1
EXHIBIT 10.36
SENIOR SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT
DATED AS OF SEPTEMBER 22, 1997
BY AND BETWEEN
LITHIUM TECHNOLOGY CORPORATION
AND
LITHIUM LINK LLC
2
TABLE OF CONTENTS
SECTION 1: DEFINITIONS AND TERMS.........................................1
1.1 Definitions....................................1
1.2 Interpretation.................................4
SECTION 2: AMOUNTS AND TERMS OF OBLIGATIONS..............................4
2.1 Term Loans.....................................4
2.2 Conversion of Term Notes.......................7
2.3 Payments.......................................9
2.4 Prepayments...................................10
2.5 Security......................................10
2.6 Registration Rights...........................10
2.7 AMEX/NASDAQ Listing...........................18
SECTION 3: REPRESENTATIONS AND WARRANTIES...............................19
SECTION 4: CONDITIONS PRECEDENT.........................................26
4.1 Conditions Precedent to Each Funding..........26
4.2 The Lender's Term Loan A Closing Conditions...27
4.3 Conditions Precedent to Subsequent Fundings...28
4.4 Company's Conditions to Each Funding..........29
4.5 The Company's Term Loan A Closing Conditions..29
SECTION 5: AFFIRMATIVE COVENANTS........................................30
5.1 Use of Proceeds; Anti-dilution................30
5.2 Indemnity.....................................31
5.3 Reservation of Shares.........................32
i
3
TABLE OF CONTENTS (CONT'D)
5.4 Election of Director..........................32
5.5 No Pledge of Patent Rights....................33
5.6 Funding of Terms Loans........................33
5.7 Indemnity.....................................33
5.8 Confidentiality...............................33
5.9 Strategic Commercialization Alliance..........34
SECTION 6: DEFAULT AND REMEDIES.........................................34
6.1 Events of Default Defined.....................34
6.2 Remedies Upon Event of Default................34
SECTION 7: RESERVED.....................................................35
SECTION 8: MISCELLANEOUS................................................35
8.1 Transfer of Securities........................35
8.2 Legends.......................................35
8.3 Removal of Legends............................36
8.4 Assignability; Successors.....................36
8.5 Survival......................................37
8.6 Governing Law.................................37
8.7 Counterparts: Headings........................37
8.8 Entire Agreement, Amendments..................37
8.9 Notices.......................................37
8.10 Severability..................................38
8.11 Conflicts and Ambiguities.....................38
LIST OF EXHIBITS.........................................................39
ii
4
SENIOR SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT
THIS SENIOR SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT (the
"Agreement") is made and entered into as of the 22nd day of September, 1997, by
and between LITHIUM TECHNOLOGY CORPORATION, a Delaware corporation (the
"Company"), which has its principal office at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and LITHIUM LINK LLC, a Delaware limited liability
company (together with its permitted assigns and permitted transferees, the
"Lender"), which has its principal office at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇.
RECITALS
WHEREAS, the Company and the Lender desire to enter into a credit
arrangement whereby the Lender will extend to the Company a loan of Five Million
Five Hundred Thousand and 00/100 Dollars ($5,500,000.00). The Lender desires to
extend such credit to the Company, and the Company desires to accept such
credit, on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
AGREEMENT
SECTION 1: DEFINITIONS AND TERMS
1.1 Definitions. As used in this Agreement, the following
terms have the following meanings.
"Agreement" shall mean this Senior Secured Convertible Note Purchase
Agreement, as amended, supplemented, modified or extended from time to time.
"Business Day" shall mean a day other than a Saturday or Sunday on
which banks generally are open for business in New York, New York.
"Collateral" shall have the meaning assigned thereto in the
Security Agreement.
5
"Consultant Warrant" shall mean the warrant in substantially the form
of Exhibit A hereto between the Company and Interlink Management Corporation, as
amended, supplemented, modified or extended from time to time.
"Consulting Agreement" shall mean the consulting agreement in
substantially the form of Exhibit B hereto between the Company and Interlink
Management Corporation, as amended, supplemented, modified or extended from time
to time.
"Default" shall mean an Event of Default or an event which with the
giving of notice or the passage of time or both would constitute an Event of
Default.
"Escrow Agreement" shall mean the escrow agreement is substantially the
form of Exhibit C hereto by and among the Company, the Lender, and the Escrow
Agent (as defined therein), as amended, supplemental, modified or extended from
time to time.
"Event of Default" shall have the meaning assigned thereto in Section
6.1 hereof.
"Holders" shall mean, collectively, the Lender and all members of the
Lender who hereafter become holders of the Term Notes or the Conversion Shares
and any Permissible Transferees; and the term Holder shall mean any one of the
Holders.
"License Agreement" shall mean the license agreement in substantially
the form of Exhibit D hereto between the Company and the Lender, as amended,
supplemented, modified, or extended from time to time.
"Obligations" shall mean the Term Loans and all other indebtedness of
the Company to the Lender under the Term Notes.
"Pledge Agreement" shall mean the pledge agreement in substantially the
form of Exhibit E hereto between the Company and the Lender, as amended,
supplemented, modified, or extended from time to time.
"Permissible Transferee" shall mean any person who becomes a holder of
the Term Notes or the Conversion Shares pursuant to Section 8.1.
"Related Documents" shall mean the Term Notes, the Security Agreement,
the License Agreement, the Consulting Agreement, the Consultant Warrant, the
Escrow Agreement, the Subsidiary Guarantee, the Pledge Agreement, and all other
certificates, resolutions, or other documents required or contemplated
hereunder.
"Security Agreement" shall mean the security agreement in substantially
the form of Exhibit F hereto between the Company and
2
6
the Lender, as amended, supplemented, modified or extended from time to time.
"Subsidiary Guarantee" shall mean the guarantee agreement in
substantially the form of Exhibit G hereto between Lithion Corporation and the
Lender, as amended, supplemented, modified, or extended from time to time.
"Term Loan A" shall mean the term loan made by the Lender to the
Company pursuant to Section 2.1(a) hereof as evidenced by Term Note A in
substantially the form of Exhibit 2.1(i) hereto, as amended, supplemented,
modified or extended from time to time.
"Term Loan B" shall mean the term loan made by the Lender to the
Company pursuant to Section 2.1(b) hereof as evidenced by Term Note B in
substantially the form of Exhibit 2.1(i) hereto, as amended, supplemented,
modified or extended from time to time.
"Term Loan C" shall mean the term loan made by the Lender to the
Company pursuant to Section 2.1(c) hereof as evidenced by Term Note C in
substantially the form of Exhibit 2.1(i) hereto, as amended, supplemented,
modified or extended from time to time.
"Term Loan D" shall mean the term loan made by the Lender to the
Company pursuant to Section 2.1(d) hereof as evidenced by Term Note D in
substantially the form of Exhibit 2.1(i) hereto, as amended, supplemented,
modified or extended from time to time.
"Term Loan E" shall mean the term loan made by the Lender to the
Company pursuant to Section 2.1(e) hereof as evidenced by Term Note E in
substantially the form of Exhibit 2.1(i) hereto, as amended, supplemented,
modified or extended from time to time.
"Term Loan F" shall mean the term loan made by the Lender to the
Company pursuant to Section 2.1(f) hereof as evidenced by Term Note F in
substantially the form of Exhibit 2.1(i) hereto, as amended, supplemented,
modified or extended from time to time.
"Term Loans" shall mean the term loans to the Company pursuant to
Section 2.1 hereof as evidenced by the Term Notes. "Term Loan" shall mean each
of Term Loan A, Term Loan B, Term Loan C, Term Loan D, Term Loan E, and Term
Loan F, respectively, and any such Term Loan individually, as the case may be.
"Term Notes" shall mean the convertible promissory notes of the Company
to the Lender in substantially the form of Exhibit 2.1(i) hereto issued form
time to time hereunder to the Lender and evidencing an interest in the Term
Loans, as amended, supplemented, modified, substituted for or extended from time
to time. Individually, each of the Term Notes shall be deemed a "Term Note".
3
7
"Termination Date" shall mean July 1, 2002, or such earlier date on
which the Obligations shall terminate as provided in Section 6.2, or such later
date if extended pursuant to mutual agreement between the Lender and the
Company.
"UCC" shall mean the Uniform Commercial Code of the Commonwealth of
Pennsylvania, as amended from time to time.
1.2 Interpretation. The words "hereof," "herein" and "hereunder" and
words of a similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Section, Schedule and Exhibit references contained in this Agreement are
references to sections, schedules and exhibits in or to this Agreement unless
otherwise specified.
SECTION 2: AMOUNTS AND TERMS OF OBLIGATIONS
2.1 Term Loans. The Lender agrees to lend to the Company, and the
Company agrees to borrow from the Lender, the aggregate principal amount of Five
Million Five Hundred Thousand and 00/100 Dollars ($5,500,000.00) (the
"Investment Amount"). The Lender agrees to fund the Investment Amount to the
Company in not more than six payments (each a "Term Loan" as defined
hereinabove) in accordance with the following, subject to the satisfaction of
the applicable conditions precedent set forth in Sections 4.1, 4.2 and/or 4.3
hereof and to the terms and other conditions hereinafter set forth (except to
the extent waived in writing by the Lender):
(a) Term Loan A in the principal amount of One Million Three Hundred
Seventy Thousand and 00/100 Dollars ($1,370,000.00) comprised of the increments
set forth in Exhibit 2.1(a) hereto including $500,000 principal amount of bridge
loans received by the Company in July and August 1997 from certain members of
the Lender (the "July/August Bridge Loans") will be funded to the Company (net
of the $500,000 July/August Bridge Loan as defined above previously received by
the Company) in one lump sum on the date hereof ("Funding Date A"), subject to:
(1) the Lender's receipt on or before Funding Date A of the Company's spending
plan covering the period commencing on Funding Date A (attached hereto as
Exhibit 2.1(a)) and (2) the execution and delivery of the Related Documents by
the Company and the Lender.
(b) Term Loan B in the principal amount of Seven Hundred Thousand and
00/100 Dollars ($700,000.00) will be funded to the Company in one lump sum on or
before the first Business Day of November, 1997 ("Funding Date B").
