LOAN AND SECURITY AGREEMENT
Exhibit
4.1
THIS
AGREEMENT made as of March 7, 2007 by and among the investors listed on Schedule
1 to this Agreement (collectively, the “Investors,”
and
each, individually, a “Investor”),
Platinum Advisors LLC, a limited liability company, as agent for the Investors
(the “Agent”)
and
NaturalNano, Inc., a Nevada corporation with its chief executive office,
principal place of business and mailing address at 00 Xxxxxx Xxxxx, Xxxxxxxxx,
Xxx Xxxx 00000-0000
(“NaturalNano”),
and
NaturalNano Research, Inc., a Delaware corporation (“NN
Research”
and,
together with NaturalNano, the “Borrower”).
The
obligations of NaturalNano and NN Research shall be joint and
several.
Section
1. DEFINITIONS.
As used
herein:
1.1. 4.99%
Limitation
has the
meaning set forth in Section 2.4 of this Agreement.
1.2. Accounting
Terms. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles in the United States and all financial data submitted pursuant to
this Agreement shall be prepared in accordance with such
principles.
1.3. Accounts means
“Accounts” as defined in the Uniform Commercial Code.
1.4. Additional
Collateral
means
(a) all “Securities Entitlements,” “Investment Property,”
“Financial Assets,” “Commercial Tort Claims” and “Documents” as those terms are
defined in the Uniform Commercial Code as of the date hereof, whether now
existing or hereafter acquired or arising, (b) all securities, bills of lading,
dock warrants, dock receipts, warehouse receipts or orders for the delivery
of
goods, and any other documents which in the regular course of business or
financing are treated as adequately evidencing that the persons in possession
of
them are entitled to receive, hold, and dispose of the goods they cover; (c)
all
motor vehicles, whether now owned or hereafter acquired by the Borrower, and
all
accessions and additions thereto, replacements therefor, and substitutions
therefor; (d) all “General Intangibles” as that term is defined in the Uniform
Commercial Code as of the date hereof, whether now owned or hereafter acquired,
including, without limitation, Payment Intangibles and Software (as those terms
are defined in the Uniform Commercial Code), all choses in action, causes of
action, and all other intangible personal property of the Borrower, including,
without limitation, corporate or other business records, inventions, designs,
patents, patent applications, trademarks, servicemarks, tradenames, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, customer
lists, tax refund claims, credit files, computer programs, printouts and other
computer materials and records, guaranty claims, security interests or other
property held by or granted to Borrower to secure payment of any obligation
of
any obligor of Borrower and any and all of the rights of Borrower of whatever
nature under any and all contracts, agreements, or leases (whether of real
or
personal property) to which the Borrower is or may become a party, including
without limitation all of the rights of Borrower to enforce all of the
provisions of, and to obtain payments or other performance due under, all
contracts, agreements, or leases; (e) all of Borrower’s rights (including rights
as licensee and lessee) with respect to all patents, trademarks, copyrights
and
other intellectual property rights, know-how, technology, computer hardware
and
software and all rights with respect thereto including, any and all licenses,
options, warranties, service contracts, program services, test rights,
maintenance rights, support rights, improvement rights, renewal rights and
indemnifications, and any substitutions, replacements, additions or model
conversions of any of the foregoing, and further including (i) computer and
other electronic data processing hardware, including all integrated computer
systems, central processing units, memory units, display terminals, printers,
computer elements, card readers, tape drives, hard and soft disk drives, cables,
electrical supply hardware, generators, power equalizers, accessories,
peripheral devices and other related computer hardware, (ii) all Software and
all software programs designed for use on the computers and electronic data
processing hardware described in clause (i) above, including all operating
system software, utilities and application programs in any form (source code
and
object code in magnetic tape, disk or hard copy format or any other listings
whatsoever (iii) any firmware associated with any of the foregoing; and (iv)
any
documentation for hardware, Software and firmware described in clauses (i),
(ii)
and (iii) above, including flow charts, logic diagrams, manuals, specifications,
training materials, charts and pseudo codes, and (f) all monies, securities
and
other property of the Borrower, and the proceeds thereof, now or hereafter
held
or received by or in transit to the Investor whether for safekeeping, custody,
pledge, transmission, collection or otherwise, and also in and to any and all
deposits, general or special, and credits of the Borrower with, and any and
all
claims of the Borrower against, the Bank now or at any time hereafter
existing.
1.5. Additional
Definitions.
Unless
otherwise specifically defined herein, all terms used in this Agreement and
in
all documents referred to herein and which have been defined in Articles 1,
2 or
9 of the Uniform Commercial Code, shall be interpreted and construed in light
of
the sections, the definitions, the “official comment,” and the definitional and
substantive cross-references of the Uniform Commercial Code.
1.6. Affiliate
means,
with respect to any Person (the subject Person), a Person: (a) which directly
or
indirectly Controls, or is Controlled by, or is under common Control with,
the
subject Person; (2) which directly or indirectly beneficially owns or holds
a
majority of the outstanding shares of any class of voting stock of the subject
Person; or (3) a majority of the outstanding shares of any class of the voting
stock of which is directly or indirectly beneficially owned or held by the
subject Person.
1.7. Agent’s
Warrants
shall
have the meaning set forth in Section 7.18.
1.8. Agreement
means
this Loan and Security Agreement, as the same may hereafter be supplemented,
modi-fied or amended.
1.9. Business
Day
means
with respect to any date that is specified in this Agreement, a day other than
a
Saturday or Sunday or other day on which commercial banks in the City of New
York are required or permitted to be closed during all or part of normal banking
hours. Any payment which is due on a date which is not a Business Day shall
be
payable on the next day which is a Business Day.
1.10. Closing
Date
means
the on which the Borrower issues the Notes and Warrants and receives the
proceeds from the sale thereof.
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1.11. Collateral means
all
of Borrower’s personal property, now owned or hereafter acquired, including
without limitation all Accounts, Letter-of-Credit Rights, Supporting
Obligations, Electronic Chattel Paper, Tangible Chattel Paper and Instruments,
as these terms are defined in the Uniform Commercial Code, together with all
Inventory, Equipment, Patents,
Trademarks and Additional Collateral and all products and proceeds of the
foregoing including, without limitation, proceeds of any insurance policies
insuring any of the foregoing, all as more particularly described on
Schedule
1.10
to the
Disclosure Schedule.
