SECURITIES PURCHASE AGREEMENT
dated as of
August 26, 2002
by and between
Avitar, Inc.
as the Issuer,
and
Global Capital Funding Group, L.P.
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS...........................................................................................1
Section 1.1 Definitions.................................................................................1
Section 1.2 Accounting Terms and Determinations.........................................................8
ARTICLE II. PURCHASE AND SALE OF SECURITIES......................................................................8
Section 2.1 Purchase and Sale of Note...................................................................8
Section 2.2 Purchase Price..............................................................................9
Section 2.3 Closing and Mechanics of Payment............................................................9
ARTICLE III. PAYMENT TERMS OF NOTE...............................................................................9
Section 3.1 Ranking; Payment of Principal and Interest; Payment Mechanics...............................9
Section 3.2. Payment of Interest.........................................................................9
Section 3.3 Voluntary Prepayment........................................................................9
Section 3.4 Mandatory Prepayments......................................................................10
Section 3.5 Prepayment Procedures......................................................................10
Section 3.6 Payment of Additional Amounts..............................................................11
ARTICLE IV. REPRESENTATIONS AND WARRANTIES......................................................................12
Section 4.1 Organization and Qualification.............................................................12
Section 4.2 Authorization and Execution................................................................12
Section 4.3 Capitalization ............................................................................13
Section 4.4 Governmental Authorization.................................................................13
Section 4.5 Issuance of Shares.........................................................................13
Section 4.6 No Conflicts...............................................................................14
Section 4.7 Financial Information and SEC Reports......................................................14
Section 4.8 Litigation.................................................................................15
Section 4.9 Compliance with ERISA and other Benefit Plans..............................................15
Section 4.10 Environmental Matters.....................................................................16
Section 4.11 Taxes.....................................................................................16
Section 4.12 Investments, Joint Ventures...............................................................16
Section 4.13 Not an Investment Company.................................................................16
Section 4.14 Full Disclosure...........................................................................16
Section 4.15 No Solicitation; No Integration with Other Offerings......................................16
Section 4.16 Permits...................................................................................17
Section 4.17 Leases....................................................................................17
Section 4.18 Absence of Any Undisclosed Liabilities or Capital Calls...................................17
Section 4.19 Public Utility Holding Company............................................................17
Section 4.20 Intellectual Property Rights..............................................................17
Section 4.21 Insurance.................................................................................18
Section 4.22 Title to Properties.......................................................................18
Section 4.23 Reserved...................................................................................18
Section 4.24 Internal Accounting Controls..............................................................18
Section 4.25 Foreign Practices.........................................................................18
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER......................................................18
Section 5.1 Purchaser..................................................................................18
ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES......................................................20
Section 6.1 Conditions Precedent to the Purchaser's Obligations to Purchase............................20
Section 6.2 Conditions to the Company's Obligations....................................................22
ARTICLE VII. AFFIRMATIVE COVENANTS..............................................................................22
Section 7.1 Information.................................................................................22
Section 7.2 Payment of Obligations.....................................................................23
Section 7.3 Maintenance of Property; Insurance..........................................................23
Section 7.4 Maintenance of Existence....................................................................23
Section 7.5 Compliance with Laws........................................................................23
Section 7.6 Inspection of Property, Books and Records..................................................24
Section 7.7 Investment Company Act.....................................................................24
Section 7.8 Use of Proceeds.............................................................................24
Section 7.9 Compliance with Terms and Conditions of Material Contracts.................................24
Section 7.10 Reserved Shares and Listings..............................................................24
Section 7.11 Irrevocable Instructions..................................................................25
Section 7.12 Maintenance of Reporting Status; Supplemental Information.................................25
Section 7.13 Form D; Blue Sky Laws.....................................................................25
ARTICLE VIII. NEGATIVE COVENANTS................................................................................25
Section 8.1 Limitations on Debt or Other Liabilities...................................................26
Section 8.2 Transactions with Affiliates...............................................................26
Section 8.3 Merger or Consolidation....................................................................26
Section 8.4 Limitation on Asset Sales..................................................................26
Section 8.5 Restrictions on Certain Amendments.........................................................27
Section 8.6 Restrictions on Issuances of Securities.....................................................27
Section 8.7 Limitation on Stock Repurchases............................................................28
ARTICLE IX. RESTRICTIVE LEGENDS.................................................................................28
Section 9.1 Restrictions on Transfer...................................................................28
Section 9.2 Legends....................................................................................28
Section 9.3 Notice of Proposed Transfers...............................................................28
ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES..............................................................29
Section 10.1 Liquidated Damages........................................................................29
Section 10.2 Exercise Notice............................................................................29
Section 10.3 Reserved..................................................................................30
Section 10.4 Registration Rights.......................................................................30
ARTICLE XI. ADJUSTMENT OF FIXED PRICE...........................................................................31
Section 11.1 Reorganization............................................................................31
Section 11.2 Share Reorganization......................................................................32
Section 11.3 Capital Reorganization.....................................................................32
Section 11.4 Adjustment Rules..........................................................................33
Section 11.5 Certificate as to Adjustment..............................................................33
Section 11.6 Notice to Noteholders.....................................................................34
ARTICLE XII. EVENTS OF DEFAULT..................................................................................34
Section 12.1 Events of Default.........................................................................34
Section 12.2 Powers and Remedies Cumulative............................................................36
ARTICLE XIII. MISCELLANEOUS.....................................................................................36
Section 13.1 Notices...................................................................................36
Section 13.2 No Waivers; Amendments....................................................................37
Section 13.3 Indemnification...........................................................................37
Section 13.4 Expenses: Documentary Taxes..............................................................39
Section 13.5 Payment...................................................................................39
Section 13.6 Successors and Assigns....................................................................39
Section 13.7 Brokers...................................................................................40
Section 13.8 Delaware Law; Submission to Jurisdiction; Waiver of Jury Trial;
Appointment of Agent...........................................................................40
LIST OF SCHEDULES
Schedule 2.2 Allocation of Purchase Price
Schedule 4.3 Capitalization
Schedule 4.12 Investment, Joint Ventures
Schedule 4.27 Subsidiaries
Schedule 7.8 Use of Proceeds
Schedule 8.2 Transactions with Affiliates
LIST OF EXHIBITS
Exhibit A Secured Promissory Note
Exhibit B Registration Rights Agreement
Exhibit C Form of Solvency Certificate
Exhibit D Form of Officer's Certificate
Exhibit E Common Stock Purchase Warrant
Exhibit F Security Agreement
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of August 26, 2002, between Avitar, Inc. (the
"Company") and Global Capital Funding Group, L.P. ("Purchaser").
R E C I T A L S: WHEREAS, the Company desires to sell and issue to the
Purchaser, and Purchaser desires to purchase from the Company, a $1,250,000
principal amount Secured Promissory Note due August 26, 2005 ("Note"), with
terms and conditions as set forth in the form of Note attached hereto as Exhibit
A; and
WHEREAS, in order to induce the Purchaser to enter into the transactions
described in this Agreement, the Company desires to issue to the Purchaser up to
an aggregate of 600,000 warrants to purchase shares of Common Stock upon the
Closing (as defined herein) on the terms and conditions described in the form of
the common stock purchase warrant attached hereto as Exhibit B (the "Warrants");
and
WHEREAS, the Purchaser will have certain registration rights with respect
to such shares of Common Stock issuable upon exercise of the Warrants (the
"Warrant Shares") as set forth in the Registration Rights Agreement in the form
attached hereto as Exhibit C; and
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I. DEFINITIONS
Section 1.1 Definitions. The following terms, as used herein, have the following
meanings:
"Additional Shares of Common Stock" has the meaning set forth in Section
11.6.
"Affiliate" means, with respect to any Person (the "Subject Person"), (i)
any other Person (a "Controlling Person") that directly, or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other Person
(other than the Subject Person or a Consolidated Subsidiary of the Subject
Person) which is Controlled by or is under common Control with a Controlling
Person.
"Agreement" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"AMEX" means the American Stock Exchange's National Market System.
"Asset Sale" has the meaning set forth in Section 8.4.
"Balance Sheet Date" has the meaning set forth in Section 4.7.
"Benefit Arrangement" means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 4.9(b).
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Capital Reorganization" has the meaning set forth in Section 11.5.
"Change in Control" means (i) after the date of this Agreement, any person
or group of persons (within the meaning of Sections 13 and 14 of the Exchange
Act and the rules and regulations of the Commission relating to such sections)
other than the Purchaser shall have acquired beneficial ownership (within the
meaning of Rules 13d-3 and 13d-5 promulgated by the Commission pursuant to the
Exchange Act) of 331/3% or more of the outstanding shares of Common Stock of the
Company; (ii) individuals constituting the Board of Directors of the Company on
the date hereof (together with any new Directors whose election by such Board of
Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of at least 50.1% of the Directors still in office who
are either Directors as of the date hereof or whose election or nomination for
election was previously so approved), cease for any reason to constitute at
least two-thirds of the Board of Directors of the Company then in office.
"Closing Bid Price" shall mean for any security as of any date, the lowest
closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the principal
securities exchange or trading market where such security is listed or traded
or, if the foregoing does not apply, the lowest closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no lowest trading price is
reported for such security by Bloomberg, then the average of the bid prices of
any market makers for such securities as reported in the "Pink Sheets" by the
National Quotation Bureau, Inc. If the lowest closing bid price cannot be
calculated for such security on such date on any of the foregoing bases, the
lowest closing bid price of such security on such date shall be the fair market
value as mutually determined by the Purchaser and the Company for which the
calculation of the closing bid price requires, and in the absence of such mutual
determination, as determined by the Board of Directors of the Company in good
faith.
"Closing Date" means the date on which all of the conditions set forth in
Sections 6.1 and 6.2 shall have been satisfied and Note in the aggregate
principal amount of $1,250,000 and Warrants to acquire 700,000 shares of Common
Stock are issued by the Company to the Purchaser.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning set forth in the Security Agreement
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means the common stock, $0.01 par value per share, of the
Company.
"Company" means Avitar, Inc., a Delaware corporation.
"Company Corporate Documents" means the certificate of incorporation and
bylaws of the Company.
"Consolidated Net Worth" means at any date the total shareholder's equity
which would appear on a consolidated balance sheet of the Company prepared as of
such date.
"Consolidated Subsidiary" means at any date with respect to any Person or
Subsidiary or other entity, the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
"Control" (including, with correlative meanings, the terms "Controlling,"
"Controlled by" and under "common Control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Deadline" has the meaning set forth in Section 10.1.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, Note, or other similar instruments issued
by such Person, (iii) all obligations of such Person as lessee which (y) are
capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Fee" has the meaning set forth in Section 10.4.
"Directors" means the individuals then serving on the Board of Directors or
similar such management council of the Company. 3 "Environmental Laws" means any
and all federal, state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders, decrees, permits, concessions, grants,
franchises, licenses, agreements or other governmental restrictions relating to
the environment or to emissions, discharges or releases of pollutants,
contaminants, petroleum or petroleum products, chemicals or industrial, toxic or
hazardous substances or wastes into the environment, including, without
limitation, ambient air, surface water, ground water, or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, petroleum or
petroleum products, chemicals or industrial, toxic or hazardous substances or
wastes or the cleanup or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and each Subsidiary and all members of a
controlled group of corporation and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.