(c) Term Loan C in the principal amount of Six Hundred Thousand and
00/100 Dollars ($600,000.00) will be funded to the
4
8
Company in one lump sum on or before the first Business Day of January, 1998
("Funding Date C").
(d) Term Loan D in the principal amount of Five Hundred Fifty Thousand
and 00/100 Dollars ($550,000.00) will be funded to the Company in one lump sum
on or before the first Business Day of March, 1998 ("Funding Date D").
(e) Term Loan E in the principal amount of Five Hundred fifty Thousand
and 00/100 Dollars ($550,000.00) will be funded to the Company in one lump sum
on or before the first Business Day of May, 1998 ("Funding Date E").
(f) Term Loan F in the principal amount of One Million Seven Hundred
Thirty Thousand and 00/100 ($1,730,000.00) will be funded to the Company in one
lump sum on or before the first Business Day of July, 1998 ("Funding Date F").
(g) By 10:00 a.m. New York City time on the date of each Term Loan the
Lender or the Escrow Agent (as the case may be) shall tender the principal
amount of such Term Loan to the Company at the Company's offices described above
or cause the principal amount of such Term Loan to be wire transferred to the
Company's account in immediately available funds in accordance with wire
instructions furnished by the Company. The Lender agrees to fund each of the
Term Loans on or before the respective funding date specified therefor (each
such funding including any Acceleration Request (as defined in paragraph (l)
below) being referred to herein as a "Funding" and collectively as the
"Fundings"), subject only to the satisfaction of the conditions expressly set
forth in this Agreement and without set-off, counterclaim, or deductions of any
kind.
(h) The Company shall pay the entire aggregate principal amount of the
Term Loans on the Termination Date. Interest shall accrue on the aggregate
principal amount of Five Million Five Hundred Thousand and 00/100 Dollars
($5,500,000.00) commencing on Funding Date A, subject to any failure to fund as
a result of the Lender's breach of this Agreement, at a rate per annum equal to
eight and one-half (8.5%) percent. Interest shall be computed and based on the
actual number of days elapsed in a year of 365 days. Accrued interest on each of
the Term Notes shall be due and payable (unless converted into the Company's
common stock as provided for herein) annually on the anniversary of Funding Date
A, and all interest that accrues after the last such anniversary preceding the
Termination Date shall be due and payable on the Termination Date. Principal
amounts paid or prepaid on the Term Loans may not be reborrowed. Interest shall
not accrue and be due with respect to any principal amount prepaid or converted
into common stock, provided, however, that nothing contained herein shall be
deemed to terminate or eliminate the Company's liability for interest accrued
and unpaid through the date of such prepayment or conversion. In
5
9
the event that a funding scheduled to occur after Funding Date A does not occur
as the result of a failure of one or more conditions set forth in Section 4.1
and/or Section 4.3 hereof (which failure is not waived by the Lender), then upon
written certified notice from the Lender to the Company with respect to such
failure (the "Failure Notice"): (A) the interest on the unfunded Investment
Amount shall terminate (provided that nothing contained herein shall be deemed
to terminate or eliminate the Company's liability for interest accrued and
unpaid on the Investment Amount through any such Failure Notice) and (B) the
interest on the Escrow Account shall thereupon be for the account of the Lender
and the Failure Notice shall constitute the Escrow Agent's authorization and
direction from the Company and the Lender to credit and pay to the Lender any
and all interest earned on the Escrow Account after the date of the Failure
Notice, provided that nothing contained herein shall be deemed to terminate or
eliminate the Company's right to the interest earned and unpaid on the Escrow
Account through such Failure Notice. In addition, in the event of the issuance
of a Failure Notice by the Lender and the continued failure and non-waiver of
the condition(s) certified therein for a period of six (6) months commencing on
the date of the Failure Notice, then the Lender shall have the right to elect to
terminate its obligation to provide further Fundings, and written certification
of such election (the "Termination Notice") to the Company and Escrow Agent
shall constitute the Escrow Agent's authorization and direction from the Company
and the Lender to terminate and close the Escrow Account and pay all of the
interest (earned after the Failure Notice) and principal in the Escrow Account
to the Lender, and the Escrow Agreement shall be thereby terminated.
(i) The Obligations of the Company hereunder and with respect to the
Term Loans shall be evidenced by the Term Notes, each executed by an authorized
officer of the Company and issued from time to time by the Company in accordance
with this Agreement. Each Term Note issued hereunder shall be in substantially
the form of Exhibit 2.1(i) hereof.
(j) The Company may from time to time request funding of Term Loan B,
Term Loan C, Term Loan D, Term Loan E, and/or Term Loan F or a portion thereof
on a date sooner than the date specified above for any such funding (an
"Acceleration Request") and any such Acceleration Request shall not be denied
nor payment thereof be delayed by the Lender unless the Lender provides the
Company with a timely "Response Letter" as defined below. An Acceleration
Request shall be in writing signed by the Company's Chief Executive Officer,
Chief Operating Officer or Chief Financial Officer and shall be accompanied by a
written description of the Company's use of the proceeds so requested. Within
five (5) Business Days after receipt of an Acceleration Request pursuant hereto,
the Lender shall either (a) approve the request and fund to the Company the
amount of the Acceleration Request in which case a Term Note in the amount of
the Acceleration Request shall be issued to the Lender
6
10
subject to the satisfaction of the conditions precedent set forth in Sections
4.1 and 4.3 hereof and to the terms and other conditions hereinafter set forth
(except to the extent waived in writing by the Lender), and the Lender and the
Company shall promptly issue written instructions to the Escrow Agent with
respect to the funding of the Acceleration Request so approved or (b) deny the
request for reasons that shall be set forth in a detailed writing to the Company
(the "Response Letter"). In the event that any Acceleration Request is denied by
the Lender in accordance with this Agreement, such denial shall not prejudice
the rights and obligation of the Company to receive, nor relieve or otherwise
modify the continuing obligation of the Lender to fund, in full each of the Term
Loans due thereafter. The principal amount of any and all Term Loans made by the
Lender pursuant to an approved Acceleration Request shall be deemed to reduce
dollar for dollar the principal amount that the Company shall borrow under the
Terms Loans and shall be deemed to reduce first the principal amount that shall
be borrowed under each Term Loan in the reverse order contemplated under this
Section 2.1 commencing with Term Loan F.
2.2 Conversion of Term Notes. (a) At any time after the date of this
Agreement and prior to July 1, 2002, the outstanding principal amount of any
Term Note, and all accrued interest thereon, in whole or in part, may be
converted by the Lender into shares of the Company's common stock (the
"Conversion Shares") at the rate of $.28 per share (the "Conversion Price").
(b) Interest may be paid either in cash or in common stock of the
Company. The Company's right to pay interest in common stock shall supersede and
override the Lender's right to receive payment of interest in cash. In the event
the Lender elects to take payment of interest in the Company's common stock
and/or the Company elects to make payment of interest in common stock, the party
making such election shall furnish the other party with written notice of such
election (the "Notice of Interest Conversion") and such notice shall specify the
amount of interest to be so converted and all other necessary information.
(c) Each conversion of all or any portion of any Term Note will be
deemed to have been effected as of the close of business on the date on which
the Term Note has been surrendered at the principal office of the Company. Each
conversion of all or any portion of any interest due on any Term Note will be
deemed to have been effected as of the close of business on the date on which
the Notice of Interest Conversion is received by the addressee thereof. At such
time as such conversion has been effected, to the extent that any portion of the
Term Note is converted, the rights of the Lender with respect to such portion
shall cease and the Lender shall be deemed to have become the holder of record
of the shares of Conversion Shares represented thereby.
7
11
(d) As soon as practicable after a conversion has been effected, the
Company will deliver to the Lender:
(i) a certificate or certificates representing the number
of shares of Conversion Shares issuable by reason of
conversion in the name of the Lender and in such
denomination or denominations as the Lender has
specified; and
(ii) a new Term Note representing any principal balance
which was not converted into Conversion Shares in
connection with such conversion.
(e) The issuance of certificates for Conversion Shares upon conversion
of any Term Note and/or interest will be made without charge to the Lender for
any issuance tax in respect thereof or other cost incurred by the Company in
connection with such conversion and the related issuance of Conversion Shares.
(f) The Company shall at all times have authorized, reserved and set
aside a sufficient number of shares of its common stock for the conversion of
all shares with respect to all Term Notes and interest then outstanding.
(g) The Conversion Price in effect at any time and the number and kind
of securities purchasable upon the exercise of the Term Notes shall be subject
to adjustment from time to time upon the happening of certain events as follows
after the date hereof and through and including the first anniversary of the
date of this Agreement:
(i) In case the Company shall (1) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (2) subdivide or reclassify its outstanding shares of Common Stock into a
greater number of shares, or (3) combine or reclassify its outstanding shares of
Common Stock into a smaller number of shares, the Conversion Price in effect at
the time of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the
Conversion Price by a fraction, the denominator of which shall be the number of
shares of Common Stock outstanding after giving effect to such action, and the
numerator of which shall be the number of shares of Common Stock immediately
prior to such action. Such adjustment shall be made each time any event listed
above shall occur.
(ii) If the Company shall, at any time after the date hereof
and through and including the earlier of (A) the conversion and/or payment in
full of the Term Notes or (B) the eighteen-month anniversary of the date of this
Agreement, issue or sell additional shares of Common Stock or securities
convertible into shares of
8
12
Common Stock, or rights, options or warrants to purchase Common Stock except as
set forth in the last sentence of Section 5.1(b) hereof (the "Additional Common
Stock"), the Conversion Price shall be subject to adjustment as follows. If the
price at which Additional Common Stock is issued or sold (the "Subscription
Price") is less than both (i) the current fair market price of the Common Stock
(as determined under Section 5.1(b) below) on the record date for such
distribution and (ii) $.28 per share (adjusted for stock dividends, stock
splits, and the like subsequent to the date hereof), the Conversion Price in
effect immediately prior to such issuance shall be multiplied by a fraction, the
numerator of which shall be the sum of the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock which the aggregate Subscription Price of the total number of shares of
Additional Common Stock issued or sold would purchase at the then current fair
market price of the Common Stock, and the denominator of which shall be the
number of shares of Common Stock outstanding on such record date plus the number
of shares of Additional Common Stock issued or sold. Such adjustment shall be
made each time Additional Common Stock is issued or sold and shall become
effective immediately after the of issuance or sale.