1.12. The
Commission
means
the
United States Securities and Exchange Commission.
1.13. Common
Stock
means
shares of the NaturalNano’s common stock, par value $.001 per
share.
1.14. Control
means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
1.15. Disclosure
Schedule
shall
have the meaning set forth in the introductory paragraph of Section 4 of this
Agreement.
1.16. Equipment means
all
Equipment, as that term is defined in the Uniform Commercial Code as of the
date
hereof, of Borrower, whether now owned or hereafter acquired, and including,
without limitation, machinery, furniture, furnishings, and fixtures, and any
and
all goods used or bought for use in or being used or for use in the conduct
of
Borrower’s business and all goods used or bought for use in Borrower’s business
which are not included within the definition of Inventory, and all accessions
and additions thereto, replacements therefor, and substitutions therefor,
supplies and motor vehicles, now owned and hereafter acquired, present and
future, by the Borrower of whatsoever name, nature, kind or description,
wherever located, and all additions and accessions thereto and replacements
or
substitutions therefor, and all pro-ceeds thereof and all proceeds of any
insurance thereon.
1.17. Escrow
Agreement
means
the escrow agreement among the Borrower, the Investors, the Agent and Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP, as escrow agent.
1.18. The
Exchange
Act
means
the Securities Exchange Act of 1934, as amended.
1.19. Exempt
Issuance
means
the
issuance of (a) shares of Common Stock or options to employees, officers,
directors of
and
consultants (other than consultants whose services relate to the raising of
funds)
the
Borrower pursuant to the NaturalNano’s outstanding stock option or long-term
incentive plans or as otherwise provided in Section 6.10 of this Agreement,
(b)
securities upon the exercise or conversion of the Securities issued hereunder,
in payment of principal or interest on the Notes, and pursuant to the
Registration Rights Agreement, (c) any other options, warrants or convertible
securities which are outstanding on the Closing Date after completion of the
Closing and set forth in Schedule 4.3.1 to the Disclosure Schedule, (d)
securities issued pursuant to acquisition, licensing agreements, or
other
strategic transactions, provided any such issuance shall only be to a Person
which is, itself or through its subsidiaries, an operating company (including,
without limitation, a company engaged primarily in research and development)
in
a business which
NaturalNano’s board of directors believes is beneficial to
the
Borrower and in which the Borrower receives benefits in addition to the
investment of funds, but shall not include a transaction in which NaturalNano
is
issuing securities primarily for the purpose of raising capital or to an entity
whose primary business is investing in securities. For purposes of the
parenthetical clause in clause (a), an investor relations firm that is not
involved in fund raising is not deemed to be consultant whose services are
related to the raising of funds.
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1.20. Governmental
Entity
means a
court, arbitral tribunal, administrative agency or commission or other
governmental or other regulatory authority or agency.
1.21. Inventory
means
all “Inventory” as that term is defined in the Uniform Commercial Code as of the
date hereof, including, without limitation, any and all goods, merchandise
or
other personal property, wherever located and whether or not in transit, now
owned or hereafter acquired by the Borrower, which is or may at any time be
held
for sale or lease, or furnished or to be furnished under any contract of service
or held as raw materials, work in process, supplies or materials used or
consumed in the Borrower’s business, and all such property the sale or other
disposition of which has given rise to Accounts, Chattel Paper, Documents,
or
Instruments and which has been returned to or repossessed or stopped in transit
by the Borrower.
1.22. Knowledge
means
the actual knowledge of any officer or director of Borrower or such knowledge
which the chief executive officer, chief financial officer and chief technical
officer would have in the diligent conduct of the Borrower’s
business.
1.23. Material
Adverse Change
means
any adverse change in the business, operations, properties, including Patents,
Trademarks and other intellectual property rights, or financial condition or
prospects of Borrower.
1.24. Material
Adverse Effect
means
any adverse effect on the business, operations, properties, including Patents,
Trademarks and other intellectual property rights, or financial condition or
prospects of Borrower that is material and adverse to Borrower and its
subsidiaries and affiliates, taken as a whole and/or any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of Borrower to perform any of its material obligations under
this Agreement, the Note, the Supplemental Agreements, or the Registration
Rights Agreement or to perform its obligations under any other material
agreement to which Borrower is a party.
1.25. Notes
mean,
collectively, the Borrower’s 8% Senior Secured Convertible Notes as defined in
Section 2 of this Agreement, in the aggregate principal amount of $3,347,500.
The Notes shall be in substantially the form of Exhibit A to this
Agreement.
1.26. Obligations
mean all
loans, advances, debts, liabili-ties, obligations, covenants and duties owing
by
the Bor-rower to the Investors and/or the Agent of every kind and description
(whether or not evidenced by any note or other instrument and whether or not
for
the payment of money), direct or in-direct, absolute or contingent, due or
to
become due, now existing or hereafter arising, whether or not such obliga-tions
are related to the transaction described in this Agreement and the Transaction
Documents, by class, or kind, or whether or not contem-plated by the parties
at
the time of the granting of this security interest, including without
limitation, all interest, fees, charges, expenses and attorneys’ fees chargeable
to the Borrower or incurred by the Investors or the Agent in connection with
the
Notes and the transactions contemplated by the Transaction Documents or
otherwise.
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1.27. Patents
mean all
of the Borrower’s right, title and interest, present and future, in and to (a)
all letters patent of the United States or any other country, all right, title
and interest therein and thereto, and all registrations and recordings thereof,
including without limitation applications, registrations and recordings in
the
United States Patent and Trademark Office or in any similar office or agency
of
the United States and State thereof or any other country or any political
subdivision thereof, all whether now owned or hereafter acquired by the
Borrower; and (b) all reissues, continuations, continuations-in-part or
extensions thereof and all li-censes thereof; and all proceeds of the foregoing
and all proceeds of any insurance on the foregoing.
1.28. Person
means an
individual, partnership, corporation, business trust, joint stock Borrower,
trust, unincorporated association, joint venture, governmental authority,
limited liability Borrower, or other entity of whatever nature.