"Event of Default" has the meaning set forth in Article XII hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financing" means a public or private financing consummated (meaning
closing and funding) through the issuance of debt or equity securities (or
securities convertible into or exchangeable for debt or equity securities) of
the Company for cash, except for the issuance of stock options or warrants to
purchase the Company's Common Stock.
"Fixed Price" has the meaning set forth in Section 11.1.
"Formula Price" shall mean a dollar amount equal to the aggregate principal
amount of the Note then outstanding, together with all accrued and unpaid
interest thereon.
"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing (whether by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain a minimum net worth,
financial ratio or similar requirements, or otherwise) any Debt of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt or
(ii) entered into for the purpose of assuring in any other manner the holder of
such Debt of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part); provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term Guarantee used as a verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"Intellectual Property" has the meaning set forth in Section 4.1.
"Interest Shares" shall mean any shares of Common Stock issued to Purchaser
pursuant to the terms of the Note as payment of interest on the Note.
"Investment" means any investment in any Person, whether by means of share
purchase, partnership interest, capital contribution, loan, time deposit or
otherwise.
"Lien" means any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Majority Holders" means (i) as of the Closing Date, the Purchaser and (ii)
at any time thereafter, the holders of more than 50% in aggregate principal
amount of the Note outstanding at such time.
"Material Plan" means at any time a Plan or Plans having aggregate Unfunded
Liabilities in excess of $500,000.
"Maturity Date" shall mean the date of maturity of the Note; specifically,
August 26, 2005.
"Net Cash Proceeds" means, with respect to any transaction, the total
amount of cash proceeds received by the Company or any Subsidiary less (i)
reasonable underwriters' fees, brokerage commissions, reasonable professional
fees and other customary out-of-pocket expenses payable in connection with such
transaction, and (ii) in the case of dispositions of assets, (A) actual transfer
taxes (but not income taxes) payable with respect to such dispositions, and (B)
the amount of Debt, if any, secured by a Lien on the asset or assets disposed of
and required to be, and actually repaid by the Company or any Subsidiary in
connection therewith, and any trade payables specifically relating to such asset
or assets sold by the Company or any Subsidiary that are not assumed by the
purchaser of such asset or assets.
"Non-Recourse Financing" means Debt of the Company or any Subsidiary which,
by its terms, bars the lender thereof from any action against the Company or any
Subsidiary, as borrower or guarantor, if the security value of the project or
asset pledged in respect thereof falls below the amount required to repay such
Debt.
"Notice of Exercise" means the form to be delivered by a holder of a
Warrant upon exercise of all or a portion thereof to the Company substantially
in the form of Exhibit A to the form of Warrant.
"Officer's Certificate" shall mean a certificate executed by the President,
chief executive officer or chief financial officer of the Company in the form of
Exhibit D attached hereto.
"Other Taxes" has the meaning set forth in Section 3.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the Subsidiaries.
"Person" means an individual, corporation, partnership, trust, incorporated
or unincorporated association, joint venture, joint stock Company, government
(or any agency or political subdivision thereof) or other entity of any kind.
"Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under the Code
and either (i) is maintained, or contributed to, by any member of the ERISA
group for employees of any member of the ERISA group or (ii) has at any time
within the preceding five years been maintained, or contributed to, by any
Person which was at such time a member of the ERISA group for employees of the
Person which was at such time a member of the ERISA Group.
"Purchase Price" means the purchase price for the Securities set forth in
Section 2.2 hereof.
"Purchaser" means Global Capital Funding Group, L.P. and its successors and
assigns, including holders from time to time of the Note.
"Registrable Securities" has the meaning set forth in Section 10.4(a).
"Registration Default" has the meaning set forth in Section 10.4(c).
"Registration Maintenance Period" has the meaning set forth in Section
10.4(c).
"Registration Statement" has the meaning set forth in Section 10.4(b).
"Registration Rights Agreement" means the agreement between the Company and
the Purchaser dated the date hereof substantially in the form set forth in
Exhibit B attached hereto.
"Required Effectiveness Date" has the meaning set forth in Section 10.4(b).
"Reserved Amount" has the meaning set forth in Section 7.10.
"Restricted Payment" means, with respect to any Person, (i) any dividend or
other distribution on any shares of capital stock of such Person (except
dividends payable solely in shares of capital stock of the same or junior class
of such Person and dividends from a wholly-owned direct or indirect Subsidiary
of the Company to its parent corporation), (ii) any payment on account of the
purchase, redemption, retirement or acquisition of (a) any shares of such
Person's capital stock or (b) any option, warrant or other right to acquire
shares of such Person's capital stock or (iii) any loan, or advance or capital
contribution to any Person (a "Stockholder") owning any capital stock of such
Person other than relocation, travel or like advances to officers and employees
in the ordinary course of business, and other than reasonable compensation as
determined by the Board of Directors.
"Rights Offering" has the meaning set forth in Section 11.3.
"Sale Event" has the meaning set forth in Section 3.4.
"SEC Reports" shall have the meaning set forth in Section 4.7.
"Securities" means the Note, Interest Shares, the Warrants and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Share Reorganization" has the meaning set forth in Section 11.2.
"Solvency Certificate" shall mean a certificate executed by the chief
financial officer of the Company as to the solvency of the Company, the adequacy
of its capital and its ability to pay its debts, all after giving effect to the
issuance and sale of the Note and the completion of the offering (including
without limitation the payment of any fees or expenses in connection therewith),
which such Solvency Certificate shall be in the from of Exhibit C attached
hereto.
"Subsidiaries" has the meaning set forth in Section 4.27.
"Subsidiary Corporate Documents" means the certificates of incorporation
and bylaws of each Subsidiary.
"Taxes" has the meaning set forth in Section 3.6.
"Trading Day" shall mean any Business Day in which the American Stock
Exchange or other automated quotation system or exchange on which the Common
Stock is then traded is open for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the Note, the Security
Agreement, the Warrants, and the Registration Rights Agreement.
"Transfer" means any disposition of Securities that would constitute a sale
thereof under the Securities Act.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Warrants" means the Common Stock Purchase Warrants issued to the Purchaser
for up to an aggregate of 600,000 shares of Common Stock in the aggregate on the
Closing Date in the form of Exhibit E hereto.
"Warrant Shares" has the meaning set forth in the Recitals.
Section 1.2 Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared, in accordance with generally accepted
accounting principles as in effect from time to time, applied on a consistent
basis (except for changes concurred in by the Company's independent public
accountants) ("GAAP"). All references to "dollars," "Dollars" or "$" are to
United States dollars unless otherwise indicated.
ARTICLE II. PURCHASE AND SALE OF SECURITIES
Section 2.1 Purchase and Sale of Note.
(a) Subject to the terms and conditions set forth herein, the Company
agrees to issue and sell to Purchaser, and Purchaser severally agrees to
purchase from the Company, the Note in the aggregate principal amount of up to
$1,250,000.
(b) Purchaser shall acquire the Note on the Closing Date in an aggregate
principal amount of One Million Two Hundred Fifty Thousand Dollars ($1,250,000).
(c) In connection with the Purchaser's agreement to purchase the Note
specified in this Article II, the Company shall issue and deliver to the
Purchaser on the Closing Date, Warrants to purchase an aggregate of 600,000
shares of Common Stock.
(d) The Note is secured by certain assets of the Company pursuant to that
certain Security Agreement (the "Security Agreement"), each of even date
herewith.
Section 2.2 Purchase Price. The purchase price for the Note and Warrants
shall be $1,250,000 (the "Purchase Price") and shall be allocated as set forth
on Schedule 2.2.
Section 2.3 Closing and Mechanics of Payment.
(a) Subject to satisfaction of the conditions set forth in Sections 6.1 and
6.2 hereof, the Closing Date shall occur on August 26, 2002.
(b) The Note issued on the Closing Date shall be dated the date hereof.
ARTICLE III. PAYMENT TERMS OF NOTE
Section 3.1 Ranking; Payment of Principal and Interest; Payment Mechanics.
The Note shall rank pari passu in right of payment (but not with respect to the
rights in the Collateral (as defined in the Note)) to the Company's outstanding
debt as of the Closing Date and senior to any debt incurred by the Company
following the Closing Date (except for the outstanding Connecticut Bank of
Commerce secured Note in the principal amount of $250,000). The Company will pay
all amounts due on each Note by the method and at the address specified for such
purpose by the applicable Purchaser in writing, without the presentation or
surrender of any Note or the making of any notation thereon, except that upon
written request of the Company made concurrently with or reasonably promptly
after payment or prepayment in full of this Note, the holder shall surrender the
Note for cancellation, reasonably promptly after any such request, to the
Company at its principal executive office. Prior to any sale or other
disposition of any Note, the holder thereof will, at its election, either
endorse thereon the amount of principal paid thereon and the last date to which
interest has been paid thereon or surrender the Note to the Company in exchange
for a new Note or Note. The Company will afford the benefits of this Section 3.1
to any direct or indirect transferee of the Note purchased under this Agreement
and that has made the same agreement relating to this Note as the Purchaser has
in this Section 3.1; provided that such transferee is an "accredited investor"
under Rule 501 of the Securities Act.
Section 3.2. Payment of Interest. Interest shall accrue on the outstanding
principal amount of the Note as of the date of issuance and shall be payable as
specified therein.
Section 3.3 Voluntary Prepayment. For so long as the Note is not in Default
(as defined herein), the Company may at any time until the Maturity Date, at its
option, repay, the full amount of, the Note at the Pre-Payment Price set forth
in the Note following at least five (5) Business Days prior written notice to
the Purchaser (the expiration of such five (5) Business Day period being
referred to as the "Prepayment Date"); provided, however, that if such date is
not a Business Day, the Prepayment Date shall be the next Business Day
thereafter.
Section 3.4 Mandatory Prepayments.
(a) Upon the occurrence of a (i) Change in Control of the Company or (ii) a
transfer of all or substantially all of the assets of the Company to any Person
in a single transaction or series of related transactions, or (iii) a
consolidation, merger or amalgamation of the Company with or into another Person
in which the Company is not the surviving entity (other than a merger which is
effected solely to change the jurisdiction of incorporation of the Company and
results in a reclassification, conversion or exchange of outstanding shares of
Common Stock solely into shares of Common Stock), (each a "Sale Event"), or the
occurrence of a Registration Default which continues uncured for a period of
forty-five (45) days, then, in each case, the Company shall, upon request of the
Majority Holders, redeem this Note in cash for the Prepayment Price.
(b) Upon the consummation of one or more Financings, the Company shall use
25% of the Net Cash Proceeds therefrom (unless the Net Cash Proceeds from each
such Financing is less than $250,000) to redeem the Note. The redemption price
payable upon any such redemption shall be the Prepayment Price.
Section 3.5 Prepayment Procedures.