(iii) Whenever the Conversion Price is adjusted pursuant to
Subsections (i) or (ii) above, the number of Conversion Shares purchasable upon
conversion of the Term Notes shall simultaneously be adjusted by multiplying the
number of Conversion Shares initially issuable upon conversion of the Term Notes
by the Conversion Price in effect on the date hereof and dividing the product so
obtained by the Conversion Price, as adjusted.
(iv) All calculations under this Section 2.2(g) shall be made
to the nearest cent or to the nearest one-hundredth of a share, as the case may
be.
(v) Whenever the Conversion Price is adjusted, as herein
provided, the Company shall promptly cause a notice setting forth the adjusted
Conversion Price and adjusted number of Conversion Shares issuable upon exercise
of each Term Note to be mailed to the Holder, at its last address appearing in
the Company's Register. The Company may retain a firm of independent certified
public accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Section 2.2(g), and a certificate signed by such firm or the Company's Chief
Financial Officer shall be conclusive evidence of the correctness of such
adjustment.
2.3 Payments. Whenever any payment to be made hereunder shall be stated
to be due on a day which is not a Business Day, such payment may be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest on the Term Notes. All
payments
9
13
to be made hereunder or with respect to each Term Note shall be made directly to
or at the direction of the Lender to the address or to the account(s) designated
by the Lender. Upon payment by the Company to the Lender of all amounts due
under a respective Term Note, the Company's obligations to pay such amounts
shall be discharged.
2.4 Prepayments. (a) The Term Loans and any and all interest thereon
may be prepaid, in whole or in part, by the Company at any time, and from time
to time, and without penalty, provided that no prepayment may be made by the
Company until (a) the Company itself shall have received all of the Investment
Amount (net of any funding, if any, failed to be made by the Lender in breach of
this Agreement) and (b) the Lender and any Holders shall have received a written
notice of the prepayment not less than thirty (30) days prior to such
prepayment. Upon reasonable written request from time to time by the Company,
the Lender shall promptly furnish the Company with a current list of the Holders
setting forth their respective names, addresses, and principal amount of the
Notes held.
(b) In the event the Company issues a notice of prepayment to the
Lender and the Lender desires to convert all or a portion of the Term Note(s)
noticed for prepayment but, by the end of the 30-day notice period, the Lender
is unable to tender the applicable Term Note(s) due to their loss and so
notifies the Company in writing, then the notice period in such case shall be
deemed extended for an additional fifteen (15) days and at the end of such
fifteen (15) days, the Lender shall either (i) deliver the Term Note(s) (if
located) to the Company for the desired conversion, (ii) deliver an indemnity
satisfactory to the Company in lieu of the lost Term Note(s) and other
documentation reasonably required by the Company, or (iii) in the absence of (i)
and (ii) forfeit the right of conversion and accept the noticed prepayment. This
Section 2.4(b) shall be applicable to any transferee of the Term Notes.
2.5 Security. Payment of all Obligations shall be secured by a first
lien on the Collateral in accordance with this Agreement and the Security
Agreement.
2.6 Registration Rights. (a) Demand Registration. At any time after the
date of this Agreement and prior to the third anniversary of this Agreement, the
Holders of 4,000,000 shares of the Conversion Shares (adjusted in accordance
with this Agreement by any subsequent stock splits, stock dividends,
combinations, and the like) may demand registration under the Securities Act of
1933, as amended (the "Securities Act") of the Conversion Shares obtained
pursuant to the conversion of any or all of the Term Notes or interest due
thereon. Within ten (10) days after the receipt by the Company of any such
demand, the Company will give written notice of such registration request to all
Holders of Conversion Shares. The
10
14
registration requested pursuant to this Section 2.6(a) is referred to herein as
the "Demand Registration".
(b) Number of Demand Registrations; Notice. The Lender (inclusive of
the Holders) shall be entitled to a total of two (2) Demand Registrations. A
Demand Registration may be exercised by the Holders not more than one time in
any year commencing on Funding Date A or on an anniversary of Funding Date A.
Subject to the limitations contained in the following paragraphs of this Section
2.6, after the receipt of such Demand Registration, (A) the Company will be
obligated and required to include in such Demand Registration all Conversion
Shares with respect to which the Company shall receive from Holders thereof,
within thirty (30) days after the date on which the Company shall have given to
all Holders a written notice of registration request pursuant to Section 2.6(a)
hereof, the written requests of such Holders for inclusion in such Demand
Registration, and (B) the Company will use its best efforts in good faith to
effect promptly the registration of all such Conversion Shares.
(c) Priority on Demand Registrations. If the Demand Registration is an
underwritten offering, and the managing underwriters advise the Company in
writing that in their opinion the number of shares of Conversion Shares
requested to be included exceeds the number of shares of Conversion Shares
which, under the current market conditions, can be sold in such offering at the
price expected to be obtained for such shares by the Holders in a commercially
reasonable sale, the Company will include in such registration prior to the
inclusion of any securities which are not shares of Conversion Shares the number
of shares of the Holders' Conversion Shares requested to be included which in
the opinion of such underwriters can be sold, and the balance of the shares of
Conversion Shares which the Holders requested to be included in such offering
shall be withheld from sale for a period of time requested by the underwriters,
but not to exceed twelve months from the effective date of this registration
statement.
(d) Restrictions on Demand Registration. The Company will not be
obligated to effect a Demand Registration within one hundred twenty (120) days
after the effective date of a registration statement in which Conversion Shares
of the Holders are included pursuant to the Holders' exercise of "piggyback
rights" pursuant to Section 2.6(e) hereof. The Company may postpone for a period
not exceeding ninety (90) days the filing or the effectiveness of a registration
statement for a Demand Registration if the Company provides the Holders with
written notice that in the Company's good faith judgment such Demand
Registration might have an adverse effect on any proposal or plan by the Company
to engage in any acquisition of assets (other than in the ordinary course of
business) or any merger, consolidation, tender offer, public offering or similar
transaction, provided that, in such event, the Lender will be entitled to
withdraw such Demand Registration
11
15
request and that, if such request is withdrawn, such Demand Registration will
not be considered one of the two (2) Demand Registrations to which the Lender is
entitled.
(e) Participation in Registered Offerings ("Piggyback Rights"). If the
Company at any time or times after the date of this Agreement and prior to the
third anniversary of this Agreement proposes or is required to register any of
its shares or other equity securities for public sale for cash under the
Securities Act (other than on Forms S-4 or S-8 or similar registration forms),
it will at each such time or times give written notice to the Holders of
Conversion Shares of its intention to do so. Upon the written request of any
Holder of Conversion Shares given within twenty (20) days after receipt of any
such notice, the Company shall use its best efforts to cause to be included in
such registration any Conversion Shares held by the Holder or Conversion Shares
obtainable upon conversion of the Holder's Term Notes and requested to be
registered under the Securities Act and any applicable state securities laws;
provided, that if the managing underwriter advises that less than all of the
shares to be registered should be offered for sale so as not materially and
adversely to affect the price or salability of the offering being registered by
the Company, the Holders (but not the Company to the extent it desires to
include shares for its own account) shall reduce on a pro rata basis the number
of its shares to be included in the registration statement as required by the
underwriter to the extent requisite to permit the sale or other disposition (in
accordance with the intended method of disposition thereof as aforesaid) by the
prospective seller or sellers of the securities so registered. The registration
requested pursuant to this Section 2.6(e) is referred to herein as the
"Piggyback Registration".
(f) Number of Piggyback Registrations. The Lender (inclusive of the
Holders) shall be entitled to a total of one (1) Piggyback Registration.
(g) Obligations of the Holders. It shall be a condition precedent to
the obligation of the Company to register any Conversion Shares pursuant to
subsections (a) through (f) above that the Holders and Lender shall (i) furnish
to the Company such information regarding the Conversion Shares held and the
intended method of disposition thereof and other information concerning the
Holders and Lender as the Company shall reasonably request and as shall be
required in connection with the registration statement to be filed by the
Company; (ii) agree to abide by such additional or customary terms affecting the
proposed offering as are applicable to shareholders in any such registration as
reasonably may be requested by the managing underwriter of such offering,
including a requirement, if applicable, to withhold from the public market for a
period of up to twelve months after any such offering, any shares excluded from
the offering at the instance of the underwriter as permitted under subsections
(a) through (f) above,
12
16
and (iii) agree in writing in form satisfactory to the Company to pay all
underwriting discounts and commissions applicable to the securities being sold
by the Holders and/or Lender. If after a Demand Registration or Piggyback
Registration becomes effective the Company advises the Holders and/or Lender
that the Company considers it appropriate to amend or supplement the applicable
registration statement, the Holders and/or Lender shall suspend further sales of
the Conversion Shares until the Company advises the Holders and/or Lender that
such registration statement has been amended or supplemented. The registration
rights of this Section 2.6 are subject to the registration rights of Mitsubishi
Materials Corporation relating to the Company's securities.