1.29. Pledge
Agreement
means
the agreement between the Investors, the Agent and NaturalNano pursuant to
which
it pledges the stock of NN Research. The Pledge Agreement shall be in
substantially the form of Exhibit B to this Agreement.
1.30. Purchase
Price
means
the purchase price for the Notes and Warrants, which is $3,250,000.
1.31. Registration
Rights Agreement
means
the registration rights agreement among NaturalNano and the Investors. The
Registration Rights Agreement shall be in substantially the form of Exhibit
C to
this Agreement.
1.32. Requisite
Investors
means
holders of Notes representing, in the aggregate, a majority of then-outstanding
principal amount of the Notes.
1.33. The
Securities
Act
means
the Securities Act of 1933, as amended.
1.34. Subsidiary
means
any Person which is either (a) controlled by the Borrower or (b) in which the
Borrower and its other Subsidiaries own at least 40% of the equity or have
at
least 40% of the voting power.
1.35. Supplemental
Agreements
mean any
and all agreements, instruments, documents, security agreements, mortgages,
financing statements, and supplements thereto granting or intending to grant
to
the Investor any lien, security inter-est, pledge, assignment or indemnification
to secure the Obligations, or entered into between the Borrower in favor of,
or
with, and the Investor, at any time, for any purpose including, without
limitation, this Agreement and the Note.
1.36. Securities
means
the Notes and Warrants.
1.37. TI
means
Technology Innovations, Inc.
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1.38. TI
Patents
means
the patents and patent applications relating to all intellectual property rights
that are owned by TI and are licensed to NaturalNano or NN Research or are
otherwise usable in their respective businesses.
1.39. Trademarks
mean all
of the Borrower’s right, title and interest, present and future, in and to (a)
all trademarks, trade names, trade styles, service marks, prints and labels
on
which said trademarks, trade names, trade styles and service marks have appeared
or appear, designs and general intangibles of like nature, now existing or
hereafter adopted or acquired, all right, title and interest therein and
thereto, and all registrations and recordings thereof, including without
limitation applications, registrations and recordings in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof, or any other country or any political subdivision
thereof, all whether now owned or hereafter acquired by the Borrower; (b) all
reissues, ex-tensions or renewals thereof and all licenses thereof; and (c)
the
goodwill of the business symbolized by each of the Trademarks, and all customer
lists and other records of the Borrower relating to the distribution of products
bearing the Trademarks; and all proceeds of the foregoing and all proceeds
of
any insurance on the foregoing.
1.40. Transaction
Documents
means
this Agreement, the Securities, the Registration Rights Agreement, the Escrow
Agreement, the Pledge Agreement and the other Supplemental Agreements, the
UCC-1
financing statements, the collateral assignment of Patents and Trademarks or
other instrument relating to the perfection of a security interest in Patents
and Trademarks, and all other instruments, documents, certificates and
agreements executed in connection with the transactions contemplated by this
Agreement.
1.41. Warrants
mean the
common stock purchase warrants issued by NaturalNano on the Closing Date to
the
Investors pursuant to Section 2 of this Agreement. The Warrants shall be in
substantially the form of Exhibits D-1 and D-2 to this Agreement.
Section
2. ISSUANCE
OF SECURITIES.
2.1. Issuance
of Securities.
Upon
the
terms and subject to the conditions set forth in this Agreement, and in
accordance with applicable law, the Borrower agrees to sell to the Investors,
and the Investors agrees to purchase from the Borrower, on the Closing Date
(i)
Notes in the principal amount of $3,347,500 and (ii) Warrants to purchase a
total of 22,823,866 shares of Common Stock, of which Warrants to purchase
11,411,933 shares of Common Stock will have an exercise price of $.22 per share,
and Warrants to purchase 11,411,933 shares of Common Stock will have an exercise
price of $.33 per share. On the Closing Date, the Borrower shall issue to the
Agent, the Agent’s Warrants pursuant to Section 7.18 of this
Agreement.
2.2. Payment
of Purchase Price.
The
Purchase Price shall be paid by the Investors to the Borrower on the Closing
Date by a wire transfer or check in the amount of the Purchase Price into escrow
to be held by the escrow agent pursuant to the terms of the Escrow
Agreement.
2.3. Delivery
of Securities.
Borrower shall
cause the Notes and Warrants to be issued to the Investors upon the release
of
the Purchase Price to the Borrower by the escrow agent pursuant to the terms
of
the Escrow Agreement.
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2.4. Limitation
on Right to Convert or Exercise Securities.
Notwithstanding any other provision of this Agreement, except as expressly
provided in the Note or the Warrants, no Investor or other holder of any Note
or
Warrant shall be entitled to convert the Note into
shares of Common Stock or to exercise the Warrant to the extent that such
conversion or exercise would result in beneficial ownership by the Investor
or
other holder and its Affiliates of more than 4.99% of the then outstanding
number of shares of Common Stock on such date. For the purposes of this
Agreement beneficial ownership shall be determined in accordance with Section
13(d) of the 1934 Act, and Regulation 13d-3 thereunder. The limitation set
forth
in this Section 2.4 is referred to as the “4.99%
Limitation.”
Section
3. COLLATERAL
AND SECURITY INTEREST.
3.1. Security
Interest.
As
security for payment and performance of the Obligations, the Borrower hereby
assigns and grants to the Investors and the Agent a continuing security interest
in the Collateral. The Investor shall retain its security interest in all
Collateral, eligible and ineligible, until all Obligations have been fully
satisfied. In the event that, for any reason after payment and satisfaction
of
all Obligations in full, the Investors or any Investor shall be required to
return to the Borrower any amounts received by them or it in respect of the
Obligations, the Borrower shall remain liable for the amount paid over to
Borrower, and such amount, together with interest at the default rate of
interest provided in the Notes, shall remain as an Obligation and the security
interest shall reattach to the Collateral.
3.2. Collection
of Accounts.
Upon an
Event of Default, the Agent, on behalf of the Investors, or its designee may
notify customers or account debtors that Accounts have been assigned to the
Investor or of the Investor’s security interest therein and collect them
directly. All such payments will be placed by the Agent into a cash collateral
account and, until paid to the Investors pursuant to this Agreement, shall
be
held by the Agent as collateral for payment and/or performance of the Borrower’s
Obligations to the Investors.
