateral or
following the occurrence and during the continuance of an Event of Default), to:
(i) visit and inspect any of its or any such
Subsidiary's properties;
(ii) examine its or any such Subsidiary's corporate
and financial records (unless such examination is not permitted by federal,
state or local law or by contract) and make copies thereof or extracts
therefrom; and
(iii) discuss its or any such Subsidiary's affairs,
finances and accounts with its or any such Subsidiary's directors, officers and
Accountants.
Notwithstanding the foregoing, neither it nor any of its Subsidiaries shall
provide any material, non-public information to Gryphon unless Gryphon signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.
(g) Taxes. It shall, and shall cause each of its Subsidiaries
to, promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon it and its Subsidiaries' income, profits, property or business, as
the case may be; provided, however, that any such tax, assessment, charge or
20
levy need not be paid currently if (i) the validity thereof shall currently and
diligently be contested in good faith by appropriate proceedings, (ii) such tax,
assessment, charge or levy shall have no effect on the Lien priority of Gryphon
in the Collateral, and (iii) if it and/or such Subsidiary, as applicable, shall
have set aside on its and/or such Subsidiary's books adequate reserves with
respect thereto in accordance with GAAP; and provided, further, that it shall,
and shall cause each of its Subsidiaries to, pay all such taxes, assessments,
charges or levies forthwith upon the commencement of proceedings to foreclose
any lien which may have attached as security therefor.
(h) Insurance. It shall bear the full risk of loss from any
loss of any nature whatsoever with respect to the Collateral. It and each of its
Subsidiaries shall keep its assets which are of an insurable character insured
by financially sound and reputable insurers against loss or damage by fire,
explosion and other risks customarily insured against by companies in similar
business similarly situated as it and its Subsidiaries; and it and its
Subsidiaries shall maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and property
to the extent and in the manner which it and/or such Subsidiary thereof
reasonably believes is customary for companies in similar business similarly
situated as it and its Subsidiaries and to the extent available on commercially
reasonable terms. It and each of its Subsidiaries will jointly and severally
bear the full risk of loss from any loss of any nature whatsoever with respect
to the assets pledged to Gryphon as security for its obligations hereunder and
under the Ancillary Agreements. At its own cost and expense in amounts and with
carriers reasonably acceptable to Gryphon, it and each of its Subsidiaries shall
(i) keep all their insurable properties and properties in which they have an
interest insured against the hazards of fire, flood, sprinkler leakage, those
hazards covered by extended coverage insurance and such other hazards, and for
such amounts, as is customary in the case of companies engaged in businesses
similar to it or the respective Subsidiary's including business interruption
insurance; (ii) maintain a bond in such amounts as is customary in the case of
companies engaged in businesses similar to it and its Subsidiaries' insuring
against larceny, embezzlement or other criminal misappropriation of insured's
officers and employees who may either singly or jointly with others at any time
have access to its or any of its Subsidiaries assets or funds either directly or
through governmental authority to draw upon such funds or to direct generally
the disposition of such assets; (iii) maintain public and product liability
insurance against claims for personal injury, death or property damage suffered
by others; (iv) maintain all such worker's compensation or similar insurance as
may be required under the laws of any state or jurisdiction in which it or any
of its Subsidiaries is engaged in business; and (v) furnish Gryphon with (x) a
copy of all policies and evidence of the maintenance of such policies at least
thirty (30) days before any expiration date, (y) excepting its and its
Subsidiaries' workers' compensation policy, endorsements to such policies naming
Gryphon as "co-insured" or "additional insured" and appropriate loss payable
endorsements in form and substance satisfactory to Gryphon, naming Gryphon as
lenders loss payee, and (z) evidence that as to Gryphon the insurance coverage
shall not be impaired or invalidated by any act or neglect of any Company or any
of its Subsidiaries and the insurer will provide Gryphon with at least thirty
(30) days notice prior to cancellation. It shall instruct the insurance carriers
that in the event of any loss thereunder, the carriers shall make payment for
such loss to Gryphon and not to any Company or any of its Subsidiaries and
Gryphon jointly. If any insurance losses are paid by check, draft or other
instrument payable to any Company and/or any of its Subsidiaries and Gryphon
jointly, Gryphon may endorse, as applicable, such Company's and/or any of its
Subsidiaries' name thereon and do such other things as Gryphon may deem
21
advisable to reduce the same to cash. Gryphon is hereby authorized to adjust and
compromise claims. All loss recoveries received by Gryphon upon any such
insurance may be applied to the Obligations, in such order as Gryphon in its
sole discretion shall determine or shall otherwise be delivered to Company Agent
for the benefit of the applicable Company and/or its Subsidiaries; provided;
however, any loss recoveries received by Gryphon arising from the damage or
destruction of Collateral may be used by the Companies to repair, restore or
replace such Collateral, as the case may be, so long as the fair market value of
any such Collateral damaged or destroyed in any single incident is less than
$25,000 and the fair market value, in the aggregate, of all such Collateral
owned by Borrower and damaged, destroyed or condemned during any twelve-month
period is less than $50,000. Any surplus shall be paid by Gryphon to Company
Agent for the benefit of the applicable Company and/or its Subsidiaries, or
applied as may be otherwise required by law. Any deficiency thereon shall be
paid, as applicable, by Companies and their Subsidiaries to Gryphon, on demand.
(i) Intellectual Property. It shall, and shall cause each of
its Subsidiaries to, maintain in full force and effect its corporate existence,
rights and franchises and all licenses and other rights to use Intellectual
Property owned or possessed by it and reasonably deemed to be necessary to the
conduct of its business.
(j) Properties. It shall, and shall cause each of its
Subsidiaries to, keep its properties in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and it shall, and shall cause each of its Subsidiaries to, at all times
comply with each provision of all leases to which it is a party or under which
it occupies property if the breach of such provision could reasonably be
expected to have a Material Adverse Effect.
(k) Confidentiality. It shall not, and shall not permit any of
its Subsidiaries to, disclose, and will not include in any public announcement,
the name of Gryphon, unless expressly agreed to by Gryphon or unless and until
such disclosure is required by law or applicable regulation, and then only to
the extent of such requirement. Notwithstanding the foregoing, each Company and
its Subsidiaries may disclose Gryphon's identity and the terms of this Agreement
to its current and prospective debt and equity financing sources.