(h) Registration Proceedings. If and whenever the Company is required
by the provisions of subsections (a) through (f) above to effect the
registration of Conversion Shares under the Securities Act, until the securities
covered by such registration statement have been sold or for nine (9) months
after effectiveness, whichever is the shorter period of time, the Company shall:
(i) Prepare and file with the SEC a registration
statement with respect to such securities and use its
best efforts to cause such registration statement to
become and remain effective;
(ii) Prepare and file with the SEC such amendments to such
registration statement and supplements to the
prospectus contained therein as may be necessary to
keep such registration statement effective;
(iii) Furnish to the Holder and to the underwriters
of the securities being registered such
reasonable number of copies of the
registration statement, preliminary
prospectus, final prospectus and such other
documents as such underwriters may reasonably
request in order to facilitate the public
offering of such securities;
(iv) Use its best efforts to register or qualify the
securities covered by such registration statement
under such state securities or Blue Sky Laws of such
jurisdictions as the Holder may reasonably request
within twenty (20) days following the original filing
of such registration statement, except that the
Company shall not for any purpose be required to
execute a general consent to service of process or to
qualify to do business as a
13
17
foreign corporation in any jurisdiction wherein it is
not so qualified;
(v) Notify the Holder, promptly after it shall receive
notice thereof, of the time when such registration
statement has become effective or a supplement to any
prospectus forming a part of such registration
statement has been filed;
(vi) Notify the Holder promptly of any request by the SEC
for the amending or supplementing of such
registration statement or prospectus or for
additional information; and
(vii) Prepare and promptly file with the SEC and promptly
notify the Holder of the filing of such amendment or
supplement to such registration statement or
prospectus as may be necessary to correct any
statements or omissions if, at the time when a
prospectus relating to such securities is required to
be delivered under the Securities Act, any event
shall have occurred as the result of which any such
prospectus or any other prospectus as then in effect
would include an untrue statement of a material fact
or omit to state any material fact necessary to make
the statements therein, in light of the circumstances
in which they were made, not misleading.
Notwithstanding any provision herein to the contrary,
the Company shall not be required to amend,
supplement, or update a prospectus contained in a
Demand Registration or Piggyback Registration if to
do so would result in an unduly burdensome expense to
the Company.
(i) Expenses. With respect to each inclusion of Conversion Shares in a
registration statement pursuant to subsections (a) through (f) above, all
registration expenses, fees, costs and expenses of and incidental to such
registration, inclusion and public offering in connection therewith shall be
borne by the Company; provided, however, that the Lender and/or the Holders
participating in the registration shall bear their own respective professional
fees and their respective pro rata share of the underwriting discount and
commissions. The fees, costs and expenses of registration to be borne by the
Company shall include, without limitation, all registration, filing and NASD
fees, printing expenses, fees and disbursements of counsel and accountants for
the Company, fees and disbursements of counsel for the underwriter or
underwriters of such securities (if the Company and/or selling security holders
are required to bear such fees and
14
18
disbursements), and all legal fees and disbursements and other expenses of
complying with state securities or Blue Sky Laws of any jurisdiction in which
the securities to be offered are to be registered or qualified.
(j) Indemnification of the Holder. Subject to the conditions set forth
below, in connection with any registration of Conversion Shares pursuant to
subsections (a) through (f) hereof, the Company agrees to indemnify and hold
harmless the Holder selling securities pursuant to said subsections, any
underwriter for the Company or acting on behalf of the Holder selling securities
and each person, if any, who controls the Holder, within the meaning of Section
15 of the Securities Act, as follows:
(i) Against any and all loss, claim, damage and expense
whatsoever arising out of or based upon (including,
but not limited to, any and all expense whatsoever
reasonably incurred in investigating, preparing or
defending any litigation, commenced or threatened, or
any claim whatsoever based upon) any untrue or
alleged untrue statement of a material fact contained
in any preliminary prospectus (if used prior to the
effective date of the registration statement), the
registration statement or the prospectus (as from
time to time amended and supplemented), or in any
application or other document executed by the Company
or based upon written information furnished by the
Company filed in any jurisdiction in order to qualify
the Company's securities under the securities laws
thereof, or the omission or alleged omission
therefrom of a material fact required to be stated
therein or necessary to make the statements therein
not misleading, or any other violation of applicable
federal or state statutory or regulatory requirements
or limitations relating to action or inaction by the
Company in the course of preparing, filing, or
implementing such registered offering; provided,
however, that the indemnity agreement contained in
this subsection (j)(i) shall not apply to any loss,
claim, damage, liability or action arising out of or
based upon any untrue or alleged untrue statement or
omission made in reliance upon and in conformity with
any information furnished in writing to the Company
by or on behalf of the Lender and/or the Holder
expressly for use in connection therewith or arising
out of any omission of a material fact required to be
15
19
stated therein or necessary to make the statements
therein not misleading;
(ii) Subject to the proviso contained in subsection (j)(i)
above, against any and all loss, liability, claim,
damage and expense whatsoever to the extent of the
aggregate amount paid in settlement of any
litigation, commenced or threatened, or of any claim
whatsoever based upon any untrue statement or
omission (including, but not limited to, any and all
expense whatsoever reasonably incurred in
investigating, preparing or defending against any
such litigation or claim) if such settlement is
effected with the written consent of the Company; and
(iii) In no case shall the Company be liable under this
indemnity agreement with respect to any claim made
against such seller, underwriter or any such
controlling person unless the Company shall be
notified, by letter or by telegram confirmed by
letter, of any action commenced against such persons,
promptly after such person shall have been served
with the summons or other legal process giving
information as to the nature and basis of the claim.
The failure to so notify the Company, if prejudicial
in any material respect to the Company's ability to
defend such claim, shall relieve the Company from its
liability to the indemnified person under this
subsection (j), but only to the extent that the
Company was prejudiced. The failure to so notify the
Company shall not relieve the Company from any
liability which it may have otherwise than on account
of this indemnity agreement. The Company shall be
entitled to participate at its own expense in the
defense of any suit brought to enforce any such
claim, but if the Company elects to assume the
defense, such defense shall be conducted by counsel
chosen by it, provided such counsel is reasonably
satisfactory to the sellers or controlling persons,
defendants in any suit so brought. In the event the
Company elects to assume the defense of any such suit
and retain such counsel, the sellers, underwriter or
controlling persons, defendants in the suit, shall,
after the date they are notified of such election,
bear the fees and expenses of any counsel thereafter
retained by them, as
16
20
well as any other expenses thereafter incurred by
them in connection with the defense thereof;
provided, however, that if the sellers, underwriter
or controlling persons reasonably believe that there
may be available to them any defense or counterclaim
different than those available to the Company or that
representation of such sellers, underwriters or
controlling persons by counsel for the Company
presents a conflict of interest for such counsel,
then such sellers, underwriter and controlling person
shall be entitled to defend such suit with counsel of
their own choosing and the Company shall bear the
fees, expenses and other costs of such separate
counsel.
(k) Indemnification of the Company. The Holders and/or Lender selling
securities in any registered offering pursuant to subsections (a) through (f)
above hereof agrees to indemnify and hold harmless the Company, each underwriter
for the offering, and each of their officers and directors and agents and each
other person, if any, who controls the Company and underwriter within the
meaning of Section 15 of the Securities Act against any and all such losses,
liabilities, claims, damages and expenses as are indemnified against by the
Company under subsection (j) above; provided, however, that such indemnification
by the Holders and/or Lender hereunder shall be limited to any losses,
liabilities, claims, damages, or expenses to the extent caused by any untrue
statement of a material fact or omission of a material fact (required to be
stated therein or necessary to make statements therein not misleading), if any
made (or in settlement of any litigation effected with the written consent of
such sellers, alleged to have been made) in any preliminary prospectus, the
registration statement or prospectus or any amendment or supplement thereof or
in any application or other document in reliance upon, and in conformity with,
written information furnished in respect of such seller by or on behalf of such
seller expressly for use in any preliminary prospectus, the registration
statement or prospectus or any amendment or supplement thereof or in any such
application or other document or arising out of any action or inaction of such
seller in implementing such registered offering. In case any action shall be
brought against the Company, or any other person so indemnified, in respect of
which indemnity may be sought against any seller, such seller shall have the
rights and duties given to the Company, and each other person so indemnified
shall have the rights and duties given to the Holders and/or Lender, by the
provisions of subsection (j)(iii). The person indemnified agrees to notify the
sellers promptly after the assertion of any claim against the person indemnified
in connection with the sale of securities.
17
21
(l) If the indemnification provided for in subsections (j) and (k)
above are unavailable or insufficient to hold harmless an indemnified party in
respect of any losses, claims, damages or liabilities (or actions in respect
thereof) referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the indemnified
party, on one hand, and such indemnifying party, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, or liabilities (or actions in respect thereof). The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
indemnified party, on one hand, or such indemnifying party, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. No person who has
committed fraudulent misrepresentation (within the meaning of the Securities
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof referred to above in this subsection (1) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
(m) Participation by Other Shareholders. The Company may agree with its
shareholders, other than the Lender and Holders, or others to allow their
participation in any registered offering, which may be requested pursuant to
subsections (a) through (f) above, provided that the Lenders and Holders will
have first priority in connection with the exclusion of any shares under
subsection (c) above relating to a Demand Registration, subject to registration
rights granted by the Company prior to the date hereof.
2.7 AMEX/NASDAQ Listing. The Company and the Lender acknowledge and
agree that it is in the best interests of the Company, the Lender, and the
Company's stockholders for the Company to seek and achieve at the earliest
practicable time the listing of the Company's securities for trading on the
American Stock Exchange ("AMEX"), National Association of Securities Dealers
Automated Quotation ("NASDAQ") system, or other similar exchange or listing of
national recognition and quality. Toward that end, the Company and the Lender
agree that if AMEX, NASDAQ or other such listing criteria (or the terms of
obtainable waivers of such listing criteria) necessitate or make it advisable
that the then-current balance of the Escrow Account be deposited into a bank
account of the Company's and/or that the conditions set forth in Section
18
22
4.3(b) hereof be terminated, then the Company and the Lender shall promptly
evaluate such action in good faith at such time.
SECTION 3: REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement, the Company
hereby represents and warrants to the Lender as follows:
3.1 The Company has been duly incorporated, is validly existing, and is
in good standing under the laws of the State of Delaware with full corporate
power and authority to own its property and to conduct its business as described
in the Disclosure Documents and to enter into and perform its obligations under
this Agreement and the Related Documents. The Company is duly qualified and in
good standing as a foreign corporation in each other jurisdiction in which such
qualification is required, and is duly authorized, qualified and licensed under
all laws, regulations ordinances or orders of public authorities, or otherwise,
to carry on its business in the places and in the manner conducted and to own
its properties and assets.