3.3. Returns
and Credits.
Any
merchandise which is returned by an account debtor or otherwise recovered shall
remain part of the Investors’ security. The Borrower shall notify the Investor
promptly of all returns and re-coveries and, upon an Event of Default, deliver
at Agent’s request, the merchandise to the Agent. The Borrower shall also notify
the Agent promptly of all disputes and claims and settle or adjust them at
no
expense to the Agent or the Investors, but no discount, credit or allowance
(other than in the ordinary course of the Borrower’s busi-ness) shall be granted
to any customer or account debtor, and no returns of merchandise (other than
in
the ordinary course of the Borrower’s business) shall be accepted by the
Borrower without the consent of the Agent. The Agent may, after an Event of
Default, settle or adjust disputes and claims directly with customers or account
debtors for amounts and upon terms which the Agent considers advisable, and
in
all cases the Agent, on behalf of the Investors, will credit the Borrower’s
account with only the net amounts received by the Agent in payment of
Accounts.
3.4. Further
Assurance.
Upon
the reasonable request of the Agent or any Investor, the Borrower shall perform
all other steps reasonably requested by the Agent or the Investor to create
and
maintain in the Investor’s favor a valid first priority security interest,
assignment or lien in, of or on all Accounts and all other security held by
or
for the Investor.
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3.5. Power
of Attorney.
The
Borrower appoints the Agent, or any person whom the Agent may designate, as
its
attorney, with power, after an Event of Default: to endorse the Borrower’s name
on any checks, notes, acceptances, money orders, drafts or other forms of
payment or security that may come into any Investor’s or the Agent’s possession;
to sign the Borrower’s name on any invoice or xxxx of lading relating to any
Accounts, on notices of assignment, financing statements, and other public
records, on verifi-cations of accounts and on notices to customers; to notify
the post office authorities to change the address for de-livery of the
Borrower’s mail to an address designated by the Agent; to send requests for
verification of Accounts to customers or account debtors; and to do all things
necessary to carry out this Agreement. The Borrower ratifies and approves all
acts of the attorney. Neither any Investor nor the Agent nor the attorney will
be liable for any acts or omissions nor for any error of judgment or mistake
of
fact or law. This power, being coupled with an interest, is irrevocable so
long
as any Accounts assigned to the Investors or in which the Investors have a
security interest remain unpaid or until the Obligations have been fully
satisfied. The Agent, on behalf of the Investors, or the Investors may file
one
or more financing statement disclosing the Investors’ security interest without
the Borrower’s signature appearing thereon.
3.6. Possession
of Collateral.
Upon an
Event of Default, the Agent, on behalf of the Investors, will have the right:
(a) to take physical possession of the Collateral and to maintain such
possession on the Borrower’s premises; and/or (b) to remove the Collateral or
any part thereof to such other places as the Investor may desire; and/or (c)
without removal, to render the Equipment unusable and to dispose of the
Collateral on the Borrower’s premises. Upon an Event of Default, the Borrower
shall, upon the Investor’s demand, assemble the Collateral and make it available
to the Investor at a place reasonably convenient to the Investor.
3.7. Location
of Collateral.
The
Collateral is and will be owned by the Borrower, free of all other liens and
encumbrances (except as set forth in Schedule
3.7
to the
Disclosure Schedule), and shall be kept by the Borrower at those locations
listed in Schedule
3.7
to the
Disclosure Schedule and the Borrower will not (without the Investors’ prior
written approval) remove the Collateral therefrom, except for the purposes
of
sale in the regular course of business.
3.8. Limitation
on Disposition of Collateral.
The
Borrower will not sell, exchange or otherwise dispose of the Collateral, other
than Inventory in the ordinary course of business, or any part thereof, or
any
interest therein without the express written authorization of the Agent; in
the
event of the sale, exchange or other disposition of the Collateral or any part
thereof or any interest therein (and no such sale, exchange or other disposition
is hereby otherwise authorized or consented to), the security interest of the
Investors shall nevertheless continue in said Collateral (including all
proceeds, cash and non-cash) notwithstanding said sale, exchange or other
disposition; all of said proceeds shall remain Collateral hereunder and shall
be
transferred and paid over to the Investor immediately following said sale,
exchange or other disposition, and shall be applied at the option of the
Investor to the payment of the Obligations; and the receipt by the Investor
of
all or any of said proceeds shall not be deemed or construed to be an
authorization or consent of the Investor to such sale, exchange or other
disposition of said Collateral. Any license of Borrower’s patents and other
intellectual property rights with a non-affiliated party negotiated on an
arms-length basis shall not be deemed a disposition of such patents or other
intellectual property rights, it being understood and agreed that the Investors’
security interest shall attach to Borrower’s rights under such
license.
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3.9. Further
Assurances Relating to Inventory.
The
Borrower shall perform any and all steps reasonably requested by the Investors
or the Agent to perfect the Investors’ security interest in the Inventory, such
as leasing warehouses to the Investors or the Investors’ designee, placing and
maintaining signs, appointing custodians, executing and filing financing or
continuation statements in form and substance satisfactory to the Investors
or
the Agent, maintaining stock records and transferring Inventory to warehouses.
If any Inventory is in the possession or control of any of the Borrower’s agents
or processors, the Borrower shall notify such agents or processors of the
Investors’ security interest therein, and, upon request, instruct them to hold
all such Inventory for the Investors’ account and subject to the instructions of
the Investors or the Agent. A physical listing of all Inventory, wherever
located, shall be taken by the Borrower whenever reasonably requested by the
Agent, and a copy of each such physical listing shall be supplied to each
Investor. The Investors and the Agent may examine and inspect the Inventory
at
any time during normal business hours upon reasonable prior notice.
3.10. Further
Assurances Relating to Intellectual Property Rights.
The
Borrower shall file such instruments and documents as shall be necessary to
insure that any Patents and Trademarks which may be owned by Borrower or any
Subsidiary are subject to the security interest granted by this Agreement.
The
Borrower shall not take any action which would have an adverse effect upon
the
ability of the Investors to maintain and enforce their security interest in
license agreements for which Borrower is the licensee.