(l) Required Approvals. It shall not, and shall not permit any
of its Subsidiaries to, without the prior written consent of Gryphon, (i)
create, incur, assume or suffer to exist any indebtedness (exclusive of trade
debt) whether secured or unsecured other than each Company's indebtedness to
Gryphon and as set forth on Schedule 13(l)(i) attached hereto and made a part
hereof; (ii) cancel any debt owing to it in excess of $100,000 in the aggregate
during any 12 month period; (iii) assume, guarantee, endorse or otherwise become
directly or contingently liable in connection with any obligations of any other
Person, except the endorsement of negotiable instruments by it or its
Subsidiaries for deposit or collection or similar transactions in the ordinary
course of business; (iv) directly or indirectly declare, pay or make any
dividend or distribution on any class of its Stock or apply any of its funds,
property or assets to the purchase, redemption or other retirement of any of its
or its Subsidiaries' Stock outstanding on the date hereof, or issue any
preferred stock; (v) purchase or hold beneficially any Stock or other securities
or evidences of indebtedness of, make or permit to exist any loans or advances
to, or make any investment or acquire any interest whatsoever in, any other
Person, including any partnership or joint venture, except (x) travel advances,
22
(y) loans to its and its Subsidiaries' officers and employees not exceeding at
any one time an aggregate of $10,000, and (z) loans to its existing Subsidiaries
so long as such Subsidiaries are designated as either a co-borrower hereunder or
has entered into such guaranty and security documentation required by Gryphon,
including, without limitation, to grant to Gryphon a first priority perfected
security interest in substantially all of such Subsidiary's assets to secure the
Obligations; (vi) create or permit to exist any Subsidiary, other than any
Subsidiary in existence on the date hereof and listed in Schedule 12(b) unless
such new Subsidiary is a wholly-owned Subsidiary and is designated by Gryphon as
either a co-borrower or guarantor hereunder and such Subsidiary shall have
entered into all such documentation required by Gryphon, including, without
limitation, to grant to Gryphon a first priority perfected security interest in
substantially all of such Subsidiary's assets to secure the Obligations; (vii)
directly or indirectly, prepay any indebtedness (other than to Gryphon and in
the ordinary course of business), or repurchase, redeem, retire or otherwise
acquire any indebtedness (other than to Gryphon and in the ordinary course of
business) except to make scheduled payments of principal and interest thereof;
(viii) enter into any merger, consolidation or other reorganization with or into
any other Person or acquire all or a portion of the assets or Stock of any
Person or permit any other Person to consolidate with or merge with it, unless
(A) (1) such Company is the surviving entity of such merger or consolidation,
(2) no Event of Default shall exist immediately prior to and after giving effect
to such merger or consolidation, (3) such Company shall have provided Gryphon
copies of all documentation relating to such merger or consolidation and (4)
such Company shall have provided Gryphon with at least thirty (30) days' prior
written notice of such merger or consolidation or (B) (1) such merger or
consolidation results in the indefeasible payment in full of all Obligations
(including, without limitation, all early termination and prepayment fees
required to be paid hereunder and under the terms of the Ancillary Agreements),
(2) such Company shall have provided Gryphon copies of all documentation
relating to such merger or consolidation and (3) such Company shall have
provided Gryphon at least thirty (30) days' prior written notice of such early
prepayment of the Obligations; (ix) materially change the nature of the business
in which it is presently engaged; (x) become subject to (including, without
limitation, by way of amendment to or modification of) any agreement or
instrument which by its terms would (under any circumstances) restrict its or
any of its Subsidiaries' right to perform the provisions of this Agreement or
any of the Ancillary Agreements; (xi) change its fiscal year or make any changes
in accounting treatment and reporting practices without prior written notice to
Gryphon except as required by GAAP or in the tax reporting treatment or except
as required by law; (xii) enter into any transaction with any employee, director
or Affiliate, except in the ordinary course on arms-length terms; (xiii) ▇▇▇▇
Accounts under any name except the present name of such Company; or (xiv) sell,
lease, transfer or otherwise dispose of any of its properties or assets, or any
of the properties or assets of its Subsidiaries, except for (1) the sale of
Inventory in the ordinary course of business, (2) the disposition or transfer in
the ordinary course of business during any fiscal year of obsolete and worn-out
Equipment and only to the extent that (x) the proceeds of any such disposition
are used to acquire replacement Equipment which is subject to Gryphon's first
priority security interest or are used to repay Loans or to pay general
corporate expenses, or (y) following the occurrence of an Event of Default which
continues to exist, the proceeds of which are remitted to Gryphon to be held as
cash collateral for the Obligations; and (3) the sale of real property so long
as the Company Agent has received the prior written consent of Gryphon with
respect to such sale, which consent shall not be unreasonably withheld, provided
that, (x) the Company Agent provided Gryphon not less than thirty (30) days
23
prior written notice of such sale, (y) such sale is on commercially reasonable
terms in an arms-length transaction and (z) all proceeds of such sale are
remitted directly to Gryphon to repay the Obligations in such order as Gryphon
shall elect.
(m) Reissuance of Securities. The Parent shall reissue
certificates representing the Securities without the legends set forth in
Section 40 below at such time as:
(i) the holder thereof is permitted to dispose of
such Securities pursuant to Rule 144(k) under the Securities Act; or
(ii) upon resale subject to an effective
registration statement after such Securities are registered under the Securities
Act.
The Parent agrees to cooperate with Gryphon in connection with all resales
pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to
allow such resales provided the Parent and its counsel receive reasonably
requested representations from Gryphon and broker, if any.
(n) Opinion. Each Company will provide, at the Companies'
joint and several expense, such legal opinions in the future as are reasonably
necessary for the conversion of the Note and the exercise of the Warrants.
(o) Legal Name, etc. It shall not, without providing Gryphon
with 30 days prior written notice, change (i) its name as it appears in the
official filings in the state of its organization, (ii) the type of legal entity
it is, (iii) its organization identification number, if any, issued by its state
of organization, (iv) its state of organization or (v) amend its certificate of
incorporation, by-laws or other organizational document.
(p) Compliance with Laws. The operation of each of its and
each of its Subsidiaries' business is and shall continue to be in compliance in
all material respects with all applicable federal, state and local laws, rules
and ordinances, including to all laws, rules, regulations and orders relating to
taxes, payment and withholding of payroll taxes, employer and employee
contributions and similar items, securities, employee retirement and welfare
benefits, employee health and safety and environmental matters.
(q) Notices. It and each of its Subsidiaries shall promptly
inform Gryphon in writing of: (i) the commencement of all proceedings and
investigations by or before and/or the receipt of any notices from, any
governmental or nongovernmental body and all actions and proceedings in any
court or before any arbitrator against or in any way concerning any event which
could reasonably be expected to have singly or in the aggregate, a Material
Adverse Effect; (ii) any change which has had, or could reasonably be expected
to have, a Material Adverse Effect; (iii) any Event of Default or Default; and
(iv) any default or any event which with the passage of time or giving of notice
or both would constitute a default under any agreement for the payment of money
to which it or any of its Subsidiaries is a party or by which it or any of its
Subsidiaries or any of its or any such Subsidiary's properties may be bound the
breach of which would have a Material Adverse Effect.
24
(r) Margin Stock. It shall not permit any of the proceeds of
the Loans made hereunder to be used directly or indirectly to "purchase" or
"carry" "margin stock" or to repay indebtedness incurred to "purchase" or
"carry" "margin stock" within the respective meanings of each of the quoted
terms under Regulation U of the Board of Governors of the Federal Reserve System
as now and from time to time hereafter in effect.
(s) Offering Restrictions. Except as previously disclosed in
the SEC Reports or in the Exchange Act Filings, or stock or stock options
granted to its employees or directors, neither it nor any of its Subsidiaries
shall, prior to the full repayment or conversion of the Note (together with all
accrued and unpaid interest and fees related thereto), (x) enter into any equity
line of credit agreement or similar agreement or (y) issue, or enter into any
agreement to issue, any securities with a variable/floating conversion and/or
pricing feature which are or could be (by conversion or registration)
free-trading securities (i.e. common stock subject to a registration statement).
(t) Authorization and Reservation of Shares. The Parent shall
at all times have authorized and reserved a sufficient number of shares of
Common Stock to provide for the conversion of the Note and exercise of the
Options and the Warrants.
(u) [Omitted]
14. Further Assurances. At any time and from time to time,
upon the written request of Gryphon and at the sole expense of Companies, each
Company shall promptly and duly execute and deliver any and all such further
instruments and documents and take such further action as Gryphon may request
(a) to obtain the full benefits of this Agreement and the Ancillary Agreements,
(b) to protect, preserve and maintain Gryphon's rights in the Collateral and
under this Agreement or any Ancillary Agreement, and/or (c) to enable Gryphon to
exercise all or any of the rights and powers herein granted or any Ancillary
Agreement.
15. Representations, Warranties and Covenants of Gryphon.
Gryphon hereby represents, warrants and covenants to each Company as follows:
(a) Requisite Power and Authority. Gryphon has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Ancillary Agreements and to carry out their
provisions. All corporate action on Gryphon's part required for the lawful
execution and delivery of this Agreement and the Ancillary Agreements have been
or will be effectively taken prior to the Closing Date. Upon their execution and
delivery, this Agreement and the Ancillary Agreements shall be valid and binding
obligations of Gryphon, enforceable in accordance with their terms, except (a)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights,
and (b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
(b) Investment Representations. Gryphon understands that the
Securities are being offered pursuant to an exemption from registration
contained in the Securities Act based in part upon Gryphon's representations
contained in this Agreement, including, without limitation, that Gryphon is an
25
"accredited investor" within the meaning of Regulation D under the Securities
Act. Gryphon has received or has had full access to all the information it
considers necessary or appropriate to make an informed investment decision with
respect to the Note to be issued to it under this Agreement and the Securities
acquired by it upon the conversion of the Note.
(c) Gryphon Bears Economic Risk. Gryphon has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Parent so that it is capable of
evaluating the merits and risks of its investment in the Parent and has the
capacity to protect its own interests. Gryphon must bear the economic risk of
this investment until the Securities are sold pursuant to (i) an effective
registration statement under the Securities Act, or (ii) an exemption from
registration is available.
(d) Investment for Own Account. The Securities are being
issued to Gryphon for its own account for investment only, and not as a nominee
or agent and not with a view towards or for resale in connection with their
distribution.
(e) Gryphon Can Protect Its Interest. Gryphon represents that
by reason of its, or of its management's, business and financial experience,
Gryphon has the capacity to evaluate the merits and risks of its investment in
the Note, and the Securities and to protect its own interests in connection with
the transactions contemplated in this Agreement, and the Ancillary Agreements.
Further, Gryphon is aware of no publication of any advertisement in connection
with the transactions contemplated in the Agreement or the Ancillary Agreements.
(f) Accredited Investor. Gryphon represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
(g) Shorting. Neither Gryphon nor any of its Affiliates or
investment partners has, will, or will cause any Person, to directly engage in
"short sales" of the Parent's Common Stock as long as any Note shall be
outstanding.
(h) Patriot Act. Gryphon certifies that, to the best of
Gryphon's knowledge, Gryphon has not been designated, and is not owned or
controlled, by a "suspected terrorist" as defined in Executive Order 13224.