(a) Any permitted prepayment or redemption of the Note pursuant to Sections
3.3 or 3.4 above shall be deemed to be effective and consummated (for purposes
of determining the Formula Price or Pre-Payment Price as follows:
(i) A prepayment pursuant to Section 3.3, the "Prepayment Date"
specified therein;
(ii) A redemption pursuant to Section 3.4(a), the date of consummation
of the applicable Sale Event or the Registration Default; and
(iii) A redemption pursuant to Section 3.4(b), three (3) Business Days
following the date of consummation of the applicable Financing (meaning
closing and funding).
(b) On the Maturity Date and on the effective date of a repayment or
redemption of the Note as specified in Section 3.5(a) above, the Company shall
deliver by wire transfer of funds the repayment/redemption price to each
Purchaser of the Note subject to redemption. Should any Purchaser not receive
payment of any amounts due on redemption of its Note by reason of the Company's
failure to make payment at the times prescribed above for any reason, the
Company shall pay to the applicable holder on demand (x) interest on the sums
not paid when due at an annual rate equal to the lesser of (I) the maximum
lawful rate and (II) 18% per annum, compounded at the end of each thirty (30)
days, until the applicable holder is paid in full and (y) all costs of
collection, including, but not limited to, reasonable attorneys' fees and costs,
whether or not suit or other formal proceedings are instituted.
(c) The Company shall select the Note to be redeemed in any redemption in
which not all of the Note are to be redeemed so that the ratio of the Note of
each holder selected for redemption to the total Note owned by that holder shall
be the same as the ratio of all such Note selected for redemption bears to the
total of all then outstanding Note. Should any Note required to be redeemed
under the terms hereof not be redeemed solely by reason of limitations imposed
by law, the applicable Note shall be redeemed on the earliest possible dates
thereafter to the maximum extent permitted by law.
Section 3.6 Payment of Additional Amounts.
(a) Any and all payments by the Company hereunder or under the Note to any
Purchaser and each "qualified assignee" thereof shall be made free and clear of
and without deduction or withholding for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto (all such taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes") unless
such Taxes are required by law or the administration thereof to be deducted or
withheld. If the Company shall be required by law or the administration thereof
to deduct or withhold any Taxes from or in respect of any sum payable under the
Note (i) the holders of the Note subject to such Taxes shall have the right, but
not the obligation, for a period of thirty (30) days commencing upon the day it
shall have received written notice from the Company that it is required to
withhold Taxes to transfer all or any portion of the Note to a qualified
assignee to the extent such transfer can be effected in accordance with the
other provisions of this Agreement and applicable law; (ii) the Company shall
make such deductions or withholdings; (iii) the sum payable shall be increased
as may be necessary so that after making all required deductions or withholdings
(including deductions or withholdings applicable to additional amounts paid
under this Section 3.6) such Purchaser receives an amount equal to the sum it
would have received if no such deduction or withholding had been made; and (iv)
the Company shall forthwith pay the full amount deducted or withheld to the
relevant taxation or other authority in accordance with applicable law or
regulation. A "qualified assignee" of a Purchaser is a Person that is organized
under the laws of (I) the United States or (II) any jurisdiction other than the
United States or any political subdivision thereof and that (y) represents and
warrants to the Company that payments of the Company to such assignee under the
laws in existence on the date of this Agreement would not be subject to any
Taxes and (z) from time to time, as and when requested by the Company, executes
and delivers to the Company and the Internal Revenue Service forms, and provides
the Company with any information necessary to establish such assignee's
continued exemption from Taxes under applicable law.
(b) The Company shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies (all such taxes, charges and levies hereinafter referred to as "Other
Taxes") which arise from any payment made under any of the Transaction
Agreements or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement other than Taxes payable solely as a result of the
transfer from the Purchaser to a Person of any Security.
(c) Within 30 days after the date of any payment of Taxes, the Company will
furnish to Purchaser the original or a certified copy of a receipt evidencing
payment thereof.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Purchaser as of the Closing
Date, the following:
Section 4.1 Organization and Qualification. The Company and each Subsidiary
is a corporation (or other legal entity) duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, with full
power and authority to own, lease, use and operate its properties and to carry
on its business as and where now owned, leased, used, operated and conducted.
The Company is qualified to conduct business as a foreign corporation and is in
good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary, except where such failure
would not have a Material Adverse Effect. A "Material Adverse Effect" means any
material adverse effect on the operations, results of operations, properties,
assets or condition (financial or otherwise) of the Company or the Company and
its Subsidiaries, taken as a whole, or on the transactions contemplated hereby
or by the agreements or instruments to be entered into in connection herewith.
Section 4.2 Authorization and Execution.
(a) The Company has all requisite corporate power and authority to enter
into and perform each Transaction Agreement and to consummate the transactions
contemplated hereby and thereby and to issue the Securities in accordance with
the terms hereof and thereof.
(b) The execution, delivery and performance by the Company of each
Transaction Agreement and the issuance by the Company of the Securities have
been duly and validly authorized and no further consent or authorization of the
Company, its Board of Directors or its shareholders is required.
(c) This Agreement has been duly executed and delivered by the Company.
(d) This Agreement constitutes, and upon execution and delivery thereof by
the Company, each of the Transaction Agreements will constitute, a valid and
binding agreement of the Company, in each case enforceable against the Company
in accordance with its respective terms, subject to (i) applicable bankruptcy,
insolvency or similar laws affecting the enforceability of creditors rights
generally and (ii) equitable principles of general applicability.
Section 4.3 Capitalization . As of the date hereof, the authorized, issued
and outstanding capital stock of the Company is as set forth on Schedule 4.3
hereto and no other shares of capital stock of the Company will be outstanding
as of the Closing Date. All of such outstanding shares of capital stock are, or
upon issuance will be, duly authorized, validly issued, fully paid and
nonassessable. No shares of capital stock of the Company are subject to
preemptive rights or similar rights of the stockholders of the Company or any
liens or encumbrances imposed through the actions or failure to act of the
Company. Other than as set forth on Schedule 4.3 hereto, as of the date hereof,
(i) there are no outstanding options, warrants, scrip, rights to subscribe for,
puts, calls, rights of first refusal, agreements, understandings, claims or
other commitments or rights of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for any shares of capital
stock of the Company or any of its Subsidiaries, or arrangements by which the
Company or any of its Subsidiaries is or may become bound to issue additional
shares of capital stock of the Company or any of its Subsidiaries, and (ii)
there are no agreements or arrangements under which the Company or any of its
Subsidiaries are obligated to register the sale of any of its or their
securities under the Securities Act (except pursuant to the Registration Rights
Agreement) and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the Note,
Warrants or Warrant Shares. The Company has furnished to Purchaser true and
correct copies of the Company's Corporate Documents, and the terms of all
securities convertible into or exercisable for Common Stock and the material
rights of the holders thereof in respect thereto.
Section 4.4 Governmental Authorization. The execution and delivery by the
Company of the Transaction Agreements does not and will not, the issuance and
sale by the Company of the Securities does not and will not, and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, require any action by or in respect of, or
filing with, any governmental body, agency or governmental official except (a)
such actions or filings that have been undertaken or made prior to the date
hereof and that will be in full force and effect (or as to which all applicable
waiting periods have expired) on and as of the date hereof or which are not
required to be filed on or prior to the Closing Date, (b) such actions or
filings that, if not obtained, would not result in a Material Adverse Effect,
and (c) the filing of a "Form D" as described in Section 7.13 below.
Section 4.5 Issuance of Shares. Upon exercise in accordance with the terms
of the Warrants (assuming the payment of the exercise price set forth in the
Warrants), the Warrant Shares and the Interest Shares (if any) shall be duly and
validly issued and outstanding, fully paid and nonassessable, free and clear of
any Taxes, Liens and charges with respect to issuance and shall not be subject
to preemptive rights or similar rights of any other stockholders of the Company.
Assuming the representations and warranties of the Purchaser herein are true and
correct in all material respects, each of the Securities will have been issued
in material compliance with all applicable U.S. federal and state securities
laws. The Company understands and acknowledges that, in certain circumstances,
the issuance of Warrant Shares could dilute the ownership interests of other
stockholders of the Company. The Company further acknowledges that its
obligation to issue Warrant Shares upon exercise of the Warrants, is absolute
and unconditional regardless of the dilutive effect that such issuance may have
on the ownership interests of other stockholders of the Company.
Section 4.6 No Conflicts. The execution and delivery by the Company of the
Transaction Agreements to which it is a party did not and will not, the issuance
and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation, (ii) the Company
Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or
other instrument binding upon the Company or any Subsidiary or any of their
respective assets, or result in the creation or imposition of any Lien on any
asset of the Company or any Subsidiary. The Company and each Subsidiary is in
compliance with and conforms to all statutes, laws, ordinances, rules,
regulations, orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the conduct of its businesses or the ownership of its
properties, except where such failure would not have a Material Adverse Effect.
Section 4.7 Financial Information and SEC Reports. Since January 1, 2002,
the Company has timely filed all forms, reports and documents with the
Commission required to be filed by it under the Exchange Act through the date
hereof (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
(other than exhibits) incorporated by reference therein, being referred to
herein collectively as the "SEC Reports"). The Company has delivered or made
available to each Purchaser true and complete copies of the SEC Reports, except
for such exhibits and incorporated documents. Such SEC Reports, at the time
filed, complied in all material respects with the requirements of the Exchange
Act and the rules and regulations of the Commission thereunder applicable to
such SEC Reports. None of the SEC Reports, including without limitation, any
financial statements or schedules included therein, contains any untrue
statement of a material fact or omits to state a material fact necessary to in
order to make the statements made, in light of the circumstances under which
they were made, not misleading. There have been no material adverse changes in
the Company's business, properties, results of operations, condition (financial
or otherwise) or prospects since the date of the Company's most recent Report on
Form 10-KSB for the year ended September 30, 2001 which have not been disclosed
in the Company's SEC Reports or to the Purchaser in writing. The audited and
unaudited consolidated balance sheets of the Company and its Subsidiaries
contained in the SEC Reports, and the related consolidated statements of income,
changes in stockholders' equity and changes in cash flows for the periods then
ended, including the footnotes thereto, except as indicated therein, (i)
complied in all material respects with applicable accounting requirements and
the published rules and regulations of the Commission with respect thereto and
(ii) have been prepared in accordance with GAAP consistently applied throughout
the periods indicated, except that the unaudited financial statements do not
contain Note and may be subject to normal audit adjustments and normal annual
adjustments. Such financial statements fairly present the financial condition of
the Company and its Subsidiaries at the dates indicated and the consolidated
results of their operations and cash flows for the periods then ended and,
except as indicated therein, reflect all claims against and all Debts and
liabilities of the Company and its Subsidiaries, fixed or contingent. Since June
30, 2002 (the "Balance Sheet Date"), except as disclosed in the SEC Reports,
there has been (x) no material adverse change in the assets or liabilities, or
in the business or condition, financial or otherwise, or in the results of
operations or prospects, of the Company and its Subsidiaries, whether as a
result of any legislative or regulatory change, revocation of any license or
rights to do business, fire, explosion, accident, casualty, labor trouble,
flood, drought, riot, storm, condemnation, act of God, public force or otherwise
and (y) no material adverse change in the assets or liabilities, or in the
business or condition, financial or otherwise, or in the results of operations
or prospects, of the Company and its subsidiaries except in the ordinary course
of business; and no fact or condition exists or is contemplated or threatened
which might cause such a change in the future.