3.11. Discharge
of Liens.
The
Investors may, at their option, discharge any taxes, liens, security interests
or other encumbrances at any time levied or placed on the Collateral, and the
Investors may pay insurance premiums or procure insurance and otherwise pay
for
the maintenance and preservation of the Collateral and the Borrower will
reimburse the Investors on demand for any payment made or expense incurred
by
the Investor pursuant to the foregoing authority, with interest at the highest
rate provided in this Agreement.
3.12. Existence,
Properties, Insurance.
The
Borrower will at all times maintain, preserve and protect all franchises,
patents, and trade names and preserve all the remainder of its property used
or
useful in the conduct of its business and keep the same in good condition and
repair (normal wear and tear and obsolescence excepted), and from time to time
make, or cause to be made, all needful and proper repairs, renewals,
replacements, betterments and improvements thereto, and will pay or cause to
be
paid, except when the same may be contested in good faith, all rent due on
premises where any property is held or may be held, so that the business carried
on in connection therewith may be continuously conducted. The Borrower will
have
and maintain insurance at all times with respect to all Collateral against
risks
of fire (including so-called extended coverage), theft and such risks as any
Investor may require containing such terms, in such form, and for such periods,
and written by such companies as may be satisfactory to the Investors, such
insurance to be payable to the Investors and the Borrower as their interests
may
appear; each policy of liability insurance shall name each Investor and the
Agent as an additional insured; each policy of property casualty and business
interruption insurance shall have a loss payee endorsement
providing:
3.12.1. That
loss
or damage, if any under the policy, shall be payable to the Agent, as agent
for
the Investors, as mortgagee and/or secured party, as its interests may
appear;
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9 -
3.12.2. That
the
insurance as to the interest of the Investors shall not be invalidated by any
act or neglect of the insured or owner of the property described in said policy,
nor by any foreclosure, or other proceeding, nor by any change in the title
of
ownership of said property, nor by the occupation of the premises where the
property is located for purposes more hazardous than are permitted by said
policy;
3.12.3. That,
if
the policy is canceled at any time by the insurance carrier, in such case the
policy shall continue in force for the benefit of the Investors for not less
than thirty (30) days after written notice of cancellation to the Investors
from
the insurance carrier; and
3.12.4. That
the
policy will not be reduced or canceled at the request of the insured nor will
said loss payee endorsement be amended or deleted without thirty (30) days’
prior written notice to the Investors from the insurance carrier.
3.13. Certificate
of Insurance.
The
Borrower will furnish the Investors and the Agent with certificates or other
evidence satisfactory to the Investors of compliance with the foregoing
insurance provisions, and upon an Event of Default the Agent may act as attorney
for the Borrower in obtaining, adjusting, settling, and canceling such insurance
and receiving and endorsing any drafts. The Borrower hereby assigns to the
Investors any and all monies which may become due and payable under any policies
of property casualty insurance insuring the Collateral and business interruption
insurance, including return of unearned premiums, and hereby directs any
insurance Borrower issuing any such policy to make payment directly to the
Investors and authorizes the Agent, on behalf of the Investors, at its option:
(a) to apply such monies in payment on account of any of the Obligations,
whether or not due, and remit any surplus to the Borrower; or (b) to return
said
funds to the Borrower for the purpose of replacement of the Collateral. The
Borrower will also at all times maintain necessary workmen’s compensation
insurance and such other insurance as may be required by law or as may be
reasonably required by the Investors.
3.14. Setoff. Borrower
hereby grants to the Investors a lien, security interest and a right of setoff
as security for all of the Obligations, upon and against all deposits, credits,
collateral and property, now or hereafter in the possession, custody,
safekeeping or control of any Investor or the Agent or any entity under the
control of Investor or the Agent , or in transit to any of them. At any time
after the occurrence of an Event of Default, without demand or notice, Investors
may set off the same or any part thereof and apply the same to any liability
or
obligation of Borrower even though unmatured and regardless of the adequacy
of
any other Collateral securing the Obligations. ANY
AND ALL RIGHTS TO REQUIRE INVESTOR TO EXERCISE ITS RIGHTS OR REMEDIES WITH
RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO
EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER
PROPERTY OF THE BORROWER, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY
WAIVED.
The
Investors shall not be required to marshal any present or future security for,
or guarantees of, the Obligations or to resort to any such security or guarantee
in any particular order and the Borrower waives to the fullest extent that
it
lawfully can, (a) any right it might have to require the Investors to pursue
any
particular remedy before proceeding against the Investor and (b) any right
to
the benefit of, or to direct the application of the proceeds of any Collateral
until the Obligations are paid in full.
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10 -
3.15. Agreements
of the Borrower with Respect to the Collateral.
Borrower agrees as follows with respect to the Collateral:
3.15.1. Subject
to the provisions of this Section 3.15, as long as no event of default shall
exist and be continuing, Borrower may receive and retain the proceeds of any
Accounts, without any obligations to pay any such amounts to the Investors
as a
payment of Obligations, and the Investors shall have no right to contact or
notify in any manner any Account Debtor directly; provided, however, that the
Investors shall have the right to obtain verification of Accounts Receivable
and
may, through a third party designated by the Investors and reasonably acceptable
to Borrower, communicate with Account Debtor to confirm the amount of the
receivable, and the Borrower shall bear the cost of such verification. Borrower
hereby agrees, at its own expense, to endeavor to collect, as and when due,
all
amounts due under the Accounts, including the taking of such action with respect
to such collection as the Investors may reasonably request or, in the absence
of
such request, as Borrower shall deem advisable.
3.15.2. Borrower
shall establish a special account (the “Special Account”) at the Bank or at a
New York City bank reasonably acceptable to the Investors, in which Borrower
shall deposit or have deposited, in a manner and in accordance with a procedure
acceptable to the Investors, as security for payment of the Obligations, all
cash, checks, drafts, wire transfers and other instruments for the payment
of
money which may be received by Borrower at any time in full or partial payment
or otherwise as proceeds of any of the Accounts. Such amounts or items which
may
be received by Borrower and any amounts or items deposited in the Special
Account shall not be commingled with any other of Borrower’s funds or property,
but will be held separate and apart from Borrower’s other funds and property.