3.2 As of Funding Date A the authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, par value $.01 per share,
17,601,418 shares of which are issued and outstanding and 2,667,000 shares and
333,000 shares have been duly reserved for issuance pursuant to the Company's
1994 Stock Incentive Plan and Directors Stock Option Plan, respectively, 100,000
shares of Preferred Stock, par value $.01 per share, none of which are issued
and outstanding. Attached as Schedule 3.2 as of Funding Date A, is a list of all
outstanding warrants, options, agreements, convertible securities or other
commitments pursuant to which the Company is or may become obligated to issue
(or as to which it has reserved for issuance) any shares of its capital stock or
other securities of the Company, which names all persons entitled to receive
such shares or other securities (and/or states their respective positions at the
Company) and the shares or other securities required to be issued thereunder.
The Company is not subject to any obligations (contingent or other) to
repurchase or otherwise acquire or rescind the sale of any shares of any class
of its stock or any securities, rights or options related thereto. All of the
issued shares of capital stock of the Company have been duly and validly
authorized and issued in material compliance with all applicable provisions of
the Securities Act of 1933, as amended (the "Securities Act") and applicable
state "blue sky" laws and regulations, are fully paid and non-assessable and
will not subject the Lender to personal liability by reason of being a holder
thereof. There are no preemptive rights of any shareholder of the Company with
respect to any securities of the Company. The shares of common stock issuable
upon conversion of the Term Notes have been duly and validly authorized and
reserved for issuance and,
19
23
when issued and delivered in accordance with the terms of this Agreement, will
be duly and validly issued, fully paid and non-assessable.
3.3 The Disclosure Documents (as defined below) as of their respective
dates of filing with the United States Securities and Exchange Commission
("SEC") and/or issuance to the media (as applicable) and this Agreement as of
the date hereof do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
term "Disclosure Documents" shall mean: the Company's Report on Form 10-KSB for
the year ended December 31, 1996, the Company's Report on Form 10-KSB for the
year ended December 31, 1995, the Company's Reports on Form 10-QSB for the
quarters ended March 31, 1996, June 30, 1996, September 30, 1996, March 31, 1997
and June 30, 1997, all of the Company's reports on Form 8-K filed with the SEC
during 1996 and 1997, the Company's Registration Statement on Form SB-2 as filed
with the SEC on September 3, 1996, as supplemented, the Company's Registration
Statement on Form S-8 as filed with the SEC on October 9, 1996, as supplemented,
and all of the Company's press releases issued during 1996 and 1997.
3.4 The Term Notes have been duly authorized by the Company and, when
issued, delivered and paid for pursuant to this Agreement, will have been duly
executed, issued and delivered and will constitute valid and legally binding
obligations of the Company, enforceable in accordance with their terms, subject
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
3.5 This Agreement and the Related Documents have been duly authorized,
executed and delivered by the Company and constitute the valid and legally
binding obligation of the Company, enforceable in accordance with their
respective terms, subject to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors' rights and to
general equity principles. The security interest granted pursuant to the
Security Agreement, upon perfection in accordance with applicable law,
constitutes a perfected security interest as to the Collateral in favor of the
Lender prior to all other security interests granted as to the Collateral as of
the date hereof.
3.6 Each of the Company and its subsidiary owns the Collateral and
their respective other properties and assets free and clear of any Encumbrances
(as defined below) except as set forth in the schedules hereto or for minor
Encumbrances, if any, that are not substantial in amount, do not materially
detract from the value of the Collateral and their respective other properties
and assets subject thereto or interfere with the present use, and
20
24
have not arisen other than in the ordinary course of the Company's business. The
term "Encumbrance" shall mean any claim, lien, pledge, option, charge, easement,
security interest, encumbrance or other right of third parties.
3.7 The copies of the Certificate of Incorporation and By-Laws of the
Company as currently in effect which have heretofore been delivered to the
Lender are true, complete and correct.
3.8 The Company's balance sheet as at June 30, 1997 and statement for
operations for the three months then ended (unaudited), previously delivered to
the Lender, fairly present the Company's financial condition as at such date and
the Company's results of operations for the period then ended. Except as
disclosed on Schedule 3.8, there has been no material adverse change since June
30, 1997, in the business, operations, assets, prospects or condition (financial
or otherwise) of the Company or its business other than in the ordinary course
of business.
3.9. Neither the execution nor delivery of this Agreement, nor the
consummation of any transaction contemplated hereby or by any of the Related
Documents, including without limitation the issuance and sale of the Term Notes
as provided herein, has constituted or resulted in or will constitute or result
in a breach of the provisions of any mortgage, lease, license or other
instrument, contract or agreement to which the Company is a party or by which it
is bound, or the charter or by-laws of the Company or the violation of any
judgment, decree, law or governmental or administrative order, rule or
regulation which, singly or in the aggregate, may have any material adverse
effect on the business, operations, assets, prospects or condition (financial or
otherwise) of the Company. Except as disclosed on Schedule 3.9, the Company is
not in default under any provision of its charter, by-laws, or under any
provision of any mortgage, lease, license or other instrument, contract or
agreement to which it is a party or by which it is bound or of any law,
ordinance, approval, rule or regulation or any terms of any applicable order,
judgment or decree of any court, arbitrator or governmental or administrative
authority which, singly or in the aggregate, may have any material adverse
effect on the business, operation, assets, prospects or condition (financial or
otherwise) of the Company.
3.10 There are no brokers', finders', or similar fees due from the
Company in respect of the transactions contemplated by this Agreement or any of
the Related Documents.
3.11 Except as disclosed in Schedule 3.11 or in the financial
statements referred to in Section 3.8 hereof, or arising in the ordinary course
of business, or for obligations created pursuant to this Agreement and the
Related Documents, the Company has no material liabilities for borrowed money
(fixed or contingent, including without limitation any liabilities for money
borrowed or
21
25
any tax liabilities due or to become due) and will be subject to no material
obligations under any contract or commitment of any kind.
3.12 Except as disclosed on Schedule 3.12, there is neither pending
nor, to the Company's knowledge and belief, threatened any action, suit,
proceeding or claim, or any basis therefor, to which the Company is or may be
named as a party or its property is or may be subject or which calls into
question any of the transactions contemplated by this Agreement.
3.13 Except as disclosed on Schedule 3.13, no consent, approval or
authorization of, or filing with, any governmental authority is required in
connection with the Company's valid execution, delivery or performance of this
Agreement and the Related Documents, or the consummation of any other
transaction to be consummated at each Funding.
3.14 Except as disclosed on Schedule 3.14 and to the extent of the
collateral security interest of the Lender therein (if any), the Company has or
has the right to use all patents, patent applications, trademarks, trademark
rights, trade names, trade name rights, copyrights, licenses, trade secrets,
permits, authorizations and other rights, as are necessary for the conduct of
its business, all of which are in full force and effect, and the Company is in
substantial compliance with the foregoing without any infringement of, adverse
claim in respect of or known conflict with the valid rights of others which
could affect or impair in a material manner the business or assets or financial
condition of the Company. The Company has previously delivered to the Lender a
schedule listing all material patents, patent applications, licenses, copyrights
and similar intellectual property rights of the Company. All material items of
intellectual property used by the Company's business are or will be made subject
to patent, copyright, trade secret or other appropriate legal protection,
subject to the Company's judgment in light of all circumstances, and the Company
is under no obligation to compensate any other Person for the use thereof. The
Company has substantially complied with all of its obligations of
confidentiality in respect of the claimed trade secrets or proprietary
information of others and knows of no violation of such obligations of
confidentiality as are owed to the Company. No employee, agent or consultant of
the Company is subject to confidentiality restrictions in favor of any third
person the breach of which could subject the Company to any material liability.
3.15 All cash proceeds from the sale of the Term Notes will be used as
set forth in Section 5.1 hereof.
3.16 Except as disclosed in Schedule 3.16 and as contemplated hereby,
the Company is under no obligation to register under the Securities Act any of
its currently outstanding securities or any of its securities which may
hereafter be issued.
22
26
3.17 Except as set forth on Schedule 3.17 hereto, the Company has no
subsidiary and owns no security issued by or interest in any other corporation,
partnership or other organization. The Company has valid title to and ownership
of all the properties and assets purported to be owned by it, free from all
mortgages, pledges, liens, security interests, conditional sale agreements,
encumbrances or charges, except such as are described on Schedule 3.17 hereto.
The Company enjoys peaceful and undisturbed possession under all leases under
which it is operating and all such leases are valid and subsisting and in full
force and effect. The Company maintains those insurances (including product
liability insurance) and in the amounts set forth on Schedule 3.17 hereto.
3.18 The Company has taken all reasonably necessary steps to
investigate its usage of its properties and its operations conducted thereon
and, based upon such diligent investigation, has determined that:
(a) to the best of its knowledge, none of the Company or any
operator of its properties is in violation, or alleged violation, of any
judgment, decree, order, law, license, rule or regulation pertaining to
environmental matters, including without limitation those arising under the
Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986 ("▇▇▇▇"), the Federal Clean
Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any
state or local statute, regulation, ordinance, order or decree relating to
health, safety or the environment (hereinafter "Environmental Laws"), which
violation would have a material adverse effect on the environment or the
business, assets or financial condition of the Company;
(b) the Company has not received notice from any third party
including without limitation any federal, state or local governmental authority,
(i) that the Company or any predecessor in interest has been identified by the
United States Environmental Protection Agency ("EPA") as a potentially
responsible party under CERCLA with respect to a site listed on the National
Priorities List, 40 C.F.R. Part ▇▇▇ ▇▇▇▇▇▇▇▇ ▇ (1986); (ii) that any hazardous
waste as defined by 42 U.S.C. Section 6903(5), any hazardous substances as
defined by 42 U.S.C. Section 9601(14), any pollutant or contaminant as defined
by 42 U.S.C. Section 9601(33) and any toxic substance, oil or hazardous
materials or other chemicals or substances regulated by any Environmental Laws
("Hazardous Substances") which any one of them has generated, transported or
disposed of has been found at any site at which a federal, state or local agency
or other third party has conducted or has ordered that the Company or any
predecessor in interest conduct a remedial investigation, removal or other
response action pursuant to any Environmental Law; or (iii) that any of them is
or shall be a named party to any claim, action, cause of action, complaint
(contingent or otherwise) legal
23
27
or administrative proceeding arising out of any third party's incurrence of
costs, expenses, losses or damages of any kind whatsoever in connection with the
release of Hazardous Substances;
(c) except as set forth in Schedule 3.18, to the best of the
Company's knowledge: (i) no portion of the Company's properties has been used
for the handling, manufacturing, processing, storage or disposal of Hazardous
Substances except in accordance with applicable Environmental Laws; and no
underground tank or other underground storage receptacle for Hazardous
Substances is located on such properties; (ii) in the course of any activities
conducted by the Company or operators of its properties, no Hazardous Substances
have been generated or are being used on such properties except in accordance
with applicable Environmental Laws; (iii) there have been no releases (i.e. any
past or present releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, disposing or dumping) or threatened
releases of Hazardous Substances on, upon, into or from the properties of the
Company, which releases would have a material adverse effect on the value of
such properties or adjacent properties or the environment; (iv) there have been
no releases on, upon, from or into any real property in the vicinity of the real
properties of the Company which, through soil or ground water contamination, may
have come to be located on, and which would have a material adverse effect on
the value of, the properties of the Company; and (v) in addition, any Hazardous
Substances that have been generated on the properties of the Company, have been
transported offsite only by carriers having an identification number issued by
the EPA and treated or disposed of only by treatment or disposal facilities
maintaining valid permits as required under applicable Environmental Laws, which
transporters and facilities have been and are, to the best of the Company's
knowledge, operating in compliance with such permits and applicable
Environmental Laws; and
(d) to the best of the Company's knowledge, none of the
properties of the Company are or shall be subject to any applicable
environmental cleanup responsibility law or environmental restrictive transfer
law or regulation by virtue of the transactions set forth herein and
contemplated hereby.