Section 4.8 Litigation. Except as set forth in the SEC Reports, there is no
action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary, before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or which challenges the validity of any
Transaction Agreements.
Section 4.9 Compliance with ERISA and other Benefit Plans.
(a) Each member of the ERISA Group has fulfilled its obligations under the
minimum funding standards of ERISA and the Code with respect to each Plan and is
in compliance in all material respects with the presently applicable provisions
of ERISA and the Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Code in respect of any Plan, (ii) failed to make any required contribution or
payment to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement, or made any amendment to any Plan or Benefit Arrangement, which as
resulted or could result in the imposition of a Lien or the posting of a bond or
other security under ERISA or the Code or (iii) incurred any liability under
Title IV of ERISA other than a liability to the PBGC for premiums under Section
4007 of ERISA.
(b) The benefit plans not covered under clause (a) above (including profit
sharing, deferred compensation, stock option, employee stock purchase, bonus,
retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a "going
concern" or "winding up" basis and determined in accordance with all applicable
laws and actuarial practices and using actuarial assumptions and methods that
are reasonable in the circumstances. No event has occurred and no condition
exists with respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration revoked or
wound up (in whole or in part) or refused for the purposes of any applicable
laws or being placed under the administration of any relevant pension benefits
regulatory authority or being required to pay any taxes or penalties (in any
material amounts) under any applicable laws.
Section 4.10 Environmental Matters. The costs and liabilities associated
with Environmental Laws (including the cost of compliance therewith) are
unlikely to have a material adverse effect on the business, condition (financial
or otherwise), operations, performance, properties or prospects of the Company
or any Subsidiary. Each of the Company and the Subsidiaries conducts its
businesses in compliance in all material respects with all applicable
Environmental Laws.
Section 4.11 Taxes. All United States federal, state, county, municipality,
local or foreign income tax returns and all other material tax returns
(including foreign tax returns) which are required to be filed by or on behalf
of the Company and each Subsidiary have been filed and all material taxes due
pursuant to such returns or pursuant to any assessment received by the Company
and each Subsidiary have been paid except those being disputed in good faith and
for which adequate reserves have been established. The charges, accruals and
reserves on the books of the Company and each Subsidiary in respect of taxes and
other governmental charges have been established in accordance with GAAP.
Section 4.12 Investments, Joint Ventures. Other than as set forth in
Schedule 4.12, the Company has no direct or indirect Investment in any Person,
and the Company is not a party to any partnership, management, shareholders' or
joint venture or similar agreement.
Section 4.13 Not an Investment Company. Neither the Company nor any
Subsidiary is an "Investment Company" within the meaning of Investment Company
Act of 1940, as amended.
Section 4.14 Full Disclosure. The information heretofore furnished by the
Company to the Purchaser for purposes of or in connection with this Agreement or
any transaction contemplated hereby does not, and all such information hereafter
furnished by the Company or any Subsidiary to the Purchaser will not (in each
case taken together and on the date as of which such information is furnished),
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in the light of the
circumstances under which they are made, not misleading.
Section 4.15 No Solicitation; No Integration with Other Offerings. No form
of general solicitation or general advertising was used by the Company or, to
the best of its actual knowledge, any other Person acting on behalf of the
Company, in connection with the offer and sale of the Securities. Neither the
Company, nor, to its knowledge, any Person acting on behalf of the Company, has,
either directly or indirectly, sold or offered for sale to any Person (other
than the Purchaser) any of the Securities or, within the six months prior to the
date hereof, any other similar security of the Company except as contemplated by
this Agreement and as reported in the SEC Reports, and the Company represents
that neither itself nor any Person authorized to act on its behalf (except that
the Company makes no representation as to the Purchaser and their Affiliates)
will sell or offer for sale any such security to, or solicit any offers to buy
any such security from, or otherwise approach or negotiate in respect thereof
with, any Person or Persons so as thereby to cause the issuance or sale of any
of the Securities to be in violation of any of the provisions of Section 5 of
the Securities Act. The issuance of the Securities to the Purchaser will not be
integrated with any other issuance of the Company's securities (past, current or
future) which requires stockholder approval under the rules of the American
Stock Exchange.
Section 4.16 Permits. (a) Each of the Company and its Subsidiaries has all
material Permits; (b) all such Permits are in full force and effect, and each of
the Company and its Subsidiaries has fulfilled and performed all material
obligations with respect to such Permits; (c) no event has occurred which
allows, or after notice of lapse of time would allow, revocation or termination
by the issuer thereof or which results in any other material impairment of the
rights of the holder of any such Permit; and (d) the Company has no reason to
believe that any governmental body or agency is considering limiting, suspending
or revoking any such Permit.
Section 4.17 Leases. Other than as disclosed in the SEC Reports, neither
the Company nor any Subsidiary is a party to any capital lease obligation with a
value greater than $100,000 or to any operating lease with an aggregate annual
rental greater than $500,000 during the life of such lease.
Section 4.18 Absence of Any Undisclosed Liabilities or Capital Calls. There
are no liabilities of the Company or any Subsidiary of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
and there is no existing condition, situation or set of circumstances which
would reasonably be expected to result in such a liability, other than (i) those
liabilities provided for in the financial statements delivered pursuant to
Section 4.7 hereof and (ii) other undisclosed liabilities which, individually or
in the aggregate, would not have a Material Adverse Effect.
Section 4.19 Public Utility Holding Company. Neither the Company nor any
Subsidiary is, or will be upon issuance and sale of the Securities and the use
of the proceeds described herein, subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate
Commerce Act or to any federal or state statute or regulation limiting its
ability to issue and perform its obligations under any Transaction Agreement.
Section 4.20 Intellectual Property Rights. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
patents, trademarks, trade names, copyrights, technology, know-how and processes
(collectively, "Intellectual Property") used in, or necessary for the conduct of
its business; no claims have been asserted by any Person to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto. To the best of
Company's and its Subsidiaries' knowledge, there is no valid basis for any such
claim and the use of such Intellectual Property by the Company and its
Subsidiaries will not infringe upon the rights of any Person.
Section 4.21 Insurance. The Company and its Subsidiaries maintain, with
financially sound and reputable insurance companies, insurance in at least such
amounts and against such risks such that any uninsured loss would not have a
Material Adverse Effect. All insurance coverages of the Company and its
Subsidiaries are in full force and effect and there are no past due premiums in
respect of any such insurance.
Section 4.22 Title to Properties. The Company and its Subsidiaries have
good and marketable title to all their respective properties, real and personal,
free and clear of all Liens.
Section 4.23 Reserved.
Section 4.24 Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's Board of Directors, to provide reasonable
assurance that (i) transactions are executed in accordance with managements'
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
Section 4.25 Foreign Practices. Neither the Company nor any of its
Subsidiaries nor, to the Company's knowledge, any employee or agent of the
Company or any Subsidiary has made any payments of funds of the Company or
Subsidiary, or received or retained any funds, in each case (x) in violation of
any law, rule or regulation or (y) of a character required to be disclosed by
the Company in any of the SEC Reports.
Section 4.27 Subsidiaries. Except for the directly and indirectly owned
subsidiaries of the Company as set forth on Schedule 4.27 (the "Subsidiaries"),
the Company does not own or hold any shares of stock or any other security or
interest in any other equity, or any rights to acquire any such security or
interest. Except for the Subsidiaries disclosed on Schedule 4.27, the Company
has never had any subsidiary corporation of which the securities having a
majority of voting power in electing the board of directors or representing a
majority of the economic interests were, at the time as of which any
determination was made, owned by the Company either directly or indirectly. The
number of authorized, issued and outstanding shares of capital stock of the
Subsidiaries is as set forth on Schedule 4.27. All outstanding shares of the
Subsidiaries capital stock are validly issued, fully paid and nonassessable, are
free from, and were not issued in violation of any preemptive rights, and are
owned of record and beneficially by the Company.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Section 5.1 Purchaser. Purchaser hereby represents and warrants to the
Company that:
(a) the Purchaser is an "accredited investor" within the meaning of Rule
501(a) under the Securities Act and the Securities to be acquired by it pursuant
to this Agreement are being acquired for its own account and, as of the date
hereof, not with a view toward, or for sale in connection with, any distribution
thereof except in compliance with applicable United States federal and state
securities law; provided that the disposition of the Purchaser's property shall
at all times be and remain within its control;
(b) the execution, delivery and performance of this Agreement and the
purchase of the Securities pursuant thereto are within the Purchaser's corporate
or partnership powers, as applicable, and have been duly and validly authorized
by all requisite corporate or partnership action;
(c) this Agreement has been duly executed and delivered by the Purchaser;
(d) the execution and delivery by the Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of the
transactions contemplated hereby and thereby will not, contravene or constitute
a default under or violation of (i) any provision of applicable law or
regulation, or (ii) any agreement, judgment, injunction, order, decree or other
instrument binding upon such Purchaser;
(e) Purchaser understands that the Securities have not been registered
under the Securities Act and may not be transferred or sold except as specified
in this Agreement or the remaining Transition Agreements;
(f) this Agreement constitutes a valid and binding agreement of the
Purchaser enforceable in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency or similar laws affecting the enforceability of creditors
rights generally and (ii) equitable principles of general applicability;
(g) the Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of its
investment in the Securities and the Purchaser is capable of bearing the
economic risks of such investment;
(h) the Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; the Purchaser has previously invested in
securities similar to the Securities and fully understands the limitations on
transfer described herein; the Purchaser has been afforded access to information
about the Company and the financial condition, results of operations, property,
management and prospects of the Company sufficient to enable it to evaluate its
investment in the Securities; the Purchaser has been afforded the opportunity to
ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and the risks of investing in the
Securities; and the Purchaser has been afforded the opportunity to obtain such
additional information which the Company possesses or can acquire that is
necessary to verify the accuracy and completeness of the information given to
the Purchaser concerning the Company. The foregoing does not in any way relieve
the Company of its representations and other undertakings hereunder, and shall
not limit any Purchaser's ability to rely thereon; and
(i) no part of the source of funds used by the Purchaser to acquire the
Securities constitutes assets allocated to any separate account maintained by
the Purchaser in which any employee benefit plan (or its related trust) has any
interest.
ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
Section 6.1 Conditions Precedent to the Purchaser's Obligations to
Purchase. The obligation of Purchaser hereunder to purchase the Note at the
Closing is subject to the satisfaction, on or before the Closing Date of each of
the following conditions, provided that these conditions are for Purchaser's
sole benefit and may be waived by Purchaser at any time in its sole discretion;
(a) The Company shall have executed this Agreement, the Escrow Agreement
and the Registration Rights Agreement and delivered the same to the Purchaser;
(b) The Company shall have delivered to the Purchaser a duly executed Note
in accordance with Article 2 hereof, the Security Agreement and all related
documents.