Except as provided in Section 3.15.3 of this Agreement, Borrower may administer
the funds deposited in the Special Account and may withdraw and utilize such
funds as required in the course of its business. Borrower shall provide the
Investors and the Agent with the account number, branch, bank and bank officer
in charge with respect to the Special Account and shall advise the Bank in
writing that, upon receipt by the Bank of notice from the Investors or the
Agent
as contemplated by said Section 3.15.3, the Investors shall Lender, have the
rights with respect to the Special Account as are set forth in said Section
3.15.3.
3.15.3. The
Investors may, at any time when any Obligations are outstanding, if an Event
of
Default shall have occurred, require Borrower to give the Investors control
of
the Collateral.
(a) The
Investors’ control of the Accounts shall include, but not be limited to, the
Investors’ right, at Borrower’s cost and expense, to (i) assume control, to the
exclusion of Borrower, of the Special Account; (ii) to establish one or more
lockbox accounts at one or more banks or trust companies designated by the
Investors under which the Investors would exercise exclusive control over
withdrawals from and charges against such accounts, to the exclusion of
Borrower; (iii) to notify Account Debtor and instruct them to make all payments
due Borrower to the lockbox account designated by the Investors, and (iv) to
take such action as the Investors deem appropriate, including the institution
of
collection proceedings and litigation, against any delinquent Account Debtor,
in
Borrower’s name and/or Investors’ own names, as the Investors shall deem
appropriate, and to sell any such Collateral as hereinafter
provided.
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11 -
(b) The
Investors’ control of the Collateral other than Accounts shall include, but not
be limited to, the Investors’ or the Agent’s right, at Borrower’s cost and
expense, (i) to enter upon any premises on which any of the Collateral may
be
located and, without resistance or interference by Borrower, take possession
of
the Collateral, (ii) to dispose of any part or all of the Collateral on any
premises of Borrower, as hereafter provided, and to dispose of any Collateral
consisting of intellectual property, including Patents and Trademarks, in such
manner as the Investors or the Agent shall deem reasonable, (iii) to require
Borrower to assemble and make available to the Investors or the Agent any part
or all of the Collateral at any place and time designated by the Investors
and
reasonably convenient to both parties, it being agreed that a location in the
New York City Metropolitan Area is reasonably convenient to Borrower, (iv)
to
remove any or all of the Collateral from any premises on which the same may
be
located, for the purpose of effecting sale or other disposition thereof or
for
any other purpose, and (v) to take such action as Investors deem appropriate,
including the sale, lease, rental or other disposition of any such Collateral
as
hereinafter provided.
(c) Borrower
will take such action as the Investors may request in order to assist the
Investors in exercising its rights under this Section 3.15.3, and the Investors,
the Agent or their designees may take such action, in the name and on behalf
of
Borrower, as they deem necessary in order to enable them to exercise their
rights under this Section 3.15.3. In the event that Borrower shall receive
any
cash, checks, drafts, wire transfers and other instruments for the payment
of
money in full or partial payment or otherwise as proceeds of any of the
Collateral, Borrower shall immediately cause such amounts and items to be
deposited in a lockbox account designated by the Investors or the Agent. In
the
event that Borrower shall obtain possession, by return, repossession or
otherwise, of any goods the sale or lease of which shall have given rise to
any
Accounts, Borrower will, not later than three days after such items shall have
come into Borrower’s possession, pay to the lockbox account designated by the
Investors, the unpaid purchase price or lease rental of such goods.
(d) In
the
event that, pursuant to Section 3.15.3(a) or (b) of this Agreement, the Agent
or
the Investors assume control of the Accounts, then the Agent shall apply the
proceeds from the Accounts to a reduction of the Obligations in such order
as
the Agent shall, in its sole discretion, determine, including the payment of
the
expenses incurred in collection of Accounts or any other Collateral. Any excess
shall be paid over to Borrower. The Agent is hereby authorized to endorse,
in
the name of Borrower, any item, howsoever received by the Investors or the
Agent
representing any payment on or other proceeds of any of the Collateral. The
proceeds of the Accounts shall be applied to the reduction of the Obligations
in
the manner hereinbefore set forth on the Business Day following the date on
which the Investors receive the cash from the Accounts, which day shall be,
with
respect to a check delivered in respect of an Account, the day on which the
lockbox bank can advise the Agent that the check has cleared.