Gryphon seeks to comply with all applicable laws concerning money laundering and
related activities. In furtherance of those efforts, Gryphon hereby represents,
warrants and covenants that: (i) none of the cash or property that Gryphon will
use to make the Loans has been or shall be derived from, or related to, any
activity that is deemed criminal under United States law; and (ii) no
disbursement by Gryphon to any Company to the extent within Gryphon's control,
shall cause Gryphon to be in violation of the United States Bank Secrecy Act,
the United States International Money Laundering Control Act of 1986 or the
United States International Money Laundering Abatement and Anti-Terrorist
Financing Act of 2001. Gryphon shall promptly notify the Company Agent if any of
these representations ceases to be true and accurate regarding Gryphon. Gryphon
agrees to provide the Company any additional information regarding Gryphon that
the Company deems necessary or convenient to ensure compliance with all
applicable laws concerning money laundering and similar activities. Gryphon
understands and agrees that if at any time it is discovered that any of the
foregoing representations are incorrect, or if otherwise required by applicable
law or regulation related to money laundering similar activities, Gryphon may
undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of
26
Gryphon's investment in the Parent. Gryphon further understands that the Parent
may release information about Gryphon and, if applicable, any underlying
beneficial owners, to proper authorities if the Parent, in its sole discretion,
determines that it is in the best interests of the Parent in light of relevant
rules and regulations under the laws set forth in subsection (ii) above.
(i) Limitation on Acquisition of Common Stock. Notwithstanding
anything to the contrary contained in this Agreement, any Ancillary Agreement,
or any document, instrument or agreement entered into in connection with any
other transaction entered into by and between Gryphon and any Company (and/or
Subsidiaries or Affiliates of any Company), Gryphon shall not acquire stock in
the Parent (including, without limitation, pursuant to a contract to purchase,
by exercising an option or warrant, by converting any other security or
instrument, by acquiring or exercising any other right to acquire, shares of
stock or other security convertible into shares of stock in the Parent, or
otherwise, and such options, warrants, conversion or other rights shall not be
exercisable) to the extent such stock acquisition would cause any interest
(including any original issue discount) payable by any Company to Gryphon not to
qualify as portfolio interest, within the meaning of Section 881(c)(2) of the
Internal Revenue Code of 1986, as amended (the "Code") by reason of Section
881(c)(3) of the Code, taking into account the constructive ownership rules
under Section 871(h)(3)(C) of the Code (the "Stock Acquisition Limitation"). The
Stock Acquisition Limitation shall automatically become null and void without
any notice to any Company upon the earlier to occur of either (a) the Parent's
delivery to Gryphon of a Notice of Redemption (as defined in the Note) or (b)
the existence of an Event of Default at a time when the average closing price of
the Common Stock as reported by Bloomberg, L.P. on the Principal Market for the
immediately preceding five trading days is greater than or equal to 150% of the
Fixed Conversion Price (as defined in the Note).
16. Power of Attorney. Each Company hereby appoints Gryphon,
or any other Person whom Gryphon may designate as such Company's attorney, with
power to: (i) endorse such Company's name on any checks, notes, acceptances,
money orders, drafts or other forms of payment or security that may come into
Gryphon's possession; (ii) sign such Company's name on any invoice or ▇▇▇▇ of
lading relating to any Accounts, drafts against Account Debtors, schedules and
assignments of Accounts, notices of assignment, financing statements and other
public records, verifications of Account and notices to or from Account Debtors;
(iii) verify the validity, amount or any other matter relating to any Account by
mail, telephone, telegraph or otherwise with Account Debtors; (iv) do all things
necessary to carry out this Agreement, any Ancillary Agreement and all related
documents; and (v) on or after the occurrence and during the continuation of an
Event of Default, notify the post office authorities to change the address for
delivery of such Company's mail to an address designated by Gryphon, and to
receive, open and dispose of all mail addressed to such Company. Each Company
hereby ratifies and approves all acts of the attorney. Neither Gryphon, nor the
attorney will be liable for any acts or omissions or for any error of judgment
or mistake of fact or law, except for gross negligence or willful misconduct.
This power, being coupled with an interest, is irrevocable so long as Gryphon
has a security interest and until the Obligations have been fully satisfied.
17. Term of Agreement. Gryphon's agreement to make Loans and
extend financial accommodations under and in accordance with the terms of this
27
Agreement or any Ancillary Agreement shall continue in full force and effect
until the expiration of the Term. At Gryphon's election following the occurrence
of an Event of Default, Gryphon may terminate this Agreement. The termination of
the Agreement shall not affect any of Gryphon's rights hereunder or any
Ancillary Agreement and the provisions hereof and thereof shall continue to be
fully operative until all transactions entered into, rights or interests created
and the Obligations have been irrevocably disposed of, concluded or liquidated.
Notwithstanding the foregoing, Gryphon shall release its security interests at
any time after thirty (30) days notice upon irrevocable payment to it of all
Obligations if each Company shall have (i) provided Gryphon with an executed
release of any and all claims which such Company may have or thereafter have
under this Agreement and all Ancillary Agreements and (ii) paid to Gryphon an
early payment fee in an amount equal to (1) five percent (5%) of the Total
Investment Amount if such payment occurs prior to the first anniversary of the
Closing Date, (2) four percent (4%) of the Total Investment Amount if such
payment occurs on or after the first anniversary of the Closing Date and prior
to the second anniversary of the Closing Date and (3) three percent (3%) of the
Total Investment Amount if such termination occurs thereafter during the Term;
such fee being intended to compensate Gryphon for its costs and expenses
incurred in initially approving this Agreement or extending same. Such early
payment fee shall be due and payable jointly and severally by the Companies to
Gryphon upon termination by acceleration of this Agreement by Gryphon due to the
occurrence and continuance of an Event of Default.
18. Termination of Lien. The Liens and rights granted to
Gryphon hereunder and any Ancillary Agreements and the financing statements
filed in connection herewith or therewith shall continue in full force and
effect, notwithstanding the termination of this Agreement or the fact that any
Company's account may from time to time be temporarily in a zero or credit
position, until all of the Obligations have been indefeasibly paid or performed
in full after the termination of this Agreement. Gryphon shall not be required
to send termination statements to any Company, or to file them with any filing
office, unless and until this Agreement and the Ancillary Agreements shall have
been terminated in accordance with their terms and all Obligations indefeasibly
paid in full in immediately available funds.