(c) The Company shall have delivered the Solvency Certificate;
(d) The representations and warranties of the Company contained in each
Transaction Agreement shall be true and correct in all material respects as of
the date when made and as of the Closing Date as though made at such time
(except for representations and warranties that speak as of a specified date)
and the Company shall have performed, satisfied and complied with all covenants,
agreements and conditions required by such Transaction Agreements to be
performed, satisfied or complied with by it at or prior to the Closing Date. The
Purchaser shall have received an Officer's Certificate executed by the chief
executive officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by the
Purchaser, including but not limited to certificates with respect to the Company
Corporate Documents, resolutions relating to the transactions contemplated
hereby and the incumbencies of certain officers and Directors of the Company.
The form of such certificate is attached hereto as Exhibit D;
(e) The Company shall have received all governmental, Board of Directors,
shareholders and third party consents and approvals necessary or desirable in
connection with the issuance and sale of the Securities;
(f) All applicable waiting periods in respect to the issuance and sale of
the Securities shall have expired without any action having been taken by any
competent authority that could restrain, prevent or impose any materially
adverse conditions thereon or that could seek or threaten any of the foregoing;
(g) No law or regulation shall have been imposed or enacted that, in the
judgment of the Purchaser, could adversely affect the transactions set forth
herein or in the other Transaction Agreements, and no law or regulation shall
have been proposed that in the reasonable judgment of Purchaser could reasonably
have any such effect;
(h) Purchaser shall have received an opinion, dated the Closing Date, of
counsel to the Company in form and substance satisfactory to Purchaser;
(i) All fees and expenses due and payable by the Company on or prior to the
Closing Date shall have been paid;
(j) The Company Corporate Documents and the Subsidiary Corporate Documents,
if any, shall be in full force and effect and no term or condition thereof shall
have been amended, waived or otherwise modified without the prior written
consent of the Purchaser;
(k) There shall have occurred no material adverse change in the business,
condition (financial or otherwise), operations, performance, properties or
prospects of the Company or any Subsidiary since December 31, 2001;
(l) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental instrumentality that challenges the validity of or purports to
affect this Agreement or any other Transaction Agreement, or other transaction
contemplated hereby or thereby or that could reasonably be expected to have a
Material Adverse Effect, or any material adverse effect on the enforceability of
the Transaction Agreements or the Securities or the rights of the holders of the
Securities or the Purchaser hereunder;
(m) The Purchaser shall have confirmed receipt of the Note to be issued,
duly executed by the Company in the denominations and registered in the name of
the Purchaser specified in Section 2.1;
(n) There shall not have occurred any disruption or adverse change in the
financial or capital markets generally, or in the market for the Common Stock
(including but not limited to any suspension or delisting), which the Purchaser
reasonably deems material in connection with the purchase of the Securities;
(o) Immediately before and on the Closing Date, no Default or Event of
Default shall have occurred and be continuing;
(p) The Purchaser shall have received all other opinions, resolutions,
certificates, instruments, agreements or other documents as they shall
reasonably request; and
(q) The Company shall have delivered to Purchaser the Use of Proceeds
Schedule 7.8.
Section 6.2 Conditions to the Company's Obligations. The obligations of the
Company to issue and sell the Securities to the Purchaser pursuant to this
Agreement are subject to the satisfaction, at or prior to any Closing Date, of
the following conditions:
(a) The representations and warranties of the Purchaser contained herein
shall be true and correct in all material respects on the Closing Date and the
Purchaser shall have performed and complied in all material respects with all
agreements required by this Agreement to be performed or complied with by the
Purchaser at or prior to the Closing Date;
(b) The issue and sale of the Securities by the Company shall not be
prohibited by any applicable law, court order or governmental regulation;
(c) Receipt by the Company of duly executed counterparts of this Agreement,
the Escrow Agreement and the Registration Rights Agreement signed by the
Purchaser; and
(d) The Company shall have received payment of the Purchase Price, less the
applicable transaction fees.
ARTICLE VII. AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Note remain outstanding (except for Sections 7.1(a) and (d), 7.10, 7.11,
7.12 and 7.13, which shall apply for so long as any Note or Warrants remain
outstanding) and for the benefit of the Purchaser:
Section 7.1 Information. The Company will deliver to each holder of the
Note:
(a) promptly upon the filing thereof, copies of (i) all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent), and (ii) all reports of Forms 10-K, 10-Q and 8-K
(or other equivalents) which the Company or any Subsidiary has filed with the
Commission;
(b) simultaneously with the delivery of each item referred to in clause (a)
above, a certificate from the chief financial officer of the Company stating
that no Default or Event of Default has occurred and is continuing, or, if as of
the date of such delivery a Default shall have occurred and be continuing, a
certificate from the Company setting forth the details of such Default or Event
of Default and the action which the Company is taking or proposes to take with
respect thereto;
(c) within two (2) days after any officer of the Company obtains knowledge
of a Default or Event of Default, or that any Person has given any notice or
taken any action with respect to a claimed Default hereunder, a certificate of
the chief financial officer of the Company setting forth the details thereof and
the action which the Company is taking or proposed to take with respect thereto;
(d) promptly upon the mailing thereof to the shareholders of the Company
generally, copies of all financial statements, reports and proxy statements so
mailed and any other document generally distributed to shareholders;
(e) at least two (2) Business Days prior to the consummation of any
Financing or other event requiring a repayment of the Note under Section 3.4,
notice thereof together with a summary of all material terms thereof and copies
of all documents and instruments associated therewith;
(f) notice promptly upon the occurrence of any event by which the Reserved
Amount becomes less than the maximum number of Warrant Shares issuable pursuant
to the Transaction Agreements; and
(g) promptly following the commencement thereof, notice and a description
in reasonable detail of any litigation or proceeding to which the Company or any
Subsidiary is a party in which the amount involved is $250,000 or more and not
covered by insurance or in which injunctive or similar relief is sought or which
the Company is required to disclose in its SEC Reports.
Section 7.2 Payment of Obligations. The Company will, and will cause each
Subsidiary to, pay and discharge, at or before maturity, all their respective
material obligations, including, without limitation, tax liabilities, except
where the same may be contested in good faith by appropriate proceedings and
will maintain, in accordance with GAAP, appropriate reserves for the accrual of
any of the same.
Section 7.3 Maintenance of Property; Insurance. The Company will, and will
cause each Subsidiary to, keep all property useful and necessary in its business
in good working order and condition, ordinary wear and tear excepted. In
addition, the Company and each Subsidiary will maintain insurance in at least
such amounts and against such risks as it has insured against as of the Closing
Date.
Section 7.4 Maintenance of Existence. The Company will, and will cause each
Subsidiary to, continue to engage in business of the same general type as now
conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
Section 7.5 Compliance with Laws. The Company will, and will cause each
Subsidiary to, comply, in all material respects, with all federal, state,
municipal, local or foreign applicable laws, ordinances, rules, regulations,
municipal by-laws, codes and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except (i) where compliance therewith is contested in
good faith by appropriate proceedings or (ii) where non-compliance therewith
could not reasonably be expected, in the aggregate, to have a material adverse
effect on the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company or such Subsidiary.
Section 7.6 Inspection of Property, Books and Records. The Company will,
and will cause each Subsidiary to, keep proper books of record and account in
which full, true and correct entries shall be made of all dealings and
transactions in relation to their respective businesses and activities; and will
permit, during normal business hours, the Purchaser's Representative or an
affiliate thereof, as representatives of the Purchaser and representatives of
the Small Business Administration, to visit and inspect any of their respective
properties, upon reasonable prior notice, to examine and make abstracts from any
of their respective books and records and to discuss their respective affairs,
finances and accounts with their respective executive officers and independent
public accountants (and by this provision the Company authorizes its independent
public accountants to disclose and discuss with the Purchaser the affairs,
finances and accounts of the Company and its Subsidiaries), all at such
reasonable times.
Section 7.7 Investment Company Act. The Company will not be or become an
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
Section 7.8 Use of Proceeds. The proceeds from the issuance and sale of the
Note by the Company shall be used as set forth on Schedule 7.8. None of the
proceeds from the issuance and sale of the Note by the Company pursuant to this
Agreement will be used directly or indirectly for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any "margin stock"
within the meaning of Regulation G of the Board of Governors of the Federal
Reserve System.
Section 7.9 Compliance with Terms and Conditions of Material Contracts. The
Company will, and will cause each Subsidiary to, comply, in all material
respects, with all terms and conditions of all material contracts to which it is
subject.
Section 7.10 Reserved Shares and Listings.
(a) The Company shall at all times have authorized, and reserved for the
purpose of issuance, a sufficient number of shares of Common Stock to provide
for the exercise in full of the Warrants and the issuance of the Warrant Shares
(based on the exercise price of the Warrants) (collectively, the "Reserved
Amount"). The Company shall not reduce the Reserved Amount without the prior
written consent of Purchaser. If at any time the number of shares of Common
Stock authorized and reserved for issuance is below the number of Warrant Shares
issued or issuable upon exercise of the Warrants, the Company will promptly take
all corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of shareholders
to authorize additional shares, in the case of an insufficient number of
authorized shares.
(b) The Company will obtain and maintain the listing and trading of its
Common Stock on the American Stock Exchange. The Company shall promptly provide
to each Purchaser copies of any notices it receives from the American Stock
Exchange regarding the continued eligibility of the Common Stock for listing on
the American Stock Exchange.
Section 7.11 Irrevocable Instructions. Upon receipt of a Notice of
Exercise, as applicable, the Company shall immediately issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Purchaser or its nominee, for the Warrant Shares in such amounts as
specified from time to time by each Purchaser to the Company upon proper
exercise of the Warrants. Upon exercise of any Warrants in accordance with their
terms, the Company will, and will use its best lawful efforts to cause its
transfer agent to, issue one or more certificates representing shares of Common
Stock in such name or names and in such denominations specified by a Purchaser
in a Notice of Exercise. As long as the Registration Statement contemplated by
the Registration Rights Agreement shall remain effective, the shares of Common
Stock issuable upon exercise of any Warrants shall be issued to any transferee
of such shares from Purchaser, including transferee's of such shares pursuant to
an effective registration statement, without any restrictive legend. The Company
further warrants and agrees that no instructions other than these instructions
have been or will be given to its transfer agent. Nothing in this Section 7.11
shall affect in any way a Purchaser's obligation to comply with all securities
laws applicable to such Purchaser upon resale of such shares of Common Stock,
including any prospectus delivery requirements.
Section 7.12 Maintenance of Reporting Status; Supplemental Information. So
long as any of the Securities are outstanding, the Company shall timely file all
reports required to be filed with the Commission pursuant to the Exchange Act.
The Company shall not terminate its status as an issuer required to file reports
under the Exchange Act, even if the Exchange Act or the rules and regulations
thereunder would permit such termination. If at anytime the Company is not
subject to the requirements of Section 13 or 15(d) of the Exchange Act, the
Company will promptly furnish at its expense, upon request, for the benefit of
the holders from time to time of Securities, and prospective Purchaser of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
Section 7.13 Form D; Blue Sky Laws. The Company agrees to file a "Form D"
with respect to the Securities as required under Regulation D of the Securities
Act and to provide a copy thereof to each Purchaser promptly after such filing.