3.19 The Company has, to the best of the Company's knowledge,
accurately prepared and timely filed all federal, state and other tax returns
required by law to be filed by each of them, and all taxes shown to be due and
all additional assessments have been paid or provision made therefor. There are
no transfer, issuance or similar taxes imposed by law in connection with the
issuance, sale or delivery of the Term Notes.
3.20 Subject to the truth and accuracy of the representations of the
Lender set forth in Section 3 hereof, the offer, sale and issuance of the Term
Notes and the Conversion Shares as
24
28
contemplated by this Agreement are exempt from the registration requirements of
the Securities Act, and neither the Company nor any one acting on its behalf
will take any action hereafter that would cause the loss of such exemption. The
Company has complied and will comply with all applicable state "blue sky" or
securities laws in connection with the offer, sale and issuance of the Term
Notes and the Conversion Shares as contemplated by this Agreement.
3.21. No Default or Event of Default has occurred and is continuing,
and no condition exists which would constitute an Event of Default.
3.22. Neither the Company nor any of its subsidiaries is in default in
any material respect under any contract, agreement or instrument to which it is
a party or by which it or any of its properties are bound, the consequence of
which default could materially adversely affect the financial condition, assets
or operations of the Company or its subsidiary.
3.23. The Company and its subsidiary are in compliance in all material
respects to the best of their knowledge with any applicable provisions of ERISA
and the regulations and published interpretations thereunder and of the Internal
Revenue Code with respect to all Employee Benefit Plans.
In order to induce the Company to enter into this Agreement, the Lender
hereby represents and warrants to the Company as follows:
3.24 The Lender has been duly organized, is validly existing, and is in
good standing under the laws of the jurisdiction of its formation with full
power and authority to own its property and to conduct its business and to enter
into and perform its obligations under this Agreement and the Related Documents.
3.25 The execution, delivery and performance of this Agreement and the
Related Documents by the Lender has been duly authorized by all necessary action
of the Lender.
3.26 This Agreement and the Related Documents constitute the legal,
valid and binding obligation of the Lender enforceable in accordance with their
respective terms, except as the same may be modified by bankruptcy, insolvency,
moratorium and other similar laws affecting creditors' rights generally and by
general principles of equity.
3.27 The Lender has received and reviewed the Company's Disclosure
Documents and the Lender or the Lender's designated representatives have
concluded a satisfactory due diligence investigation of the Company and have had
an opportunity to have all their questions regarding the Company satisfactorily
answered.
25
29
3.28 The Lender is acquiring the Term Notes (and, upon conversion, the
Conversion Shares) for investment purposes only without intent to distribute the
same, and acknowledges that (A) the Term Notes and the Conversion Shares have
not been registered under the Securities Act and applicable state securities
laws, and accordingly, constitute "restricted securities" for purposes of the
Securities Act and such state securities laws, (B) the Lender will not be able
to transfer the Term Notes and the Conversion Shares, which are highly illiquid,
except upon compliance with the registration requirements of the Securities Act
and applicable state securities laws or exemptions therefrom, (C) the
certificates and/or instruments evidencing the Term Notes and the Conversion
Shares may contain a legend to the foregoing effect, (D) the Term Notes and the
Conversion Shares are speculative and involve a high degree of risk and the
Lender is able to sustain the loss of the entire amount of its investment, (E)
the Lender (or its members and/or officers) has previously invested in
unregistered securities and has sufficient financial and investing expertise to
evaluate and understand the risks of the Term Notes and Conversion Shares, and
(F) the Lender has received from the Company, and is relying on, no
representations (except as set forth in this Agreement) or projections with
respect to the Company's business and prospects.
3.29 The Lender and each of its equity owners is an "accredited
investor" within the meaning of Regulation D under the Securities Act.
3.30 The Lender has not utilized the services of any finder or broker
or other similar intermediary in connection with the transaction contemplated
under this Agreement, and the Company does not and will not have any obligation
to pay any finder's fee, brokerage commission or similar payment in connection
with the transactions contemplated by this Agreement.
SECTION 4: CONDITIONS PRECEDENT
4.1. Conditions Precedent to Each Funding. The funding of each of the
Term Loans and the purchase by the Lender of the Term Notes at each Funding
(including the funding of an Acceleration Request under Section 2.1(j)) is
subject to the Company's compliance with its agreements herein and to the
satisfaction, on or prior to each Funding Date of the following conditions
precedent:
(a) The purchase of and payment for the Term Notes to be
purchased by the Lender shall not be prohibited by any law or governmental order
or regulation, and shall not subject the Lender to any penalty or tax. All
necessary consents, approvals, licenses, permits, orders and authorizations of,
or registrations, declarations and filings with, any governmental or
administrative agency or of any other Person with respect to any of the
transactions contemplated hereby or by the Related Documents shall
26
30
have been duly obtained or made and shall be in full force and effect.
(b) All necessary and proper proceedings shall have been taken
by the Company to authorize the execution, delivery and performance of each of
this Agreement and the Related Documents and of each of the transactions
contemplated hereby and thereby.
(c) On any Funding Date there shall not exist any Default or
any other condition that would result in a Default upon any Funding and the
purchase and sale of any Term Note.
(d) Each of this Agreement and the Related Documents is in
full force and effect in accordance with the express terms thereof.
4.2 The Lender's Term Loan A Closing Conditions. In addition to the
satisfaction of the conditions set forth in Section 4.1 above, the obligation of
the Lender to enter into this Agreement and the Related Documents and the
funding by the Lender of Term Loan A, and the purchase by the Lender of the
related Term Note on Funding Date A, is conditioned on the Lender receiving,
prior to or on Funding Date A, each of the following items:
(a) the executed Term Note A.
(b) the executed Security Agreement.
(c) the executed License Agreement.
(d) financing statements prepared for filing in each
jurisdiction where such filing is necessary to perfect the security
interest of the Lender created by the Security Agreement.
(e) a certificate of the secretary or an assistant secretary
of the Company certifying (i) an attached complete and correct copy of
its bylaws, (ii) an attached complete and correct copy of resolutions
duly adopted by its board of directors which have not been amended
since their adoption and remain in full force and effect, authorizing
the execution, delivery and performance of this Agreement and the
Related Documents to which it is a party; (iii) an attached complete
and correct copy of its articles of incorporation, and (iv) as to the
incumbency and specimen signature of each officer executing this
Agreement and all other Related Documents to which it is a party, and
including a certification by another officer as to the incumbency and
signature of the secretary or assistant secretary executing the
certificate.
(f) The executed Consulting Agreement and Consultant Warrant.
27
31
(g) The other Related Documents executed and delivered by the
Company.
(h) Reserved.
(i) The representations and warranties contained or
incorporated by reference herein or in the Related Documents shall be
true and correct in all material respects on and as of the Funding Date
A with the same force and effect as though made on and as of the
Funding Date A, both before and after giving effect to the sale of Term
Note A; and the Lender shall have received on Funding Date A a
certificate to these effects signed by the Chief Executive Officer or
Chief Operating Officer of the Company.
(j) ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel to the Company, shall
have executed and delivered a legal opinion in favor of the Lender in
substantially the form of Exhibit 4.2(j) hereto.
4.3. Conditions Precedent to Subsequent Fundings. In addition to the
satisfaction of the conditions set forth in Section 4.1 above, the funding by
the Lender of each of Term Loans B, C, D, E, and F, and the purchase by the
Lender of the related Term Notes at each Funding (including the funding of an
Acceleration Request under Section 2.1(j)), is subject to the satisfaction of
the following conditions precedent (except to the extent waived in writing by
the Lender in its sole discretion):
(a) the executed Term Note B, C, D, E, or F (or Term Note
evidencing any Term Loan pursuant to an Acceleration Request), as the case may
be.
(b) on each Funding Date, the Company is in material
compliance with the representations set forth in Sections 3.1, 3.4, 3.5, 3.6
(but without regard to any Encumbrance or other claim, issue, or development,
which individually is valued by the Company in good faith at not more than
$150,000 and in the aggregate are valued by the Company in good faith at not
more than $1,000,000, or which arises after the date hereof by operation of
law), 3.9, 3.12 (but only as to pending litigation that would call into question
the transaction contemplated by this Agreement), 3.13, 3.14 (but without regard
to any claim, issue or development relating to Bellcore lithium-ion rechargeable
battery patents and also without regard to any license agreement, technology
development agreement, joint venture agreement, or other agreement that the
Company enters into after the date hereof with an original equipment
manufacturer ("OEM") or other third party), and 3.20 hereof and the Company
shall certify in writing to the Lender to the same effect as of such Funding
Date. In the event that the Company enters into one or more Strategic Alliances
(as defined in the Consulting Agreement) and the cash proceeds thereof actually
received by the Company (whether upfront payment, milestone payment, royalty, or
28
32
other) equal or exceed $5,000,000, then the conditions set forth in this Section
4.3(b) shall thereupon terminate in the entirety and not be applicable on any
Funding Date thereafter, and the Company and Lender shall so notify the Escrow
Agent and modify the Escrow Agreement consistent herewith.