19. Events of Default. The occurrence of any of the following
shall constitute an "Event of Default":
(a) failure to make payment of any of the Obligations when
required hereunder, and, in any such case, such failure shall continue for a
period of three (3) days following the date upon which any such payment was due;
(b) failure by any Company or any of its Subsidiaries to pay
any taxes when due unless such taxes are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
provided on such Company's and/or such Subsidiary's books;
(c) failure to perform under, and/or committing any breach of,
in any material respect, this Agreement or any covenant contained herein, which
failure or breach shall continue without remedy for a period of fifteen (15)
days after the occurrence thereof;
28
(d) any representation, warranty or statement made by any
Company or any of its Subsidiaries hereunder, in any Ancillary Agreement, any
certificate, statement or document delivered pursuant to the terms hereof, or in
connection with the transactions contemplated by this Agreement should prove to
be false or misleading in any material respect on the date as of which made or
deemed made;
(e) the occurrence of any default (or similar term) in the
observance or performance of any other agreement or condition relating to any
indebtedness or contingent obligation of any Company or any of its Subsidiaries
beyond the period of grace (if any), the effect of which default is to cause, or
permit the holder or holders of such indebtedness or beneficiary or
beneficiaries of such contingent obligation to cause, such indebtedness to
become due prior to its stated maturity or such contingent obligation to become
payable;
(f) attachments or levies in excess of $100,000 in the
aggregate are made upon any Company's assets or a judgment is rendered against
any Company's property involving a liability of more than $100,000 which shall
not have been vacated, discharged, stayed or bonded within thirty (30) days from
the entry thereof;
(g) any change in any Company's or any of its Subsidiary's
condition or affairs (financial or otherwise) which in Gryphon's reasonable,
good faith opinion, could reasonably be expected to have a Material Adverse
Effect;
(h) any Lien created hereunder or under any Ancillary
Agreement for any reason ceases to be or is not a valid and perfected Lien
having a first priority interest;
(i) any Company or any of its Subsidiaries or any Guarantor
shall (i) apply for, consent to or suffer to exist the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property, (ii) make a general assignment
for the benefit of creditors, (iii) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect), (iv) be adjudicated a bankrupt
or insolvent, (v) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vi) acquiesce to without challenge within
ten (10) days of the filing thereof, or failure to have dismissed within thirty
(30) days, any petition filed against it in any involuntary case under such
bankruptcy laws, or (vii) take any action for the purpose of effecting any of
the foregoing;
(j) any Company any of its Subsidiaries or any Guarantor shall
admit in writing its inability, or be generally unable, to pay its debts as they
become due or cease operations of its present business;
(k) any Company or any of its Subsidiaries directly or
indirectly sells, assigns, transfers, conveys, or suffers or permits to occur
any sale, assignment, transfer or conveyance of any assets of such Company or
any interest therein, except as permitted herein;
(l) any "Person" or "group" (as such terms are defined in
Sections 13(d) and 14(d) of the Exchange Act, as in effect on the date hereof)
is or becomes the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5
under the Exchange Act), directly or indirectly, of 35% or more on a fully
diluted basis of the then outstanding voting equity interest of any Company
(other than a "Person" or "group" that beneficially owns 35% or more of such
outstanding voting equity interests of the respective Company on the date
29
hereof) or (ii) the Board of Directors of the Parent shall cease to consist of a
majority of the Parent's board of directors on the date hereof (or directors
appointed by a majority of the board of directors in effect immediately prior to
such appointment);
(m) the indictment or threatened indictment of any Company or
any of its Subsidiaries or any executive officer of any Company or any of its
Subsidiaries under any criminal statute, or commencement or threatened
commencement of criminal or civil proceeding against any Company or any of its
Subsidiaries or any executive officer of any Company or any of its Subsidiaries
pursuant to which statute or proceeding penalties or remedies sought or
available include forfeiture of any of the property of any Company or any of its
Subsidiaries;
(n) an Event of Default (or similar term) shall occur under
and as defined in any Note or in any other Ancillary Agreement;
(o) any Company or any of its Subsidiaries shall breach any
term or provision of any Ancillary Agreement to which it is a party, in any
material respect which breach is not cured within any applicable cure or grace
period provided in respect thereof (if any);
(p) any Company or any of its Subsidiaries or any Guarantor
attempts to terminate, challenges the validity of, or its/her/his liability
under this Agreement or any Ancillary Agreement, or any proceeding shall be
brought to challenge the validity, binding effect of any Ancillary Agreement or
any Ancillary Agreement ceases to be a valid, binding and enforceable obligation
of such Company or any of its Subsidiaries (to the extent such Persons are a
party thereto);
(q) an SEC stop trade order or Principal Market trading
suspension of the Common Stock shall be in effect for five (5) consecutive days
or five (5) days during a period of ten (10) consecutive days, excluding in all
cases a suspension of all trading on a Principal Market, provided that the
Parent shall not have been able to cure such trading suspension within thirty
(30) days of the notice thereof or list the Common Stock on another Principal
Market within sixty (60) days of such notice;
(r) the Parent's failure to deliver Common Stock to Gryphon
pursuant to and in the form required by the Convertible Note and this Agreement,
if such failure to deliver Common Stock shall not be cured within two (2)
Business Days or any Company is required to issue a replacement Note to Gryphon
and such Company shall fail to deliver such replacement Note within seven (7)
Business Days;
(s) a default or event of default shall have occurred under
any of the Acquisition Documentation which is not cured during any applicable
cure or grace period; or
(t) the failure of the Companies to at all times maintain a
cash balance in a deposit account, with respect to which Gryphon shall have a
first priority perfected security interest, in an amount not less than
$3,000,000.
20. Remedies. Following the occurrence of an Event of Default,
Gryphon shall have the right to demand repayment in full of all Obligations,
30
whether or not otherwise due. Until all Obligations have been fully and
indefeasibly satisfied, Gryphon shall retain its Lien in all Collateral. Gryphon
shall have, in addition to all other rights provided herein and in each
Ancillary Agreement, the rights and remedies of a secured party under the UCC,
and under other applicable law, all other legal and equitable rights to which
Gryphon may be entitled, including the right to take immediate possession of the
Collateral, to require each Company to assemble the Collateral, at Companies'
joint and several expense, and to make it available to Gryphon at a place
designated by Gryphon which is reasonably convenient to both parties and to
enter any of the premises of any Company or wherever the Collateral shall be
located, with or without force or process of law, and to keep and store the same
on said premises until sold (and if said premises be the property of any
Company, such Company agrees not to charge Gryphon for storage thereof), and the
right to apply for the appointment of a receiver for such Company's property.
Further, Gryphon may, at any time or times after the occurrence of an Event of
Default, sell and deliver all Collateral held by or for Gryphon at public or
private sale for cash, upon credit or otherwise, at such prices and upon such
terms as Gryphon, in Gryphon's sole discretion, deems advisable or Gryphon may
otherwise recover upon the Collateral in any commercially reasonable manner as
Gryphon, in its sole discretion, deems advisable. The requirement of reasonable
notice shall be met if such notice is mailed postage prepaid to Company Agent at
Company Agent's address as shown in Gryphon's records, at least ten (10) days
before the time of the event of which notice is being given. Gryphon may be the
purchaser at any sale, if it is public. In connection with the exercise of the
foregoing remedies, Gryphon is granted permission to use all of each Company's
Intellectual Property. The proceeds of sale shall be applied first to all costs
and expenses of sale, including attorneys' fees, and second to the payment (in
whatever order Gryphon elects) of all Obligations. After the indefeasible
payment and satisfaction in full of all of the Obligations, and after the
payment by Gryphon of any other amount required by any provision of law,
including Section 9-608(a)(1) of the UCC (but only after Gryphon has received
what Gryphon considers reasonable proof of a subordinate party's security
interest), the surplus, if any, shall be paid to Company Agent (for the benefit
of the applicable Companies) or its representatives or to whosoever may be
lawfully entitled to receive the same, or as a court of competent jurisdiction
may direct. The Companies shall remain jointly and severally liable to Gryphon
for any deficiency. In addition, the Companies shall jointly and severally pay
Gryphon a liquidation fee ("Liquidation Fee") in the amount of five percent (5%)
of the actual amount collected in respect of each Account outstanding at any
time during a Liquidation Period". For purposes hereof, "Liquidation Period"
means a period: (i) beginning on the earliest date of (x) an event referred to
in Section 19(i) or 19(j), or (y) the cessation of any Company's business; and
(ii) ending on the date on which Gryphon has actually received all Obligations
due and owing it under this Agreement and the Ancillary Agreements. The
Liquidation Fee shall be paid on the date on which Gryphon collects the
applicable Account by deduction from the proceeds thereof. Each Company and
Gryphon acknowledge that the actual damages that would be incurred by Gryphon
after the occurrence of an Event of Default would be difficult to quantify and
that such Company and Gryphon have agreed that the fees and obligations set
forth in this Section and in this Agreement would constitute fair and
appropriate liquidated damages in the event of any such termination.
21. Waivers. To the full extent permitted by applicable law,
each Company hereby waives (a) presentment, demand and protest, and notice of
presentment, dishonor, intent to accelerate, acceleration, protest, default,
nonpayment, maturity, release, compromise, settlement, extension or renewal of
31
any or all of this Agreement and the Ancillary Agreements or any other notes,
commercial paper, Accounts, contracts, Documents, Instruments, Chattel Paper and
guaranties at any time held by Gryphon on which such Company may in any way be
liable, and hereby ratifies and confirms whatever Gryphon may do in this regard;
(b) all rights to notice and a hearing prior to Gryphon's taking possession or
control of, or to Gryphon's replevin, attachment or levy upon, any Collateral or
any bond or security that might be required by any court prior to allowing
Gryphon to exercise any of its remedies; and (c) the benefit of all valuation,
appraisal and exemption laws. Each Company acknowledges that it has been advised
by counsel of its choices and decisions with respect to this Agreement, the
Ancillary Agreements and the transactions evidenced hereby and thereby.