(e) Upon
the
occurrence of any Event of Default and at any time thereafter as long as any
Obligations are outstanding, the Investors may, without notice to (except as
set
forth in this Section 3.15) or demand upon Borrower, declare any part or all
of
the Obligations immediately due and payable, and the Investors shall have the
following rights and remedies (to the extent permitted by applicable law) in
addition to all other rights and remedies of a secured party under the UCC,
all
such rights and remedies being cumulative, not exclusive, and enforceable
alternatively, successively or concurrently:
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12 -
(i) The
Agent
may, at any time and from time to time, with or without judicial process or
the
aid and the assistance of others, sell, resell, lease, assign and deliver,
grant
options for or otherwise dispose of any or all of the Collateral in its then
condition or following any commercially reasonable preparation or processing,
at
public or private sale or proceedings, or otherwise, by one or more contracts,
in one or more parcels, at the same or different times, with or without having
the Collateral at the place of sale or other disposition, for cash and/or
credit, upon such terms, at such place(s) and time(s) and to such persons,
firms
or corporations as the Investors deem best, all without demand for performance
or any notice or advertisement whatsoever except that, where an applicable
statute requires reasonable notice of sale or other disposition, Borrower hereby
agrees that the sending of five (5) days’ notice, given in the manner provided
in Section 11.4 of this Agreement (other than by telecopier), to the address
of
Borrower set forth in this Agreement, of the place and time of any public sale
or of the time after which any private sale or other intended disposition is
to
be made, shall be deemed reasonable notice thereof. If any of the Collateral
is
sold by the Investors upon credit or for future delivery, the Investors shall
not be liable for the failure of the purchaser to pay for same, and in the
event
of such failure, the Investors may resell or otherwise dispose of such
Collateral. The Agent or any Investor may buy any part or all of the Collateral
at any public or private sale and in each case make payment therefor by any
means, whether by credit against the Obligations or otherwise; the Investors
may
apply the cash proceeds actually received from any sale or other disposition
to
the costs and expenses in connection therewith, including the expenses of
retaking, holding, preparing for sale, selling or otherwise disposing of the
Collateral, to reasonable attorneys’ fees, to legal and travel expenses,
premiums on bonds and undertakings, fees of custodians, sheriffs, marshals
and
auctioneers and others, and all other expenses which may be incurred by the
Investors in attempting to collect the Obligations or in otherwise exercising
their rights pursuant to this Agreement, proceed against the Collateral or
enforce the Notes or this Agreement, or in the prosecution or defense of any
action or proceeding related to the Obligations or the Note and/or this
Agreement, and then to the Obligations in such order and manner and as to
principal and interest and other Obligations as the Agent may in its sole
discretion determine; and Borrower shall remain liable and will pay the
Investors on demand any deficiency remaining, together with interest thereon
at
a rate equal to the highest rate then payable on any of the Obligations, and
the
balance of any cost or expenses unpaid, with any surplus to be paid to Borrower
subject to legal process or any duty of the Investors imposed by law in favor
of
the holder of any subordinate security interest in the Collateral known to
the
Investors. Any purchase of any Collateral by the Investors shall be purchased
by
it discharged from all claims and free from any right of redemption. In case
of
any sale by the Agent of any of the Collateral on credit, or for future
delivery, the property so sold may be retained by the Agent until the selling
price is paid by the purchaser. Neither the Agent nor any Investor shall incur
any liability if the purchaser fails to take up and pay for the property so
sold. In case of any such failure, the Collateral may be sold again, from time
to time. It is understood that any action or rights which Investors may exercise
shall be exercised by the Agent on behalf of the Investors.
(ii) The
Investors may at any time and from time to time without notice to Borrower
set
off, appropriate and apply any and all Collateral in or coming into possession
of the Investors to the payment of any or all of the Obligations, in such order
and manner and as to principal and interest and expenses as the Investors may
in
its sole discretion determine.
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13 -
(f) If,
and
to the extent that, a perfected security interest hereunder in any Collateral
shall cease to be perfected for any reason whatsoever (including, without
limitation, release of all or any balance in the Special Account or any lockbox
account or use or disposition by Borrower of any proceeds of Collateral), then
such Collateral (referred to in this Section 3.15.3(vi) as “released
Collateral”) shall be deemed thereby released from the security interest
hereunder in exchange, as of the time of such release, for any other Collateral
of equivalent value in which a perfected security interest under this Agreement
is being obtained contemporaneously or has been most recently obtained; but
only
to the extent such other Collateral does not represent either (A) Collateral
in
exchange for which any previously released Collateral shall have been deemed
released, or (B) Collateral of equivalent value to any loan or advance
(otherwise than by renewal or extension) from the Investors to Borrower in
which
Collateral a perfected security interest hereunder shall have been obtained
contemporaneously with or most recently prior to such loan or
advance.
3.16. Other
Obligations of Borrower.
Borrower:
3.16.1. will,
upon request of the Agent or the Investors, execute such financing statements
and other documents (and pay the cost of filing or recording the same in all
public offices deemed necessary by the Investors) and do such other acts and
things, all as the Agent or any Investor may from time to time reasonably
request to establish and maintain a valid security interest in the Collateral
(free of all other liens, claims and rights of third parties) to secure the
payment of the Obligations;
3.16.2. will
keep, at its address set forth in this Agreement, its records concerning the
Collateral, which records will be of such character as will enable the Agent,
the Investors or their designees to determine at any time the status of the
Collateral, and Borrower will not, without the Investors’ prior written consent,
duplicate any such records at any other address;
3.16.3. will,
within twenty (20) calendar days of the last day of each month, unless the
Investors agree to quarterly information, furnish the Agent and the Investors
with monthly schedules (including information with respect to employee payroll
taxes), executed by a duly authorized officer of Borrower, showing all Accounts
outstanding, on an aging basis, in such detail as the Agent or the Investors
may
request, in addition to such other information concerning Borrower, the
Collateral, the Special Account and the Account Debtors relating to the Accounts
as the Investors may from time to time request;
3.16.4. will
permit the Agent, any Investors and their designees, from time to time, upon
reasonable notice, to inspect, audit and make copies of and extracts from all
records and all other papers in the possession of Borrower pertaining to the
Collateral, the Special Account and the Account Debtors;
3.16.5. will
stamp on its records concerning the Collateral, a notation, and will affix
to
any Collateral which constitutes equipment, a notice, in form satisfactory
to
the Agent or the Investors, of the security interest of the Investors under
this
Agreement;
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14 -
3.16.6. will
not
create or permit to exist any lien on or security interest in any Collateral
to
or in favor of anyone other than the Investors;
3.16.7. will
reimburse the Investors for all expenses, including reasonable attorneys’ fees
and legal expenses, incurred by the Investors in seeking to collect or enforce
any rights to the Collateral or under this Agreement, the Note or the other
Transaction Documents;
3.16.8. when
and
as reasonably requested by the Investors, will execute and deliver to the
Investors reports as to the Collateral listing all items thereof and, with
respect to Collateral other than Accounts Receivable, describing the condition
and value thereof;
3.16.9. will
assume all responsibility for the operation and use of the
Collateral;
3.16.10. will
maintain liability and casualty insurance in such amounts and against such
risks
as is customary in the industry; provided, that in no event shall liability
insurance be for less than three million dollars ($3,000,000) and casualty
insurance for less than the total Obligations plus the any other indebtedness
of
Borrower, and name the Investors as an additional insured;
3.16.11. will,
at
Borrower’s sole cost and expense, perform all acts, and execute all documents
reasonably requested by the Agent or any of the Investors at any time to
evidence, perfect, maintain and enforce the Investors’ first priority security
interest in the Collateral, or otherwise in furtherance of the provisions of
this Agreement; and
3.17. Concerning
the Agent.
The
Investors hereby acknowledge and appoint the Agent to act on their behalf as
provided in this Agreement, and that, in so acting, the Agent is acting on
behalf of the Investors. The Agent shall incur no liability to the Investors
for
any action taken or any omission to take any action unless such action or
failure of action resulted from the Agent’s gross negligence or willful conduct.