The Company shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary to qualify the Securities for
sale to the Purchaser at the Closing pursuant to this Agreement under applicable
securities or "blue sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to each Purchaser on or prior to the First Closing Date.
ARTICLE VIII. NEGATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Note remain outstanding and for the benefit of the Purchaser:
Section 8.1 Limitations on Debt or Other Liabilities. Neither the Company
nor any Subsidiary will create, incur, assume or suffer to exist (at any time
after the Closing Date, after giving effect to the application of the proceeds
of the issuance of the Securities), without the prior written consent of
Purchaser, any Debt except (w) Debt incurred in a Permitted Financing, (x) Debt
incurred in connection with equipment leases to which the Company or its
Subsidiaries are a party incurred in the ordinary course of business; (y) Debt
incurred in connection with trade accounts payable, imbalances and refunds
arising in the ordinary course of business; and (z) the outstanding Connecticut
Bank of Commerce secured Note in the principal amount of $250,000.
Section 8.2 Transactions with Affiliates. The Company and each Subsidiary
will not, directly or indirectly, pay any funds to or for the account of, make
any investment (whether by acquisition or stock or indebtedness, by loan,
advance, transfer of property, guarantee or other agreement to pay, purchase or
service, directly or indirectly, and Debt, or otherwise) in, lease, sell,
transfer or otherwise dispose of any assets, tangible or intangible, to, or
participate in, or effect any transaction in connection with any joint
enterprise or other joint arrangement with, any Affiliate, except, (1) pursuant
to those agreements specifically identified on Schedule 8.2 attached hereto
(with a copy of such agreements annexed to such Schedule 8.2) or (2) on terms to
the Company or such Subsidiary no less favorable than terms that could be
obtained by the Company or such Subsidiary from a Person that is not an
Affiliate of the Company upon negotiation at arms' length, as determined in good
faith by the Board of Directors of the Company; provided that no determination
of the Board of Directors shall be required with respect to any such
transactions entered into in the ordinary course of business.
Section 8.3 Merger or Consolidation. Subject to the provisions of Section
3.4(b), the Company will not, in a single transaction or a series of related
transactions without ten days prior written notice to Purchaser, (i) consolidate
with or merge with or into any other Person, or (ii) permit any other Person to
consolidate with or merge into it, unless the Company shall be the survivor of
such merger or consolidation and (x) immediately before and immediately after
given effect to such transaction (including any indebtedness incurred or
anticipated to be incurred in connection with the transaction), no Default or
Event of Default shall have occurred and be continuing; and (y) the Company has
delivered to the Purchaser an Officer's Certificate stating that such
consolidation, merger or transfer complies with this Agreement, and that all
conditions precedent in this Agreement relating to such transaction have been
satisfied.
Section 8.4 Limitation on Asset Sales. Subject to the provisions of Section
3.4(b), neither the Company nor any Subsidiary will consummate an Asset Sale of
material assets of the Company or any Subsidiary without ten days prior written
notice to Purchaser. As used herein, "Asset Sale" means any sale, lease,
transfer or other disposition (or series of related sales, leases, transfers or
dispositions) or sales of capital stock of a Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the purpose
of this definition as a "disposition"), including any disposition by means of a
merger, consolidation or similar transaction other than a disposition of
property or assets at fair market value in the ordinary course of business.
Section 8.5 Restrictions on Certain Amendments. Neither the Company nor any
Subsidiary will waive any provision of, amend, or suffer to be amended, any
provision of such entity's existing Debt, any material contract or agreement
previously or hereafter filed by the Company with the Commission as part of its
SEC Reports, any Company Corporate Document or Subsidiary Corporate Document if
such amendment, in the Company's reasonable judgment, would materially adversely
affect the Purchaser or the holders of the Securities without the prior written
consent of the Purchaser.
Section 8.6 Restrictions on Issuances of Securities.
(a) From the Closing Date and continuing until 180 days following the date
on which the Registration Statement becomes effective, the Company agrees that
it will not, without the prior written consent of Purchaser, issue any of its
equity securities (or securities convertible into or exchangeable or exercisable
for equity securities (the "Derivative Securities")) on terms that allow a
holder thereof to acquire such equity securities (or Derivative Securities) at a
discount to the Market Price of the Common Stock at the time of issuance or, in
the case of Derivative Securities, at a conversion price based on any formula
(other than standard anti-dilution provisions) based on the Market Price on a
date later than the date of issuance which is below the Market Price on the date
of issuance (each such event, a "Discounted Equity Offering") other than (i)
borrowings under conventional credit facilities existing as of the date hereof,
(ii) stock issued or credit facilities to be established in connection with
acquisitions, (iii) equity securities or Derivative Securities in connection
with employee and director stock option and stock purchase plans and (iv)
securities issued under the Warrants. In addition, the Company shall not issue
any equity securities in connection with a strategic alliance entered into by
the Company unless such securities are the subject of a one year statutory or
contractual hold period or, if not subject to such a hold period, unless the
Purchaser has fully exercised all Warrants. As used herein, "discount" shall
include, but not be limited to, (i) any warrant, right or other security granted
or offered in connection with such issuance which, on the applicable date of
grant, is offered with an exercise or conversion price, as the case may be, at
less than the then current Market Price of the Common Stock or, if such security
has an exercise or conversion price based on any formula (other than standard
anti-dilution provisions) based on the Market Price on a date later than the
date of issuance, then at a price below the Market Price on such date of
exercise or conversion, as the case may be, or (ii) any commissions, fees or
other allowances paid in connection with such issuances (other than customary
underwriter or placement agent commissions, fees or allowances). For the
purposes of determining the Market Price at which Common Stock is acquired under
this Section, normal underwriting commissions and placement fees (including
underwriters' warrants) shall be excluded. Notwithstanding the foregoing, the
Company may enter into the following types of transactions (collectively
referred to as "Permitted Financings"): (1) "permanent financing" transactions,
which would include any form of debt or equity financing (other than an
underwritten offering), which is followed by a reduction of the said financing
commitment to zero and payment of all related fees and expenses; (2) "project
financing" which provide for the issuance of recourse debt instruments in
connection with the operation of the Company's business as presently conducted
or as proposed to be conducted; (3) an underwritten offering of Common Stock,
provided that such offering provides for the registration of the Conversion
Shares if the Registration Statement has not been declared effective; and (4)
other financing transactions specifically consented to in writing by the
Purchaser. The 180-day restrictive period set forth in this paragraph (a) of
this Section 8.6 shall be increased by one day for each day a Registration
Default has occurred and not been cured by the Company.
(b) Notwithstanding the foregoing, the restrictions contained in this
Section 8.6 shall not apply to the issuance by the Company of (or the agreement
to issue) Common Stock or securities convertible into Common Stock in connection
with (i) the acquisition (including by merger) of a business or of assets
otherwise permitted under this Agreement, or (ii) Company or Subsidiary stock
option or other compensatory or employee benefit plans.
Section 8.7 Limitation on Stock Repurchases. Except as otherwise set forth
in the Warrants, the Company shall not, without the written consent of the
Majority Holders, redeem, repurchase or otherwise acquire (whether for cash or
in exchange for property or other securities or otherwise) any shares of capital
stock of the Company or any warrants, rights or options to purchase or acquire
any such shares.
ARTICLE IX. RESTRICTIVE LEGENDS
Section 9.1 Restrictions on Transfer. From and after their respective dates
of issuance, none of the Securities shall be transferable except upon the
conditions specified in this Article IX, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest therein. Purchaser will use its best
efforts to cause any proposed transferee of any Securities held by it to agree
to take and hold such Securities subject to the provisions and upon the
conditions specified in this Article IX.
Section 9.2 Legends. The Warrants shall bear restrictive legends in
accordance with applicable securities laws. The Warrant Shares, upon resale by
the Purchaser pursuant to the Registration Statement, shall be freely tradeable
and unrestricted.
Section 9.3 Notice of Proposed Transfers. Prior to any proposed Transfer of
the Securities (other than a Transfer (i) registered or exempt from registration
under the Securities Act, (ii) to an affiliate of a Purchaser which is an
"accredited investor" within the meaning of Rule 501(a) under the Securities
Act, provided that any such transferee shall agree to be bound by the terms of
this Agreement and the Registration Rights Agreement, or (iii) to be made in
reliance on Rule 144 under the Securities Act), the holder thereof shall give
written notice to the Company of such holder's intention to effect such
Transfer, setting forth the manner and circumstances of the proposed Transfer,
which shall be accompanied by (a) an opinion of counsel reasonably acceptable to
the Company, confirming that such transfer does not give rise to a violation of
the Securities Act, (B) representation letters in form and substance reasonably
satisfactory to the Company to ensure compliance with the provisions of the
Securities Act and (C) letters in form and substance reasonably satisfactory to
the Company from each such transferee stating such transferee's agreement to be
bound by the terms of this Agreement and the Registration Rights Agreement. Such
proposed Transfer may be effected only if the Company shall have received such
notice of transfer, opinion of counsel, representation letters and other letters
referred to in the immediately preceding sentence, whereupon the holder of such
Securities shall be entitled to Transfer such Securities in accordance with the
terms of the notice delivered by the holder to the Company.
ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES
Section 10.1 Liquidated Damages.
(a) The Company shall, and shall use its best efforts to cause its transfer
agent to, issue and deliver shares of Common Stock consistent with Section 7.11
hereof within three (3) New York Stock Exchange Trading Days of delivery of a
Notice of Exercise, as applicable (the "Deadline") to the Purchaser (or any
party receiving Securities by transfer from such Purchaser) at the address of
the Purchaser set forth in the Notice of Exercise, as the case may be. The
Company understands that a delay in the issuance of such certificates after the
Deadline could result in economic loss to the Purchaser.
(b) Without in any way limiting the Purchaser's right to pursue other
remedies, including actual damages and/or equitable relief, the Company agrees
that if delivery of the Warrant Shares is more than one (1) Business Day after
the Deadline (other than a failure due to the circumstances described in Section
4.3 of the Note, which failure shall be governed by such Section) the Company
shall pay to each Purchaser, as liquidated damages and not as a penalty, $500
for each $100,000 of Note then outstanding per day in cash, for each of the
first ten (10) days beyond the Deadline, and $1,000 for each $100,000 of Note
then outstanding per day in cash for each day thereafter that the Company fails
to deliver such Common Stock. Such cash amount shall be paid to each Purchaser
upon demand.
Section 10.2 Exercise Notice. The Company agrees that, in addition to any
other remedies which may be available to the Purchaser, including, but not
limited to, the remedies available under Section 10.1, in the event the Company
fails for any reason (other than as a result of actions taken by a Purchaser in
breach of this Agreement) to effect delivery to a Purchaser of certificates with
or without restrictive legends as contemplated by Article IX representing the
shares of Common Stock on or prior to the Deadline after exercise of any
Warrant, such Purchaser will be entitled, if prior to the delivery of such
certificates, to revoke the Notice of Exercise, as applicable, by delivering a
notice to such effect to the Company whereupon the Company and the Purchaser
shall each be restored to their respective positions immediately prior to
delivery of such Notice of Exercise.