22. Expenses. The Companies shall jointly and severally pay
all of Gryphon's reasonable out-of-pocket costs and expenses, including
reasonable fees and disbursements of in-house or outside counsel and appraisers,
in connection with the preparation, execution and delivery of this Agreement and
the Ancillary Agreements, and in connection with the prosecution or defense of
any action, contest, dispute, suit or proceeding concerning any matter in any
way arising out of, related to or connected with this Agreement or any Ancillary
Agreement. The Companies shall also jointly and severally pay all of Gryphon's
reasonable fees, charges, out-of-pocket costs and expenses, including fees and
disbursements of counsel and appraisers, in connection with (a) the preparation,
execution and delivery of any waiver, any amendment thereto or consent proposed
or executed in connection with the transactions contemplated by this Agreement
or the Ancillary Agreements, (b) Gryphon's obtaining performance of the
Obligations under this Agreement and any Ancillary Agreements, including, but
not limited to, the enforcement or defense of Gryphon's security interests,
assignments of rights and Liens hereunder as valid perfected security interests,
(c) any attempt to inspect, verify, protect, collect, sell, liquidate or
otherwise dispose of any Collateral, (d) any appraisals or re-appraisals of any
property (real or personal) pledged to Gryphon by any Company or any of its
Subsidiaries as Collateral for, or any other Person as security for, the
Obligations hereunder and (e) any consultations in connection with any of the
foregoing. The Companies shall also jointly and severally pay Gryphon's
customary bank charges for all bank services (including wire transfers)
performed or caused to be performed by Gryphon for any Company or any of its
Subsidiaries at any Company's or such Subsidiary's request or in connection with
any Company's loan account with Gryphon. All such costs and expenses together
with all filing, recording and search fees, taxes and interest payable by the
Companies to Gryphon shall be payable on demand and shall be secured by the
Collateral. If any tax by any Governmental Authority is or may be imposed on or
as a result of any transaction between any Company and/or any Subsidiary
thereof, on the one hand, and Gryphon on the other hand, which Gryphon is or may
be required to withhold or pay, the Companies hereby jointly and severally
indemnifies and holds Gryphon harmless in respect of such taxes, and the
Companies will repay to Gryphon the amount of any such taxes which shall be
charged to the Companies' account; and until the Companies shall furnish Gryphon
with indemnity therefor (or supply Gryphon with evidence satisfactory to it that
due provision for the payment thereof has been made), Gryphon may hold without
interest any balance standing to each Company's credit and Gryphon shall retain
its Liens in any and all Collateral.
23. Assignment By Gryphon. Gryphon may assign any or all of
the Obligations together with any or all of the security therefor to any Person
and any such assignee shall succeed to all of Gryphon's rights with respect
thereto; provided that Gryphon shall not be permitted to effect any such
32
assignment to a competitor of any Company unless an Event of Default has
occurred and is continuing. Upon such assignment, Gryphon shall be released from
all responsibility for the Collateral to the extent same is assigned to any
transferee. Gryphon may from time to time sell or otherwise grant participations
in any of the Obligations and the holder of any such participation shall,
subject to the terms of any agreement between Gryphon and such holder, be
entitled to the same benefits as Gryphon with respect to any security for the
Obligations in which such holder is a participant. Each Company agrees that each
such holder may exercise any and all rights of banker's lien, set-off and
counterclaim with respect to its participation in the Obligations as fully as
though such Company were directly indebted to such holder in the amount of such
participation.
24. No Waiver; Cumulative Remedies. Failure by Gryphon to
exercise any right, remedy or option under this Agreement, any Ancillary
Agreement or any supplement hereto or thereto or any other agreement between or
among any Company and Gryphon or delay by Gryphon in exercising the same, will
not operate as a waiver; no waiver by Gryphon will be effective unless it is in
writing and then only to the extent specifically stated. Gryphon's rights and
remedies under this Agreement and the Ancillary Agreements will be cumulative
and not exclusive of any other right or remedy which Gryphon may have.
25. Application of Payments. Each Company irrevocably waive
the right to direct the application of any and all payments at any time or times
hereafter received by Gryphon from or on such Company's behalf and each Company
hereby irrevocably agrees that Gryphon shall have the continuing exclusive right
to apply and reapply any and all payments received at any time or times
hereafter against the Obligations hereunder in such manner as Gryphon may deem
advisable notwithstanding any entry by Gryphon upon any of Gryphon's books and
records.
26. Indemnity. Each Company hereby jointly and severally
indemnify and hold Gryphon, and its respective affiliates, employees, attorneys
and agents (each, an "Indemnified Person"), harmless from and against any and
all suits, actions, proceedings, claims, damages, losses, liabilities and
expenses of any kind or nature whatsoever (including attorneys' fees and
disbursements and other costs of investigation or defense, including those
incurred upon any appeal) which may be instituted or asserted against or
incurred by any such Indemnified Person as the result of credit having been
extended, suspended or terminated under this Agreement or any of the Ancillary
Agreements or with respect to the execution, delivery, enforcement, performance
and administration of, or in any other way arising out of or relating to, this
Agreement, the Ancillary Agreements or any other documents or transactions
contemplated by or referred to herein or therein and any actions or failures to
act with respect to any of the foregoing, except to the extent that any such
indemnified liability is finally determined by a court of competent jurisdiction
to have resulted solely from such Indemnified Person's gross negligence or
willful misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY
COMPANY OR TO ANY OTHER PARTY OR TO ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY
BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH
PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE
ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED
33
UNDER THIS AGREEMENT OR ANY ANCILLARY AGREEMENT OR AS A RESULT OF ANY OTHER
TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.
27. Revival. The Companies further agree that to the extent
any Company makes a payment or payments to Gryphon, which payment or payments or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy act, state or federal law, common law or
equitable cause, then, to the extent of such payment or repayment, the
obligation or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if said payment had not been made.
28. Borrowing Agency Provisions.
(a) Each Company hereby irrevocably designates Company Agent
to be its attorney and agent and in such capacity to borrow, sign and endorse
notes, and execute and deliver all instruments, documents, writings and further
assurances now or hereafter required hereunder, on behalf of such Company, and
hereby authorizes Gryphon to pay over or credit all loan proceeds hereunder in
accordance with the request of Company Agent.
(b) The handling of this credit facility as a co-borrowing
facility with a borrowing agent in the manner set forth in this Agreement is
solely as an accommodation to the Companies and at their request. Gryphon shall
not incur any liability to any Company as a result thereof. To induce Gryphon to
do so and in consideration thereof, each Company hereby indemnifies Gryphon and
holds Gryphon harmless from and against any and all liabilities, expenses,
losses, damages and claims of damage or injury asserted against Gryphon by any
Person arising from or incurred by reason of the handling of the financing
arrangements of the Companies as provided herein, reliance by Gryphon on any
request or instruction from Company Agent or any other action taken by Gryphon
with respect to this Paragraph 28.
(c) All Obligations shall be joint and several, and the
Companies shall make payment upon the maturity of the Obligations by
acceleration or otherwise, and such obligation and liability on the part of the
Companies shall in no way be affected by any extensions, renewals and
forbearance granted by Gryphon to any Company, failure of Gryphon to give any
Company notice of borrowing or any other notice, any failure of Gryphon to
pursue to preserve its rights against any Company, the release by Gryphon of any
Collateral now or thereafter acquired from any Company, and such agreement by
any Company to pay upon any notice issued pursuant thereto is unconditional and
unaffected by prior recourse by Gryphon to any Company or any Collateral for
such Company's Obligations or the lack thereof.
(d) Each Company expressly waives any and all rights of
subrogation, reimbursement, indemnity, exoneration, contribution or any other
claim which such Company may now or hereafter have against the other or other
Person directly or contingently liable for the Obligations, or against or with
respect to any other's property (including, without limitation, any property
which is Collateral for the Obligations), arising from the existence or
performance of this Agreement, until all Obligations have been indefeasibly paid
in full and this Agreement has been irrevocably terminated.
34
(e) Each Company represents and warrants to Gryphon that (i)
the Companies have one or more common shareholders, directors and officers, (ii)
the businesses and corporate activities of the Companies are closely related to,
and substantially benefit, the business and corporate activities of the
Companies, (iii) the financial and other operations of the Companies are
performed on a combined basis as if the Companies constituted a consolidated
corporate group, (iv) the Companies will receive a substantial economic benefit
from entering into this Agreement and will receive a substantial economic
benefit from the application of each Loan hereunder, in each case, whether or
not such amount is used directly by any Company and (v) all requests for Loans
hereunder by the Company Agent are for the exclusive and indivisible benefit of
the Companies as though, for purposes of this Agreement, the Companies
constituted a single entity.
29. Notices. Any notice or request hereunder may be given to
any Company, Company Agent or Gryphon at the respective addresses set forth
below or as may hereafter be specified in a notice designated as a change of
address under this Section. Any notice or request hereunder shall be given by
registered or certified mail, return receipt requested, hand delivery, overnight
mail or telecopy (confirmed by mail). Notices and requests shall be, in the case
of those by hand delivery, deemed to have been given when delivered to any
officer of the party to whom it is addressed, in the case of those by mail or
overnight mail, deemed to have been given three (3) Business Days after the date
when deposited in the mail or with the overnight mail carrier, and, in the case
of a telecopy, when confirmed.
Notices shall be provided as follows:
If to Gryphon: Gryphon Master Fund L.P.
c/o _____________________
_________________________
_________________________
Attention: ________________
Telephone: ________________
Facsimile: ________________
With a copy to: _________________________
_________________________
_________________________
Attention: ________________
Telephone: ________________
Facsimile: ________________
If to any Company,
or Company Agent: American Technologies Group, Inc.
▇▇ ▇▇▇ ▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇ ▇▇▇▇▇, CEO
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: ___________________
35
With a copy to: Sichenzia ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP
1065 Avenue of the ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or such other address as may be designated in writing hereafter in accordance
with this Section 29 by such Person.