4.4 Company's Conditions to Each Funding. The borrowing by the Company
under each of the Term Loans contemplated hereby is subject to the Lender's
compliance with its agreements herein and to the satisfaction, on or prior to
each Funding Date of the following conditions:
(a) The purchase of and payment for the Term Notes to be
purchased by each of the Lender shall not be prohibited by any law or
governmental order or regulation, and shall not subject the Lender to any
penalty or tax. All necessary consents, approvals, licenses, permits, orders and
authorizations of, or registrations, declarations and filings with, any
governmental or administrative agency or of any other Person with respect to any
of the transactions contemplated hereby or by the Related Documents shall have
been duly obtained or made and shall be in full force and effect.
(b) All necessary and proper proceedings shall have been taken
by the Lender to authorize the execution, delivery and performance of each of
their Agreement and the Related Documents and of each of the transactions
contemplated hereby and thereby.
(c) On any Funding date there shall not exist any material
breach by the Lender with respect to any of its obligations or representations
in this Agreement or the Related Documents.
4.5 The Company's Term Loan A Closing Conditions. The obligation of the
Company to enter into this Agreement and the Related Documents is conditioned on
the Company receiving, prior to or on Funding Date A, each of the following
items:
(a) Funding of Term Loan A.
(b) The Related Documents executed by the Lender.
(c) A certificate of the secretary or an assistant secretary
of the Manager of the Lender certifying (i) an attached complete and
correct copy of the Lender's certificate of formation, (ii) an attached
complete and correct copy of resolutions duly adopted by its Manager
which have not been amended since their adoption and remain in full
force and effect, authorizing the execution, delivery and performance
of this Agreement and the Related Documents to which the Lender is a
party; and (iii) as to the incumbency and specimen signature of each
officer of the Manager executing this
29
33
Agreement and all other Related Documents to which the Lender is a
party for and on behalf of the Lender, and including a certification by
another officer as to the incumbency and signature of the secretary or
assistant secretary executing the certificate.
(d) The executed Escrow Agreement and satisfactory evidence of
the full funding of the Escrow Account (as defined therein) in the
amount of the Investment Amount minus the principal amount of Term Note
A pursuant to which the Company shall receive the Investment Amount
minus the principal amount of Term Note A.
(e) Each of the promissory notes evidencing the July/August
Bridge Loans shall have been marked "cancelled; paid in full" and
surrendered to the Company, and shall have been satisfied as the result
of the credit against the principal of Term Loan A by the Company to
the Lender in the amount of the Bridge Loan Adjustment. The Company,
the July/August Bridge Loan lenders, and the Lender shall have executed
and delivered such other documentation as reasonably required by the
Company to effectuate the preceding sentence.
(f) Chu, Ring & ▇▇▇▇▇ LLP, counsel to the Lender, shall have
executed and delivered a legal opinion in favor of the Company in
substantially the form of Exhibit 4.5(f) hereto.
SECTION 5: AFFIRMATIVE COVENANTS
The Company covenants and agrees that from and after the date of this
Agreement and until the entire amount of all Obligations to the Lender are paid
in full or converted into Conversion Shares it shall:
5.1 Use of Proceeds; Anti-dilution. (a) Use the proceeds of the Term
Loans (I) for working capital to take its lithium-ion polymer battery technology
to the marketplace by (i) demonstrating and beginning the scale up of the low
cost continuous flow manufacturing process; (ii) distributing cell samples made
on the prototype production line to selected Original Equipment Manufacturers
(OEMs); (iii) completing the baseline cell optimization; (iv) working with
selected OEMs to develop prototype battery packs for specific device
applications; (v) commencing initial commercial production of battery packs for
OEM customers using the prototype production line, and (vi) payment of legal
fees and expenses in connection with the closing of the transaction contemplated
by this Agreement and working capital; and (II) in accordance with the breakdown
set forth in Exhibit 2.1(a) hereto, subject to the Company's right to reallocate
any such breakdown in good faith for reasonable business purposes of the Company
as determined by the Company's Chief Executive Officer or Chief
30
34
Operating Officer, provided that the Company shall be permitted to reallocate
more than 10% of any of the line items set forth in any such breakdown only upon
receiving the prior written consent of ▇▇▇▇ ▇▇▇▇ which shall not be unreasonably
withheld nor delayed.
(b) If and on each occasion that the Company shall, at any time or from
time to time after the date hereof through and including the earlier of (A) the
conversion and/or payment in full of the Term Notes or (B) the eighteen-month
anniversary of the date of this Agreement, issue or sell Common Stock or rights,
options or warrants to purchase Common Stock or any securities convertible into
Common Stock ("New Securities"), other than as a dividend or other distribution
on any class of stock or upon a subdivision or combination of shares of Common
Stock, for a consideration per share less than both (i) the fair market value
thereof (as determined by reference to the mean of the high and low bid price on
the ten (10) business days immediately preceding the date of issuance or sale of
the New Securities, as reported by the Trading and Market Services Division of
the NASDAQ Stock Market, Inc. or, if the stock is then listed on the OTC
Bulletin Board, by the National Association of Securities Dealers, Inc., or, if
the stock listed on the NASDAQ system is no longer reporting such information,
or if not so available, the fair market price as determined by the Board of
Directors in good faith in the exercise of their best business judgment taking
into account all relevant information known to them) and (ii) $.28 per share
(adjusted for stock dividends, stock splits, combinations and the like
subsequent to the date hereof), then the Company shall grant to each Holder a
right of first of refusal to purchase a pro rata portion of the New Securities
proposed to be issued, determined with reference to the aggregate number of
outstanding shares of Common Stock held by such Holder computed on a fully
diluted basis before the proposed issuance of the New Securities. The right of
first refusal granted hereunder shall terminate if unexercised within thirty
(30) days after receipt of the notice from the Company of its intent to issue
the New Securities. Notwithstanding anything contained herein to the contrary,
the Holders shall not have the right of first refusal with respect to: (i) New
Securities issued pursuant to the acquisition of another corporation by the
Company by merger, purchase of all or substantially all of the assets or other
reorganization, (ii) New Securities issued to employees, consultants,
professionals, advisers or directors of the Company upon the exercise of stock
options or pursuant to stock purchase agreements or other incentive plans,
trusts or other arrangements, which are approved by the Board of Directors of
the Company, or (iii) any New Securities issued in connection with the Company's
October 1996 $1.75 million bridge loan or the restructuring thereof.
5.2 Indemnity. Indemnify the Lender against any and all losses, claims,
damages, liabilities, obligations, penalties, actions, judgments, suits, costs
and expenses of any kind or nature
31
35
whatsoever, including without limitation, reasonable attorneys' fees and
expenses, incurred by the Lender arising out of any misrepresentation by the
Company herein and/or breach by the Company of any covenant contained herein
provided, however, that such indemnity shall not be available to any party
seeking indemnification to the extent that any such losses, claims, damages,
liabilities or related expenses are caused by any gross negligence or willful
misconduct of the party seeking indemnification. The foregoing indemnities shall
survive until one year following the repayment of the Obligations or the
conversion of all of the Term Notes and interest into the Conversion Shares,
whichever occurs first. The refusal or failure of the Lender to fund any Term
Loan in breach of this Agreement shall result in the immediate invalidity and
unenforceability of this indemnity but without limitation of any other rights
and remedies of the Company.
5.3 Reservation of Shares. The Company shall at all times reserve for
issuance out of the authorized but unissued shares of common stock of the
Company a number of shares equal to the maximum number of shares that may be
issued upon conversion of all of the Term Notes. The Lender covenants and
agrees, that from and after the date of this Agreement and until the termination
Date and until the entire amount of all Obligations are paid in full, it shall:
5.4 Election of Director. Effective as of the Company's next Board
meeting after the funding of Term Loan A, the Board of Directors of the Company
shall take such action as is necessary to create one (1) new directorship and
the Company shall use its best efforts to cause a nominee of the Lender
reasonably satisfactory to the Company's Board to be elected by the Board as a
director of the Company. In the event of any misrepresentation by the Lender in
this Agreement or breach by the Lender of any of its obligations in this
Agreement, such director shall be deemed to have resigned from the Company's
Board effective as of the date of the Company's written notice to the Lender of
such misrepresentation and/or breach. So long as not less than 10% of the Term
Notes remain outstanding or, as the case may be, not less than 10% of the
Conversion Shares are owned by the Lender and/or the Holders, and the Lender is
not in breach of this Agreement, the Company shall cause one representative of
the Lender to be nominated among management's slate of nominees for election to
the Board of Directors of the Company and the Company shall use its best efforts
to cause such representative to be elected to the Company's Board at each annual
meeting of the stockholders or any special meeting called for the purpose of
electing directors of the Company.
The Company covenants and agrees that from and after the date of this
Agreement and until the entire amount of all Obligations to the Lender are paid
in full or converted into Conversion Shares it shall not:
32
36
5.5 No Pledge of Patent Rights. Mortgage, pledge or create a security
interest in, or permit a subsidiary to mortgage, pledge or create a security
interest in the patents, patent applications or any other intellectual property
rights of the Company or any subsidiary.
The Lender covenants and agrees that from and after the date of this
Agreement it shall:
5.6 Funding of Terms Loans. Fund each and every Term Loan promptly and
in accordance with the terms of this Agreement. The Lender shall not directly or
indirectly impede or otherwise interfere with any right that the Company may
have to draw upon the Escrow Account referred to in Section 4.5(d) hereof.