Section 10.3 Reserved.
Section 10.4 Registration Rights.
(a) The Company shall grant the Purchaser registration rights covering the
Warrant Shares and Interest Shares (if any) (the "Registrable Securities") on
the terms set forth in the Registration Rights Agreement and herein.
(b) The Company shall prepare and file, within ninety (90) days following
the Closing Date (the "Filing Date"), a registration statement (the
"Registration Statement") on Form S-3 (or such other form as is then available
for registration) covering the sale of the Registrable Securities. The Company
shall use its best efforts to cause the Registration Statement to be declared
effective by the Commission no later than (x) 120 days following the Closing
Date or (y) after the receipt of a "no review" or similar letter from the
Commission (the "Required Effectiveness Date"). The Company shall pay all
expenses of registration (other than underwriting fees and discounts, if any, in
respect of Registrable Securities offered and sold under such Registration
Statement by the Purchaser).
(c) If the Registration Statement is not filed by the Filing Date, the
Company shall pay to Purchaser, as liquidated damages and not as a penalty, an
amount equal to two percent (2%) of the principal amount of Note outstanding for
each 30-day period (prorated) until the Registration Statement is filed with the
Commission. If the Registration Statement is not declared effective by the
Commission by the Required Effectiveness Date, the Company shall pay to the
Purchaser, as liquidated damages and not as a penalty, an aggregate amount of
one percent (1%) of the outstanding principal amount of the Note (a " Default
Fee"), for each 30-day period the Registration Statement is not declared
effective by the Commission by the Required Effectiveness Date. In the event the
Company fails to obtain an effective Registration Statement by the 360th day
following the Closing Date, the Purchaser shall have the right to require the
Company to redeem the Note and Warrants at the Redemption Price. The Redemption
Price for the Note shall be equal to the Pre-Payment Price. The Redemption Price
for the Warrants shall equal the greater of (x) an appraised value of the
Warrants as determined by Black ▇▇▇▇▇▇, on the date they are called for
redemption, and (y) the number of Warrants being redeemed times the excess of
(A) the average closing bid price of the Common Stock for the five trading days
immediately prior to the date that the Warrants are called for redemption over
(B) the exercise price of the Warrants. Notwithstanding the foregoing provisions
for payments in the event the Registration Statement is not declared effective,
the Company may, at its option, at any time before the 360th day following the
Closing Date, to elect to pay the liquidated damages set forth above and redeem
the Note and Warrants at the Redemption Price. If, following the declaration of
effectiveness of the Registration Statement, the Registration Statement (or any
prospectus or supplemental prospectus contained therein) shall cease to be
effective for any reason (including, but not limited to, the occurrence of any
event that results in any prospectus or supplemental prospectus containing an
untrue statement of a material fact or omitting a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading), the Company fails
to file required amendments to the Registration Statement in order to allow the
Purchaser to exercise its rights to receive unrestricted, unlegended, freely
tradeable shares of Common Stock, or if for any reason there are insufficient
shares of such shares of Common Stock registered under the then current
Registration Statement to effect full exercise of the Warrants or for the
issuance of the Interest Shares (each a "Registration Default"), the Company
shall immediately take all necessary steps to cause the Registration Statement
to be amended or supplemented so as to cure the Registration Default. Failure to
cure a Registration Default within ten (10) Business Days shall result in the
Company paying to Purchaser liquidated damages at the rate of one percent (1%)
of the outstanding principal amount of Note for each 30-day period (prorated)
the Registration Default remains uncured.
(d) In the event that there is an insufficient number of authorized,
issuable, unlegended and freely tradeable shares of Common Stock registered
under the Registration Statement filed by the Company to fully exercise all
Warrants held by Purchaser or for the issuance of the Interest Shares and to
sell such shares issued thereon, then the Company shall immediately file an
amendment to the then current registration statement to register a sufficient
number of such shares to exercise the Warrants and sell the Interest shares and
Warrant Shares. The failure of the Company to register a sufficient number of
such shares to fully exercise such Warrants shall be a Registration Default
under Section 10.4(c).
(e) Any such Registration Default shall be paid in cash by the Company to
the Purchaser by wire transfer in immediately available funds on the last day of
each calendar week following the event requiring its payment.
(f) If, for any reason (including but not limited to the issuance of all
shares of Common Stock covered by the prospectus included in the Registration
Statement), the Registration Default is incurred for a period of forty-five (45)
days (a "Registration Default"), the holders of a majority of the Note then
outstanding may elect to cause the Company to repay the Note in full at the
Formula Price.
ARTICLE XI. ADJUSTMENT OF FIXED PRICE
Section 11.1 Reorganization. The exercise price of the Warrants (the "Fixed
Price") shall be adjusted, as applicable, as hereafter provided.
Section 11.2 Share Reorganization. If and whenever the Company shall:
(i) subdivide the outstanding shares of Common Stock into a greater
number of shares;
(ii) consolidate the outstanding shares of Common Stock into a smaller
number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
(iv) make a distribution on the outstanding Common Stock to all or
substantially all the holders of Common Stock payable in Common Stock or
securities convertible into or exchangeable for Common Stock;
any of such events being herein called a "Share Reorganization," then in each
such case the Fixed Price shall be adjusted, effective immediately after the
record date at which the holders of Common Stock are determined for the purposes
of the Share Reorganization or, if no record date is fixed, the effective date
of the Share Reorganization, by multiplying the Fixed Price in effect on such
record or effective date, as the case may be, by a fraction of which:
(I) the numerator shall be the number of shares of Common Stock
outstanding on such record or effective date (without giving effect to the
transaction); and
(II) the denominator shall be the number of shares of Common Stock
outstanding after giving effect to such Share Reorganization, including, in
the case of a distribution of securities convertible into or exchangeable
for shares of Common Stock, the number of shares of Common Stock that would
have been outstanding if such securities had been converted into or
exchanged for Common Stock on such record or effective date.
Section 11.3 Capital Reorganization. If and whenever there shall occur:
(i) a reclassification or redesignation of the shares of Common Stock or
any change of the shares of Common Stock into other shares, other than in a
Share Reorganization;
(ii) a consolidation, merger or amalgamation of the Company with, or into
another body corporate; or
(iii) the transfer of all or substantially all of the assets of the Company
to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert Note or exercise the
Warrants after the effective date of such Capital Reorganization shall be
entitled to receive and shall accept, upon the exercise of such right, in lieu
of the number of shares of Common Stock to which such holder was theretofore
entitled upon the exercise of the conversion privilege, the aggregate number of
shares or other securities or property of the Company or of the body corporate
resulting from such Capital Reorganization that such holder would have been
entitled to receive as a result of such Capital Reorganization if, on the
effective date thereof, such holders had been the holder of the number of shares
of Common Stock to which such holder was theretofore entitled upon conversion;
provided, however, that no such Capital Reorganization shall be consummated in
effect unless all necessary steps shall have been taken so that such holders
shall thereafter be entitled to receive such number of shares or other
securities of the Company or of the body corporate resulting from such Capital
Reorganization, subject to adjustment thereafter in accordance with provisions
the same, as nearly as may be possible, as those contained above.
Section 11.4 Adjustment Rules. The following rules and procedures shall be
applicable to adjustments made in this Article XI:
(a) no adjustment in the Fixed Price shall be required unless such
adjustment would result in a change of at least 1% in the Fixed Price then in
effect, provided, however, that any adjustments which, but for the provisions of
this clause would otherwise have been required to be made, shall be carried
forward and taken into account in any subsequent adjustment;
(b) if any event occurs of the type contemplated by the adjustment
provisions of this Article XI but not expressly provided for by such provisions,
the Company will give notice of such event as provided herein, and the Company's
board of directors will make an appropriate adjustment in the Fixed Price so
that the rights of the holders of the applicable Security shall not be
diminished by such event; and
(c) if a dispute shall at any time arise with respect to any adjustment of
the Fixed Price, such dispute shall be conclusively determined by the auditors
of the Company or, if they are unable or unwilling to act, by a firm of
independent chartered accountants selected by the Directors and any such
determination shall be binding upon the Company and Purchaser.
Section 11.5 Certificate as to Adjustment. The Company shall from time to
time promptly after the occurrence of any event which requires an adjustment in
the Fixed Price deliver to the Purchaser a certificate specifying the nature of
the event requiring the adjustment, the amount of the adjustment necessitated
thereby, the Fixed Price after giving effect to such adjustment and setting
forth, in reasonable detail, the method of calculation and the facts upon which
such calculation is based.
Section 11.6 Notice to Noteholders. If the Company shall fix a record date
for:
(a) any Share Reorganization (other than the subdivision of outstanding
Common Stock into a greater number of shares or the consolidation of outstanding
Common Stock into a smaller number of shares),
(b) any Rights Offering,
(c) any Capital Reorganization (other than a reclassification or
redesignation of the Common Stock into other shares),
(d) Sale Event; or
(e) any cash dividend,
the Company shall, not less than 10 days prior to such record date or, if no
record date is fixed, prior to the effective date of such event, give to the
Purchaser notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
ARTICLE XII. EVENTS OF DEFAULT
Section 12.1 Events of Default. If one or more of the following events
(each an "Event of Default") shall have occurred and be continuing:
(a) failure by the Company to pay or repay when due, all or any part of the
principal on any of the Note (whether by virtue of the agreements specified in
this Agreement or the Note);
(b) failure by the Company to pay (i) within five (5) Business Days of the
due date thereof any interest on any Note or (ii) within five (5) Business Days
following the delivery of notice to the Company of any fees or any other amount
payable (not otherwise referred to in (a) above or this clause (b)) by the
Company under this Agreement or any other Transaction Agreement;
(c) reserved;
(d) failure on the part of the Company to observe or perform any covenant
contained in Article VIII of this Agreement;
(e) failure on the part of the Company to observe or perform any covenant
or agreement contained in any Transaction Agreement (other than those covered by
clauses (a), (b), (c) or (d) above) for 30 days from the date of such
occurrence;
(f) the trading in the Common Stock shall have been suspended by the
Commission or by the American Stock Exchange (except for any suspension of
trading of limited duration solely to permit dissemination of material
information regarding the Company and except if, at the time there is any
suspension on the American Stock Exchange, the Common Stock is then listed and
approved for trading on either the New York Stock Exchange, the Nasdaq Stock
Market, the Nasdaq Stock market's Small Cap Market, or the Over the Counter
Bulletin Board operated by the NASD within ten (10) Trading Days thereof);
(g) reserved;
(h) the Company shall have its Common Stock delisted from the American
Stock Exchange for at least ten (10) consecutive Trading Days and is unable to
obtain a listing on a National Market within such ten (10) Trading Days;
(i) the Registration Statement shall not have been declared effective by
the Commission within 360 days after the Closing Date, or such effectiveness
shall not be maintained for the Registration Maintenance Period, in each case
which results in the Company incurring the Default Fee for a period in excess of
45 days;
(j) the Company or any Subsidiary has commenced a voluntary case or other
proceeding seeking liquidation, winding-up, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency, moratorium or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or has consented to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or has made a general assignment for
the benefit of creditors, or has failed generally to pay its debts as they
become due, or has taken any corporate action to authorize any of the foregoing;
(k) an involuntary case or other proceeding has been commenced against the
Company or any Subsidiary seeking liquidation, winding-up, reorganization or
other relief with respect to it or its debts under any bankruptcy, insolvency,
moratorium or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, and such involuntary
case or other proceeding shall remain undismissed and unstayed for a period of
60 days, or an order for relief has been entered against the Company or any
Subsidiary under the federal bankruptcy laws as now or hereafter in effect;
(l) default in any provision (including payment) or any agreement governing
the terms of any Debt of the Company or any Subsidiary in excess of $1,000,000,
which has not been cured within any applicable period of grace associated
therewith;
(m) judgments or orders for the payment of money which in the aggregate at
any one time exceed $1,000,000 and are not covered by insurance have been
rendered against the Company or any Subsidiary by a court of competent
jurisdiction and such judgments or orders shall continue unsatisfied and
unstayed for a period of 60 days; or
(n) any representation, warranty, certification or statement made by the
Company in any Transaction Agreement or which is contained in any certificate,
document or financial or other statement furnished at any time under or in
connection with any Transaction Agreement shall prove to have been untrue in any
material respect when made,
then, and in every such occurrence, any Purchaser may, with respect to an Event
of Default specified in paragraphs (a) or (b), and the Majority Holders may,
with respect to any other Event of Default, by notice to the Company, declare
the Note to be, and the Note shall thereon become immediately due and payable;
provided that in the case of any of the Events of Default specified in paragraph
(j) or (k) above with respect to the Company or any Subsidiary, then, without
any notice to the Company or any other act by any Purchaser, the entire amount
of the Note shall become immediately due and payable, provided, further, if any
Event of Default has occurred and is continuing, and irrespective of whether any
Note has been declared immediately due and payable hereunder, any Purchaser of
Note may proceed to protect and enforce the rights of such Purchaser by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in any Note, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise,
and provided further, in the case of any Event of Default, the amount declared
due and payable on the Note shall be the Prepayment Price.