30. Governing Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS AGREEMENT AND THE ANCILLARY AGREEMENTS SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
(b) EACH COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY
COMPANY, ON THE ONE HAND, AND GRYPHON, ON THE OTHER HAND, PERTAINING TO THIS
AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS; PROVIDED, THAT
GRYPHON AND EACH COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE
TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW
YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR
OPERATE TO PRECLUDE GRYPHON FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN
ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL
OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER IN FAVOR OF GRYPHON. EACH COMPANY EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND EACH COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK
OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH COMPANY
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO COMPANY AGENT AT THE ADDRESS SET FORTH IN SECTION 29 AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF COMPANY AGENT'S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
36
(c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO
RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN
GRYPHON, AND/OR ANY COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT, ANY ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR
THERETO.
31. Limitation of Liability. Each Company acknowledges and
understands that in order to assure repayment of the Obligations hereunder
Gryphon may be required to exercise any and all of Gryphon's rights and remedies
hereunder and agrees that, except as limited by applicable law, neither Gryphon
nor any of Gryphon's agents shall be liable for acts taken or omissions made in
connection herewith or therewith except for actual bad faith.
32. Entire Understanding; Maximum Interest. This Agreement and
the Ancillary Agreements contain the entire understanding among each Company and
Gryphon as to the subject matter hereof and thereof and any promises,
representations, warranties or guarantees not herein contained shall have no
force and effect unless in writing, signed by each Company's and Gryphon's
respective officers. Neither this Agreement, the Ancillary Agreements, nor any
portion or provisions thereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing, or in any manner other than by an agreement in writing, signed by the
party to be charged. Nothing contained in this Agreement, any Ancillary
Agreement or in any document referred to herein or delivered in connection
herewith shall be deemed to establish or require the payment of a rate of
interest or other charges in excess of the maximum rate permitted by applicable
law. In the event that the rate of interest or dividends required to be paid or
other charges hereunder exceed the maximum rate permitted by such law, any
payments in excess of such maximum shall be credited against amounts owed by the
Companies to Gryphon and thus refunded to the Companies.
33. Severability. Wherever possible each provision of this
Agreement or the Ancillary Agreements shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this
Agreement or the Ancillary Agreements shall be prohibited by or invalid under
applicable law such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions thereof.
34. Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by Gryphon and the
closing of the transactions contemplated hereby to the extent provided therein.
All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Companies pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Companies hereunder solely as of the date
of such certificate or instrument. All indemnities set forth herein shall
survive the execution, delivery and termination of this Agreement and the
Ancillary Agreements and the making and repaying of the Obligations.
37
35. Captions. All captions are and shall be without
substantive meaning or content of any kind whatsoever.
36. Counterparts; Telecopier Signatures. This Agreement may be
executed in one or more counterparts, each of which shall constitute an original
and all of which taken together shall constitute one and the same agreement. Any
signature delivered by a party via telecopier transmission shall be deemed to be
any original signature hereto.
37. Construction. The parties acknowledge that each party and
its counsel have reviewed this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments, schedules or exhibits thereto.
38. Publicity. Each Company hereby authorizes Gryphon to make
appropriate announcements of the financial arrangement entered into by and among
each Company and Gryphon, including, without limitation, announcements which are
commonly known as tombstones, in such publications and to such selected parties
as Gryphon shall in its sole and absolute discretion deem appropriate, or as
required by applicable law.
39. Joinder. It is understood and agreed that any Person that
desires to become a Company hereunder, or is required to execute a counterpart
of this Agreement after the date hereof pursuant to the requirements of this
Agreement or any Ancillary Agreement, shall become a Company hereunder by (a)
executing a Joinder Agreement in form and substance satisfactory to Gryphon, (b)
delivering supplements to such exhibits and annexes to this Agreement and the
Ancillary Agreements as Gryphon shall reasonably request and (c) taking all
actions as specified in this Agreement as would have been taken by such Company
had it been an original party to this Agreement, in each case with all documents
required above to be delivered to Gryphon and with all documents and actions
required above to be taken to the reasonable satisfaction of Gryphon.
40. Legends. The Securities shall bear legends as follows;
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS.
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO AMERICAN TECHNOLOGIES GROUP, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED."
38
(b) Any shares of Common Stock issued pursuant to conversion
of the Note or exercise of the Options or the Warrants, shall bear a legend
which shall be in substantially the following form until such shares are covered
by an effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO AMERICAN TECHNOLOGIES
GROUP, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Options shall bear substantially the following legend:
"THIS OPTION AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THIS OPTION AND THE OPTION MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS OPTION OR THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO AMERICAN TECHNOLOGIES GROUP, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(d) The Warrants shall bear substantially the following
legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
39
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF
COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
AMERICAN TECHNOLOGIES GROUP, INC. THAT SUCH REGISTRATION IS
NOT REQUIRED."
[Balance of page intentionally left blank; signature page follows]
40
IN WITNESS WHEREOF, the parties have executed this Security
Agreement as of the date first written above.
AMERICAN TECHNOLOGIES GROUP, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
NORTH TEXAS STEEL COMPANY, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
OMAHA HOLDINGS CORP.
By:____________________________________
Name:__________________________________
Title:_________________________________
GRYPHON MASTER FUND, L.P.
By:____________________________________
Name:__________________________________
Title:_________________________________
41
Annex A - Definitions
"Account Debtor" means any Person who is or may be obligated
with respect to, or on account of, an Account.
"Accountants" has the meaning given to such term in Section
11(a).
"Accounts" means all "accounts", as such term is defined in
the UCC, now owned or hereafter acquired by any Person, including: (a) all
accounts receivable, other receivables, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper or
Instruments) (including any such obligations that may be characterized as an
account or contract right under the UCC); (b) all of such Person's rights in, to
and under all purchase orders or receipts for goods or services; (c) all of such
Person's rights to any goods represented by any of the foregoing (including
unpaid sellers' rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods); (d) all rights
to payment due to such Person for Goods or other property sold, leased,
licensed, assigned or otherwise disposed of, for a policy of insurance issued or
to be issued, for a secondary obligation incurred or to be incurred, for energy
provided or to be provided, for the use or hire of a vessel under a charter or
other contract, arising out of the use of a credit card or charge card, or for
services rendered or to be rendered by such Person or in connection with any
other transaction (whether or not yet earned by performance on the part of such
Person); and (e) all collateral security of any kind given by any Account Debtor
or any other Person with respect to any of the foregoing.
"Acquisition Documentation" means the Share Purchase
Agreement by and among the Parent and Sellers dated as of ________, 2005 and all
documents, instruments and agreements entered into in connection therewith.
"Affiliate" means, with respect to any Person, (a) any other
Person (other than a Subsidiary) which, directly or indirectly, is in control
of, is controlled by, or is under common control with such Person or (b) any
other Person who is a director or officer (i) of such Person, (ii) of any
Subsidiary of such Person or (iii) of any Person described in clause (a) above.
For the purposes of this definition, control of a Person shall mean the power
(direct or indirect) to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"Ancillary Agreements" means the Note, the Options, the
Warrants, the Registration Rights Agreements, each Security Document, each
Guaranty Agreement and all other agreements, instruments, documents, mortgages,
pledges, powers of attorney, consents, assignments, contracts, notices, security
agreements, trust agreements and guarantees whether heretofore, concurrently, or
hereafter executed by or on behalf of any Company, any of its Subsidiaries or
any other Person or delivered to Gryphon, relating to this Agreement or to the
transactions contemplated by this Agreement or otherwise relating to the
relationship between or among any Company and Gryphon, as each of the same may
be amended, supplemented, restated or otherwise modified from time to time.
"Balance Sheet Date" has the meaning given such term in
Section 12(f)(ii).
"Books and Records" means all books, records, board minutes,
contracts, licenses, insurance policies, environmental audits, business plans,
files, computer files, computer discs and other data and software storage and
media devices, accounting books and records, financial statements (actual and
pro forma), filings with Governmental Authorities and any and all records and
instruments relating to the Collateral or otherwise necessary or helpful in the
collection thereof or the realization thereupon.
"Business Day" means a day on which Gryphon is open for business and that is not
a Saturday, a Sunday or other day on which banks are required or permitted to be
closed in the State of New York.
"Charter" has the meaning given such term in Section
12(c)(iv).
"Chattel Paper" means all "chattel paper," as such term is
defined in the UCC, including electronic chattel paper, now owned or hereafter
acquired by any Person.
"Closing Date" means the date on which any Company shall first
receive proceeds of the initial Loans or the date hereof, if no Loan is made
under the facility on the date hereof.
"Code" has the meaning given such term in Section 15(i).