5.7 Indemnity. Indemnify the Company against any and all losses,
claims, damages, liabilities, obligations, penalties, actions, judgments, suits,
costs and expenses of any kind or nature whatsoever, including without
limitation, reasonable attorneys' fees and expenses, incurred by the Company
arising out of any misrepresentation by the Lender herein and/or breach by the
Lender of any covenant contained herein provided, however, that such indemnity
shall not be available to any party seeking indemnification to the extent that
any such losses, claims, damages, liabilities or related expenses are caused by
any gross negligence or willful misconduct of the party seeking indemnification.
The foregoing indemnities shall survive until one year following the repayment
of the Obligations or the conversion of all of the Term Notes and interest into
the Conversion Shares, whichever occurs first.
5.8 Confidentiality. The Lender agrees to keep confidential any and all
non-public information delivered or made available to the Lender by the Company
except for disclosures, as necessary, made by the Lender to the Lender's
officers, directors, employees, agents, counsel and accountants each of whom
shall be notified by the Lender of this confidentiality covenant and for whom
the Lender shall be liable in the event of any breach of this covenant by any
such individual or individuals; provided, however, that nothing herein shall
prevent the Lender from disclosing such information (i) upon the order of any
court or administrative agency, (ii) upon the request or demand of any
regulatory agency or authority having jurisdiction over the Lender, (iii) which
has been publicly disclosed or (iv) to any of its members provided that any such
members agree in writing (with a copy provided to the Company) to be bound by
confidentiality provisions in form and substance substantially as are contained
herein. In the event of a mandatory disclosure as described in clause (i) and/or
(ii) of the preceding sentence, the Lender shall promptly notify the Company in
writing of any applicable order, request or demand for such information,
cooperate with the Company if and to the extent that the Company elects to seek
an appropriate protective order or other relief from
33
37
such order, request, or demand, and disclose only the minimal amount of
information ultimately required to be disclosed. The Lender acknowledges and
agrees that the cash spending plans furnished to the Lender by the Company from
time to time are for informational purposes only and shall be kept confidential
by the Lender in accordance with this Agreement. The Lender shall not use for
its own benefit, nor permit any other person to use for such person's benefit,
any of the Company's non-public information including, without limitation, in
connection with the purchase and/or sale of the Company's securities.
5.9 Strategic Commercialization Alliance. The Company reserves the
right to negotiate and enter into a Strategic Alliance or other arrangement with
one or more parties other than potential partners presented by the Lender and/or
by Interlink Management Corporation.
SECTION 6: DEFAULT AND REMEDIES
6.1 Events of Default Defined. The Company shall be in default under
this Agreement upon the occurrence of: (i) any of the events specified in
Section 6.1(a) hereof and the failure to cure such default within ten (10)
Business Days after receipt of written notice thereof from the Lender; (ii) any
of the events specified in Section 6.1(b) hereof and the failure to cure such
default within twenty (20) Business Days after receipt of written notice thereof
from the Lender; or (iii) any of the events specified in Section 6.1(c) hereof
(any of the foregoing being an "Event of Default"):
(a) Failure to make any principal payment or interest payment required
under a Term Note when due thereunder;
(b) Any material default, breach, or misrepresentation shall occur
under the terms and provisions of this Agreement or any Related Document;
(c) If the Company or any of its subsidiaries shall fail to pay when
due, or within any applicable grace period, obligations for borrowed money in
the aggregate amount of not less than $100,000; or
(d) Insolvency of, business failure of, or an assignment for the
benefit of creditors by or the filing of a petition under bankruptcy, insolvency
or debtor's relief law, or for any readjustment of indebtedness, composition or
extension by the Company or any of its subsidiaries, or commenced against the
Company or any of its subsidiaries which is not discharged within sixty (60)
Business Days.
6.2 Remedies Upon Event of Default. Upon the occurrence of an Event of
Default:
34
38
(a) specified in clause (d) of Section 6.1, then the entire amount of
the Obligations shall be automatically accelerated and immediately due and
payable;
(b) specified in clauses (a), (b) or (c) of Section 6.1, then the
Lender may (1) immediately terminate the Lender's obligation to make or fund any
Term Loan (or any portion thereof) and the same shall immediately terminate; and
(ii) declare the entire amount of the Obligations immediately accelerated, due
and payable; and
(c) the Lender shall have all of the rights and remedies provided to
the Lender by the Related Documents, at law and in equity, by statute or
otherwise, and no remedy herein conferred upon the Lender is intended to be
exclusive of any other remedy and each remedy shall be cumulative and shall be
in addition to every other remedy given hereunder or now or hereafter existing
at law, in, equity, by statute or otherwise.
SECTION 7: RESERVED
SECTION 8: MISCELLANEOUS
8.1. Transfer of Securities. If, at any time of any conversion,
transfer (other than a conversion or transfer not involving a change in the
beneficial ownership of such securities) or surrender for exchange of any Term
Note or any Term Note Conversion Shares issued upon exchange or conversion, or
in replacement thereof (or in respect of such securities), such securities shall
not be registered under the Securities Act or qualified under any applicable
state securities law, the Company may require, as a condition of allowing such
conversion, transfer or exchange, that the holder or transferee of such
securities, as the case may be, furnish to the Company such information as, in
the reasonable opinion of counsel for the Company, is necessary in order to
establish that such exercise, transfer or exchange may be made without
registration under the Securities Act or qualification under such state
securities law; provided, however, that nothing contained in this Section 8.1
shall relieve the Company from complying with the provisions of Section 2.6
hereof or any provision of the Certificate of Incorporation (as amended).
8.2. Legends. To the extent applicable, each note, certificate or other
document evidencing any of the Term Notes to be purchased and sold pursuant to
this Agreement or any Conversion Shares issued upon conversion of the Securities
shall be endorsed with the legends set forth below, and the Lender on behalf of
itself and each Holder covenants that, except to the extent such restrictions
are waived by the Company, it shall not transfer the Term Note or shares
represented by any such note or certificate
35
39
without complying with the restrictions on transfer described in the legends
endorsed on such note or certificate:
(a) The following legend under the Securities Act: "THE
NOTE/SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED
ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR
COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY AND ITS
COUNSEL AND FROM ATTORNEYS REASONABLY ACCEPTABLE TO THE
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) If required by the authorities of any state in connection
with the issuance or sale of the Term Notes or the Conversion Shares issued upon
conversion of the Term Notes, the legend required by such state authority.
8.3. Removal of Legends.
(a) Any legend endorsed on a note or certificate pursuant to
Section 8.2(a) hereof shall be removed (i) if the securities to be purchased and
sold pursuant to this Agreement or Conversion Share issued upon conversion of
securities represented by such note or certificate shall have been effectively
registered under the Securities Act, (ii) if such note or shares may be
transferred in compliance with Rule 144 promulgated under the Securities Act, or
(iii) if the holder of such note or shares shall have provided the Company with
an opinion of counsel, in form and substance reasonably acceptable to the
Company and its counsel and from attorneys reasonably acceptable to the Company
and its counsel, stating that the proposed sale, transfer or assignment of such
note or shares may be made without registration.
(b) Any legend endorsed on a certificate pursuant to Section
8.2(b) hereof shall be removed if the Company receives an order of the
appropriate state authority authorizing such removal or if the holder of Term
Notes to be purchased and sold pursuant to this Agreement or Conversion Shares
issued upon conversion of the Term Notes provides the Company with an opinion of
counsel, in form and substance reasonably acceptable to the Company and its
counsel and from attorneys reasonably acceptable to the Company and its counsel,
stating that such legend may be removed.
8.4 Assignability; Successors. The provisions of this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of the parties hereto. The Company's rights and liabilities under this Agreement
and the Related Documents are not assignable in whole or in part without the
prior written consent of the Lender. The Lender's rights and liabilities under
this Agreement and the Related Documents are not assignable in whole or in part,
except to its members, without the prior written consent of the Company.
36
40
8.5 Survival. All agreements, covenants, representations and warranties
made by the Company or by the Lender herein and in the Related Documents shall
survive the execution and delivery of this Agreement and the Related Documents.
8.6 GOVERNING LAW. THIS AGREEMENT AND THE RELATED DOCUMENTS SHALL BE
GOVERNED BY THE INTEGRAL LAWS OF THE STATE OF NEW JERSEY EXCEPT TO THE EXTENT OF
THE PENNSYLVANIA UCC'S GOVERNANCE OF THE SECURITY AGREEMENT.
8.7 Counterparts: Headings. This Agreement and the Related Documents
may be executed in several counterparts, each of which shall be deemed an
original, but such counterparts shall together constitute but one and the same
agreement. The descriptive headings in this Agreement are inserted for
convenience of reference only and shall not affect the construction of this
Agreement.
8.8 Entire Agreement, Amendments. This Agreement, the Exhibits,
Schedules, and the Related Documents contain the entire understanding of the
parties with respect to the subject matter hereof, and supersede all other
representations and understandings, oral or written, with respect to the subject
matter hereof. No amendment, modification, alteration, or waiver of the terms of
this Agreement or consent required under the terms of this Agreement shall be
effective unless made in a writing, which makes specific reference to this
Agreement and which has been signed by the Company and the Lender. Any such
amendment, modification, alteration, waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
8.9 Notices. All communications or notices required or permitted by
this Agreement shall be in writing and shall be deemed to have been given or
made when delivered in hand, deposited in the mail, or sent by facsimile, with
confirmation (if sent by facsimile on a non-Business Day, receipt shall be
deemed to have occurred on the next succeeding Business Day). Communications or
notices shall be delivered personally or by certified or registered mail,
postage, or by facsimile and addressed as follows, unless and until either of
such parties notifies the other in accordance with this section of a change of
address:
if to the Company Lithium Technology Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Att: ▇▇▇▇▇ ▇. ▇▇▇▇, President
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
with copies to: ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
37
41
if to the Lender: Lithium Link LLC
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: Chu, Ring & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
8.10 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement 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 of this Agreement.
8.11 Conflicts and Ambiguities. In the event of any ambiguity or
conflict as between the terms of this Agreement, the Related Documents or any
other document executed and delivered pursuant to this Agreement, the terms of
this Agreement shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
LITHIUM TECHNOLOGY CORPORATION
By:_________________________
Name:
Title:
LITHIUM LINK LLC
By:_________________________
Name:
Title:
38