Section 12.2 Powers and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Purchaser is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by the Note or by law may be
exercised from time to time, and as often as shall be deemed expedient, by the
Purchaser.
ARTICLE XIII. MISCELLANEOUS
Section 13.1 Notices. All notices, demands and other communications to any
party hereunder shall be in writing (including telecopier or similar writing)
and shall be given to such party at its address set forth on the signature pages
hereof, or such other address as such party may hereafter specify for the
purpose to the other parties. Each such notice, demand or other communication
shall be effective (i) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified on the signature page hereof, (ii) if given by
mail, four days after such communication is deposited in the mail with first
class postage prepaid, addressed as aforesaid or (iii) if given by any other
means, when delivered at the address specified in or pursuant to this Section.
Section 13.2 No Waivers; Amendments.
(a) No failure or delay on the part of any party in exercising any right,
power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
(b) Any provision of this Agreement may be amended, supplemented or waived
if, but only if, such amendment, supplement or waiver is in writing and is
signed by the Company and the Majority Holders; provided, that without the
consent of each holder of any Note affected thereby, an amendment or waiver may
not (a) reduce the aggregate principal amount of Note whose holders must consent
to an amendment or waiver, (b) reduce the rate or extend the time for payment of
interest on any Note, (c) reduce the principal amount of or extend the stated
maturity of any Note or (d) make any Note payable in money or property other
than as stated in such Note. In determining whether the holders of the requisite
principal amount of Note have concurred in any direction, consent, or waiver as
provided in any Transaction Agreement, Note which are owned by the Company or
any other obligor on or guarantor of the Note, or by any Person Controlling,
Controlled by, or under common Control with any of the foregoing, shall be
disregarded and deemed not to be outstanding for the purpose of any such
determination; and provided further that no such amendment, supplement or waiver
which affects the rights of the Purchaser and their affiliates otherwise than
solely in their capacities as holders of Note shall be effective with respect to
them without their prior written consent.
Section 13.3 Indemnification.
(a) The Company agrees to indemnify and hold harmless each Purchaser, its
Affiliates, and each Person, if any, who controls such Purchaser, or any of its
Affiliates, within the meaning of the Securities Act or the Exchange Act (each,
a "Controlling Person"), and the respective partners, agents, employees,
officers and Directors of each Purchaser, their Affiliates and any such
Controlling Person (each an "Indemnified Party") and collectively, the
"Indemnified Parties"), from and against any and all losses, claims, damages,
liabilities and expenses (including, without limitation and as incurred,
reasonable costs of investigating, preparing or defending any such claim or
action, whether or not such Indemnified Party is a party thereto, provided that
the Company shall not be obligated to advance such costs to any Indemnified
Party other than the Purchaser unless it has received from such Indemnified
Party an undertaking to repay to the Company the costs so advanced if it should
be determined by final judgment of a court of competent jurisdiction that such
Indemnified Party was not entitled to indemnification hereunder with respect to
such costs) which may be incurred by such Indemnified Party in connection with
any investigative, administrative or judicial proceeding brought or threatened
that relates to or arises out of, or is in connection with any activities
contemplated by any Transaction Agreement or any other services rendered in
connection herewith; provided that the Company will not be responsible for any
claims, liabilities losses, damages or expenses that are determined by final
judgment of a court of competent jurisdiction to result from such Indemnified
Party's gross negligence, willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Company under this
Agreement, such Indemnified Party shall promptly notify the Company in writing
and the Company, at its option, may, assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Party and
payment of all reasonable fees and expenses. The failure to so notify the
Company shall not affect any obligations the Company may have to such
Indemnified Party under this Agreement or otherwise unless the Company is
materially adversely affected by such failure. Such Indemnified Party shall have
the right to employ separate counsel in such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party, unless (i) the Company has failed to assume
the defense and employ counsel or (ii) the named parties to any such action
(including any impleaded parties) include such Indemnified Party and the
Company, and such Indemnified Party shall have been advised by counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the Company, in which case, if such
Indemnified Party notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of such
Indemnified Party, provided, however, that the Company shall not, in connection
with any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be responsible hereunder for the
reasonable fees and expenses of more than one such firm of separate counsel, in
addition to any local counsel, which counsel shall be designated by the
Purchaser. The Company shall not be liable for any settlement of any such action
effected without the written consent of the Company (which shall not be
unreasonably withheld) and the Company agrees to indemnify and hold harmless
each Indemnified Party from and against any loss or liability by reason of
settlement of any action effected with the consent of the Company. In addition,
the Company will not, without the prior written consent of the Purchaser, settle
or compromise or consent to the entry of any judgment in or otherwise seek to
terminate any pending or threatened action, claim, suit or proceeding in respect
to which indemnification or contribution may be sought hereunder (whether or not
any Indemnified Party is a party thereto) unless such settlement, compromise,
consent or termination includes an express unconditional release of the
Purchaser and the other Indemnified Parties, satisfactory in form and substance
to the Purchaser, from all liability arising out of such action, claim, suit or
proceeding.
(c) If for any reason the foregoing indemnity is unavailable (otherwise
than pursuant to the express terms of such indemnity) to an Indemnified Party or
insufficient to hold an Indemnified Party harmless, then in lieu of indemnifying
such Indemnified Party, the Company shall contribute to the amount paid or
payable by such Indemnified Party as a result of such claims, liabilities,
losses, damages, or expenses (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and by the
Purchaser on the other from the transactions contemplated by this Agreement or
(ii) if the allocation provided by clause (i) is not permitted under applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits received by the Company on the one hand and the Purchaser on the other,
but also the relative fault of the Company and the Purchaser as well as any
other relevant equitable considerations. Notwithstanding the provisions of this
Section 13.3, the aggregate contribution of all Indemnified Parties shall not
exceed the amount of interest and fees actually received by the Purchaser
pursuant to this Agreement. It is hereby further agreed that the relative
benefits to the Company on the one hand and the Purchaser on the other with
respect to the transactions contemplated hereby shall be determined by reference
to, among other things, whether any untrue or alleged untrue statement of
material fact or the omission or alleged omission to state a material fact
related to information supplied by the Company or by the Purchaser and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(d) The indemnification, contribution and expense reimbursement obligations
set forth in this Section 13.3 (i) shall be in addition to any liability the
Company may have to any Indemnified Party at common law or otherwise; (ii) shall
survive the termination of this Agreement and the other Transaction Agreements
and the payment in full of the Note and (iii) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of the
Purchaser or any other Indemnified Party.
Section 13.4 Expenses: Documentary Taxes. The Company has agreed to pay an
application fee of 1% of the principal amount of Note to Purchaser at the
Closing. The Company agrees to pay to Global Capital Advisors, Ltd., on the
Closing Date, a fee of $15,000.00 (the "Out of Pocket Fee") in full satisfaction
of all obligations of the Company to Purchaser and its agents in connection with
the negotiation and preparation of the Transaction Agreements, relevant due
diligence, and fees and disbursements of legal counsel. In addition, the Company
agrees to pay any and all stamp, transfer and other similar taxes, assessments
or charges payable in connection with the execution and delivery of any
Transaction Agreement or the issuance of the Securities to Purchaser, excluding
their assigns.
Section 13.5 Payment. The Company agrees that, so long as a Purchaser shall
own any Note purchased by it from the Company hereunder, the Company will make
payments to such Purchaser of all amounts due thereon by wire transfer by 4:00
P.M. (New York City time).
Section 13.6 Successors and Assigns. This Agreement shall be binding upon
the Company and upon the Purchaser and their respective successors and assigns;
provided that the Company shall not assign or otherwise transfer its rights or
obligations under this Agreement to any other Person without the prior written
consent of the Majority Holders. All provisions hereunder purporting to give
rights to Purchaser and their affiliates or to holders of Securities are for the
express benefit of such Persons and their successors and assigns.
Section 13.7 Brokers. Except for a fee paid to Reedland Capital Partners,
LLC, the Company represents and warrants that it has not employed any broker,
finder, financial advisor or investment banker who would be entitled to any
brokerage, finder's or other fee or commission payable by the Company or the
Purchaser in connection with the sale of the Securities.
Section 13.8 Delaware Law; Submission to Jurisdiction; Waiver of Jury
Trial; Appointment of Agent. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE. EACH PARTY HERETO HEREBY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK COURT SITTING IN NEW YORK
FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 13.9 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired, or invalidated unless a failure of
consideration would result thereby.
Section 13.10 Survival. All provisions contained in this Agreement ( unless
specifically noted to the contrary) shall survive the payment in full of the
Note and shall remain operative and in full force.
Section 13.11 Counterparts. This Agreement may be executed by telecopy
signatures and in any number of counterparts each of which shall be an original
with the same effect as if the signatures there to and hereto were upon the same
instrument.
SIGNATURES ON FOLLOWING PAGE
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
AVITAR, INC.
/s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
By: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: CEO
Address: ▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax:
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
GLOBAL CAPITAL FUNDING GROUP, L.P.
By its General Partner Global Capital Management
Services, Inc.
By:
Title:
Address: ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