"Collateral" means all of each Company's property and assets,
whether real or personal, tangible or intangible, and whether now owned or
hereafter acquired, or in which it now has or at any time in the future may
acquire any right, title or interests including all of the following property in
which it now has or at any time in the future may acquire any right, title or
interest:
(a) all Inventory;
(b) all Equipment;
(c) all Fixtures;
(d) all General Intangibles;
(e) all Accounts;
(f) all Deposit Accounts, other bank accounts and all funds on
deposit therein;
(g) all Investment Property;
(h) all Stock;
(i) all Chattel Paper;
(j) all Letter-of-Credit Rights;
(k) all Instruments;
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(l) all commercial tort claims set forth on Schedule 1(A);
(m) all Books and Records;
(n) all Intellectual Property;
(o) all Supporting Obligations including letters of credit and
guarantees issued in support of Accounts, Chattel Paper, General Intangibles and
Investment Property;
(p) (i) all money, cash and cash equivalents and (ii) all cash
held as cash collateral to the extent not otherwise constituting Collateral, all
other cash or property at any time on deposit with or held by Gryphon for the
account of any Company (whether for safekeeping, custody, pledge, transmission
or otherwise); and
(q) all products and Proceeds of all or any of the foregoing,
tort claims and all claims and other rights to payment including (i) insurance
claims against third parties for loss of, damage to, or destruction of, the
foregoing Collateral and (ii) payments due or to become due under leases,
rentals and hires of any or all of the foregoing and Proceeds payable under, or
unearned premiums with respect to policies of insurance in whatever form.
"Common Stock" means the shares of stock representing the
Parent's common equity interests.
"Company Agent" means the Parent.
"Contract Rate" has the meaning given such term in the
respective Note.
"Default" means any act or event which, with the giving of
notice or passage of time or both, would constitute an Event of Default.
"Deposit Accounts" means all "deposit accounts" as such term
is defined in the UCC, now or hereafter held in the name of any Person,
including, without limitation, the Lockboxes.
"Disclosure Controls" has the meaning given such term in
Section 12(f)(iv).
"Documents" means all "documents", as such term is defined in
the UCC, now owned or hereafter acquired by any Person, wherever located,
including all bills of lading, dock warrants, dock receipts, warehouse receipts,
and other documents of title, whether negotiable or non-negotiable.
"Eligible Subsidiary" means each Subsidiary of the Parent set
forth on Exhibit A hereto, as the same may be updated from time to time with
Gryphon's written consent.
3
"Equipment" means all "equipment" as such term is defined in
the UCC, now owned or hereafter acquired by any Person, wherever located,
including any and all machinery, apparatus, equipment, fittings, furniture,
Fixtures, motor vehicles and other tangible personal property (other than
Inventory) of every kind and description that may be now or hereafter used in
such Person's operations or that are owned by such Person or in which such
Person may have an interest, and all parts, accessories and accessions thereto
and substitutions and replacements therefor.
"ERISA" has the meaning given such term in Section 12(bb).
"Event of Default" means the occurrence of any of the events
set forth in Section 19.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Act Filings" means the Parent's filings under the
Exchange Act made prior to the date of this Agreement.
"Financial Reporting Controls" has the meaning given such term
in Section 12(f)(v).
"Fixtures" means all "fixtures" as such term is defined in the
UCC, now owned or hereafter acquired by any Person.
"GAAP" means generally accepted accounting principles,
practices and procedures in effect from time to time in the United States of
America.
"General Intangibles" means all "general intangibles" as such
term is defined in the UCC, now owned or hereafter acquired by any Person
including all right, title and interest that such Person may now or hereafter
have in or under any contract, all Payment Intangibles, customer lists,
Licenses, Intellectual Property, interests in partnerships, joint ventures and
other business associations, permits, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, knowledge, know-how, Software, data bases, data, skill,
expertise, experience, processes, models, drawings, materials, Books and
Records, Goodwill (including the Goodwill associated with any Intellectual
Property), all rights and claims in or under insurance policies (including
insurance for fire, damage, loss, and casualty, whether covering personal
property, real property, tangible rights or intangible rights, all liability,
life, key-person, and business interruption insurance, and all unearned
premiums), uncertificated securities, choses in action, deposit accounts, rights
to receive tax refunds and other payments, rights to received dividends,
distributions, cash, Instruments and other property in respect of or in exchange
for pledged Stock and Investment Property, and rights of indemnification.
"Goods" means all "goods", as such term is defined in the UCC,
now owned or hereafter acquired by any Person, wherever located, including
embedded software to the extent included in "goods" as defined in the UCC,
manufactured homes, standing timber that is cut and removed for sale and unborn
young of animals.
4
"Goodwill" means all goodwill, trade secrets, proprietary or
confidential information, technical information, procedures, formulae, quality
control standards, designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guarantors" means the Term Loan B Guarantors and any and all
other Persons who may from time to time guaranty all or a portion of the
Obligations.
"Guaranty Agreements" means any and all guaranty agreements
made from time to time by Guarantors in favor of Gryphon, as the same may be
amended, supplemented, restates and/or otherwise modified from time to time.
"Instruments" means all "instruments", as such term is defined
in the UCC, now owned or hereafter acquired by any Person, wherever located,
including all certificated securities and all promissory notes and other
evidences of indebtedness, other than instruments that constitute, or are a part
of a group of writings that constitute, Chattel Paper.
"Intellectual Property" means any and all patents, trademarks,
service marks, trade names, copyrights, trade secrets, Licenses, information and
other proprietary rights and processes.
"Inventory" means all "inventory", as such term is defined in
the UCC, now owned or hereafter acquired by any Person, wherever located,
including all inventory, merchandise, goods and other personal property that are
held by or on behalf of such Person for sale or lease or are furnished or are to
be furnished under a contract of service or that constitute raw materials, work
in process, finished goods, returned goods, or materials or supplies of any
kind, nature or description used or consumed or to be used or consumed in such
Person's business or in the processing, production, packaging, promotion,
delivery or shipping of the same, including all supplies and embedded software.
"Investment Property" means all "investment property", as such
term is defined in the UCC, now owned or hereafter acquired by any Person,
wherever located.
"Letter-of-Credit Rights" means "letter-of-credit rights" as
such term is defined in the UCC, now owned or hereafter acquired by any Person,
including rights to payment or performance under a letter of credit, whether or
not such Person, as beneficiary, has demanded or is entitled to demand payment
or performance.
"License" means any rights under any written agreement now or
hereafter acquired by any Person to use any trademark, trademark registration,
copyright, copyright registration or invention for which a patent is in
existence or other license of rights or interests now held or hereafter acquired
by any Person.
5
"Lien" means any mortgage, security deed, deed of trust,
pledge, hypothecation, assignment, security interest, lien (whether statutory or
otherwise), charge, claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect of
any asset of any kind or nature whatsoever including any conditional sale or
other title retention agreement, any lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement under the UCC or comparable law of any
jurisdiction.
"Loans" means the Note and shall include all other extensions
of credit hereunder and under any Ancillary Agreement.
"Lockboxes" has the meaning given such term in Section 8(a).
"Material Adverse Effect" means a material adverse effect on
(a) the business, assets, liabilities, condition (financial or otherwise),
properties, operations or prospects of any Company or any of its Subsidiaries
(taken individually and as a whole), (b) any Company's or any of its
Subsidiary's ability to pay or perform the Obligations in accordance with the
terms hereof or any Ancillary Agreement, (c) the value of the Collateral, the
Liens on the Collateral or the priority of any such Lien or (d) the practical
realization of the benefits of Gryphon's rights and remedies under this
Agreement and the Ancillary Agreements.
"Mortgage Documentation" means (a) the second Deed of Trust
dated as of the date hereof made by NTSCO in favor of Gryphon with respect to
the real property located at ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, (b)
the second Deed of Trust dated as of the date hereof made by NTSCO in favor of
Gryphon with respect to the real property located at ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, (c) the second Mortgage dated as of the date hereof made by
certain Persons in favor of Gryphon with respect to the real property located at
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, (d) the Mortgage dated as of
the date hereof made by the Term Note B Guarantors in favor of Gryphon with
respect to the real property located at 69 ▇▇▇▇▇▇▇▇▇, Unit 105, Bridgeport,
Connecticut and (e) all other documents, instruments and agreements which are
executed by any Company or any of its Subsidiaries and/or in favor of Gryphon in
connection therewith
"NASD" has the meaning given such term in Section 13(b).
"Next Unissued Serialized Note" has the meaning given such
term in Section 2(a)(i).
"Note Shares" has the meaning given such term in Section
12(a).
"Note" means the Note as that term is defined in Section 2(a)
hereof and any other notes made by Companies in favor of Gryphon in connection
with the transactions contemplated hereby, as each of the same may be amended,
supplemented, restated and/or otherwise modified from time to time.
6
"NTSCO" means North Texas Steel Company, Inc., a Texas
corporation.
"Obligations" means all Loans, all advances, debts,
liabilities, obligations, covenants and duties owing by each Company and each of
its Subsidiaries to Gryphon (or any corporation that directly or indirectly
controls or is controlled by or is under common control with Gryphon) of every
kind and description (whether or not evidenced by any note or other instrument
and whether or not for the payment of money or the performance or
non-performance of any act), direct or indirect, absolute or contingent, due or
to become due, contractual or tortious, liquidated or unliquidated, whether
existing by operation of law or otherwise now existing or hereafter arising
including any debt, liability or obligation owing from any Company and/or each
of its Subsidiaries to others which Gryphon may have obtained by assignment or
otherwise and further including all interest (including interest accruing at the
then applicable rate provided in this Agreement after the maturity of the Loans
and interest accruing at the then applicable rate provided in this Agreement
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, whether or not a claim for
post-filing or post-petition interest is allowed or allowable in such
proceeding), charges or any other payments each Company and each of its
Subsidiaries is required to make by law or otherwise arising under or as a
result of this Agreement, the Ancillary Agreements or otherwise, together with
all reasonable expenses and reasonable attorneys' fees chargeable to the
Companies' or any of their Subsidiaries' accounts or incurred by Gryphon in
connection therewith.
"Option Shares" shall have the meaning given such term in
Section 12(a).
"Options" means those certain Option each dated as of the
Closing Date made by the Parent in favor of Gryphon and each other option made
by the Parent in favor of Gryphon, as each of the same may be amended, restated,
modified and/or supplemented from time to time.
"Payment Intangibles" means all "payment intangibles" as such
term is defined in the UCC, now owned or hereafter acquired by any Person,
including, a General Intangible under which the Account Debtor's principal
obligation is a monetary obligation.
"Permitted Liens" means (a) Liens of carriers, warehousemen,
artisans, bailees, mechanics and materialmen incurred in the ordinary course of
business securing sums not overdue; (b) Liens incurred in the ordinary course of
business in connection with worker's compensation, unemployment insurance or
other forms of governmental insurance or benefits, relating to employees,
securing sums (i) not overdue or (ii) being diligently contested in good faith
provided that adequate reserves with respect thereto are maintained on the books
of the Companies and their Subsidiaries, as applicable, in conformity with GAAP;
(c) Liens in favor of Gryphon; (d) Liens for taxes (i) not yet due or (ii) being
diligently contested in good faith by appropriate proceedings, provided that
adequate reserves with respect thereto are maintained on the books of the
Companies and their Subsidiaries, as applicable, in conformity with GAAP; and
which have no effect on the priority of Liens in favor of Gryphon or the value
of the assets in which Gryphon has a Lien; (e) Purchase Money Liens securing
7
Purchase Money Indebtedness to the extent permitted in this Agreement and (f)
Liens granted to Laurus Master Fund, L.P. and (g) Liens set forth on Schedule 2
hereto.
"Person" means any individual, sole proprietorship,
partnership, limited liability partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability company, institution,
public benefit corporation, entity or government (whether federal, state,
county, city, municipal or otherwise, including any instrumentality, division,
agency, body or department thereof), and shall include such Person's successors
and assigns.
"Principal Market" means the NASD Over The Counter Bulletin
Board, NASDAQ SmallCap Market, NASDAQ National Market System, American Stock
Exchange or New York Stock Exchange (whichever of the foregoing is at the time
the principal trading exchange or market for the Common Stock).
"Proceeds" means "proceeds", as such term is defined in the
UCC and, in any event, shall include: (a) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to any Company or any other Person from
time to time with respect to any Collateral; (b) any and all payments (in any
form whatsoever) made or due and payable to any Company from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of any Collateral by any governmental body, governmental authority,
bureau or agency (or any person acting under color of governmental authority);
(c) any claim of any Company against third parties (i) for past, present or
future infringement of any Intellectual Property or (ii) for past, present or
future infringement or dilution of any trademark or trademark license or for
injury to the goodwill associated with any trademark, trademark registration or
trademark licensed under any trademark License; (d) any recoveries by any
Company against third parties with respect to any litigation or dispute
concerning any Collateral, including claims arising out of the loss or
nonconformity of, interference with the use of, defects in, or infringement of
rights in, or damage to, Collateral; (e) all amounts collected on, or
distributed on account of, other Collateral, including dividends, interest,
distributions and Instruments with respect to Investment Property and pledged
Stock; and (f) any and all other amounts, rights to payment or other property
acquired upon the sale, lease, license, exchange or other disposition of
Collateral and all rights arising out of Collateral.
"Purchase Money Indebtedness" means (a) any indebtedness
incurred for the payment of all or any part of the purchase price of any fixed
asset, including indebtedness under capitalized leases, (b) any indebtedness
incurred for the sole purpose of financing or refinancing all or any part of the
purchase price of any fixed asset, and (c) any renewals, extensions or
refinancings thereof (but not any increases in the principal amounts thereof
outstanding at that time).
"Purchase Money Lien" means any Lien upon any fixed assets
that secures the Purchase Money Indebtedness related thereto but only if such
Lien shall at all times be confined solely to the asset the purchase price of
which was financed or refinanced through the incurrence of the Purchase Money
Indebtedness secured by such Lien and only if such Lien secures only such
Purchase Money Indebtedness.
8
"Registration Rights Agreements" means that certain
Registration Rights Agreement dated as of the Closing Date by and between the
Parent and Gryphon and each other registration rights agreement by and between
the Parent and Gryphon, as each of the same may be amended, modified and
supplemented from time to time.
"SEC" means the Securities and Exchange Commission.
"SEC Reports" has the meaning given such term in Section
12(u).
"Securities" means the Note, the Options and the Warrants and
the shares of Common Stock which may be issued pursuant to conversion of such
Note in whole or in part or exercise of such Warrants.
"Securities Act" has the meaning given such term in Section
12(r).
"Security Documents" means the Mortgage Documentation and all
other security agreements, mortgages, cash collateral deposit letters, pledges
and other agreements which are executed by any Company, any of its and or any
Guarantor favor of Gryphon.
"Sellers" means, collectively, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇, Jr., North Texas Steel Company, Inc. Pension Plan and the other Persons
named therein.
"Software" means all "software" as such term is defined in the
UCC, now owned or hereafter acquired by any Person, including all computer
programs and all supporting information provided in connection with a
transaction related to any program.
"Stock" means all certificated and uncertificated shares,
options, warrants, membership interests, general or limited partnership
interests, participation or other equivalents (regardless of how designated) of
or in a corporation, partnership, limited liability company or equivalent entity
whether voting or nonvoting, including common stock, preferred stock, or any
other "equity security" (as such term is defined in Rule 3a11-1 of the General
Rules and Regulations promulgated by the SEC under the Securities Exchange Act
of 1934).
"Subsidiary" means, with respect to any Person, (i) any other
Person whose shares of stock or other ownership interests having ordinary voting
power (other than stock or other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of the directors
or other governing body of such other Person, are owned, directly or indirectly,
by such Person or (ii) any other Person in which such Person owns, directly or
indirectly, more than 50% of the equity interests at such time.
"Supporting Obligations" means all "supporting obligations" as
such term is defined in the UCC.
"Term" means the Closing Date through the close of business on
the day immediately proceeding the Maturity Date (as defined in the Note),
subject to acceleration at the option of Gryphon upon the occurrence of an Event
of Default hereunder or other termination hereunder.
9
"Term Note B" means that certain Secured Convertible Term Note
B dated as of the Closing Date made by Companies in favor of Laurus Master Fund,
L.P. in the original principal amount of $2,000,000 as the same may be amended,
supplemented, restated and/or otherwise modified from time to time.
"UCC" means the Uniform Commercial Code as the same may, from
time to time be in effect in the State of New York; provided, that in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of, or remedies with respect to, Gryphon's Lien on any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions of this Agreement relating to such attachment, perfection,
priority or remedies and for purposes of definitions related to such provisions;
provided further, that to the extent that UCC is used to define any term herein
or in any Ancillary Agreement and such term is defined differently in different
Articles or Divisions of the UCC, the definition of such term contained in
Article or Division 9 shall govern.
"Warrant Shares" has the meaning given such term in Section
12(a).
"Warrants" means that certain Common Stock Purchase Warrant
dated as of the Closing Date made by the Parent in favor of Gryphon and each
other warrant made by the Parent in favor of Gryphon, as each of the same may be
amended, restated, modified and/or supplemented from time to time.
10
Exhibit A
Eligible Subsidiaries
North Texas Steel Company, Inc., a Texas corporation
Omaha Holdings Corp., a Delaware corporation