3.18. Right
of Investors to Make Payments.
The
Investors may, in their sole discretion and at any time, for the account and
expense of Borrower, pay any amount or do any act required of Borrower hereunder
or requested by the Investors to preserve, protect, maintain or enforce the
Obligations, the Collateral or the priority of the security interest granted
in
this Agreement, and which Borrower fails to do or pay, including, without
limitation, payment of any judgment against Borrower, any insurance premium,
any
warehouse charge, any processing charge, any landlord’s claim, and any other
lien, claim or encumbrance upon or with respect to the Collateral and any such
payment shall be added to the Obligations and shall be repayable upon demand,
together with interest at the highest rate then payable on any of the
Obligations. The Agent or the Investors may, in their sole discretion and at
any
time, demand, xxx for, collect or receive any money or property at any time
payable or receivable on account of or in exchange for, or make any compromise
or settlement deemed desirable by the Investors with respect to, any of the
Collateral, and/or extend the time of payment, arrange for payment in
installments or otherwise modify the terms of, or release, any of the
Obligations and/or the Collateral, or any obligor, maker, endorser, acceptor,
surety or guarantor of, or any party to, any of the Obligations or the
Collateral, all without notice to or consent by Borrower and without otherwise
discharging or affecting the Obligations, the Collateral or the first priority
security interest granted in this Agreement. Any proceeds of the Collateral
received by Borrower shall not be commingled, but shall be segregated, held
by
Borrower in trust as the exclusive property of the Investors, and be immediately
delivered to the Investors in kind, duly endorsed in blank where appropriate
to
effectuate the provisions of this Agreement, the same to be held by the
Investors as additional Collateral hereunder or, at the Investors’ option, to be
applied to payment of the Obligations, whether or not due and in any order,
all
as provided in Section 3.15.3 of this Agreement. At any time, the Investors
may
assign, transfer and deliver or otherwise dispose of any of the Obligations
alone or together with any or all of the Collateral, whereupon such Investors
shall be fully discharged from all responsibility and the transferee shall
be
vested with full powers and rights of such Investors with respect thereto,
but
the Investors shall retain all rights and powers with respect to any obligations
or Collateral not assigned, transferred, delivered or otherwise disposed
of.
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15 -
3.19. Waiver
of Automatic Stay.
The
Borrower acknowledges and agrees that should a proceeding under any bankruptcy
or insolvency law be commenced by or against the Borrower, or if any of the
Collateral should become the subject of any bankruptcy or insolvency proceeding,
then the Investors should be entitled to, among other relief to which they
may
be entitled under the Transaction Documents and/or applicable law, an order
from
the court granting immediate relief from the automatic stay pursuant to 11
U.S.C. Section 362 to permit the Holder to exercise all of its rights and
remedies pursuant to the Transaction Documents and/or applicable law.
TO
THE EXTENT PERMITTED BY LAW, THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE
AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE BORROWER
EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY
OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING,
WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION,
REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS
RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE
LAW.
The
Borrower hereby consents to any motion for relief from stay that may be filed
by
the Holder in any bankruptcy or insolvency proceeding initiated by or against
the Borrower and, further, agrees not to file any opposition to any motion
for
relief from stay filed by the Holder. The Borrower represents, acknowledges
and
agrees that this provision is a specific and material aspect of the Transaction
Documents, and that the Holder would not agree to the terms of the Note or
the
other Transaction Documents if this waiver were not a part of this Agreement.
The Borrower further represents, acknowledges and agrees that this waiver is
knowingly, intelligently and voluntarily made, that neither the Investors,
the
Agent nor any person acting on behalf of the Investors or the Agent has made
any
representations to induce this waiver, that the Borrower has been represented
in
the signing of this Agreement, the Notes and the other Transaction Documents
and
in the making of this waiver by independent legal counsel selected by the
Borrower and that the Borrower has discussed this waiver with
counsel.
Section
4. REPRESENTATIONS,
WARRANTIES AND GENERAL COVENANTS. The
Borrower hereby represents and warrants to the Investors (which representations
and warranties will survive the delivery of the Securities and this Agreement
shall be deemed to be continuing until the Note is fully paid or converted
and
the Warrants are fully exercised) that, except as set forth in a disclosure
schedule separately provided to the Investors (the “Disclosure
Schedule”):
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16 -
4.1. Organization
and Qualification.
Each of
NaturalNano and NN Research:
4.1.1. Is
and
will continue to be duly organized and validly existing and in good standing
under the laws of its state of organization.
4.1.2. Is
qualified and in good standing to do business in all other jurisdictions in
which the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where such failure
will not have a Material Adverse Effect. Neither NaturalNano nor NN Research
is
qualified to conduct business in the State of New York and each of them will
promptly take such steps as are necessary in order that they are qualified
to
conduct business as a foreign corporation in the State of New York.
4.1.3. Has
the
power to execute and deliver this Agreement, the Securities, the Registration
Rights Agreement, the other Supplemental Agreements and to borrow
hereunder.
4.1.4. Has
all
requisite permits, authorizations, franchise agreements and licenses, without
unusual restrictions or limitations, to own, operate and lease its properties
and to conduct the business in which it is presently engaged, all of which
are
in full force and effect.
4.2. No
Legal Bar.
All
corporate and other action necessary for the Borrower to execute, deliver and
perform in accordance with the terms of this Agreement and the other Transaction
Documents has been taken, and this Agreement constitutes, and the other
Transaction Documents to which the Borrower is a party, will, when executed
and
delivered, constitute the valid and binding obligations of the Borrower
enforceable in accordance with their respective terms. The execution and
delivery of this Agreement and compliance by the Borrower with any of the terms
and provisions hereof or of the Notes, the Registration Rights Agreement and
any
other Transaction Documents will not, on the Closing Date and thereafter as
long
as the Notes remain unpaid or unconverted and any portion of the Warrants
remains unexercised, violate any provision of any existing law or regulation
or
any writ or decree of any court or governmental instrumentality, or any
agreement or instrument to which the Borrower is a party or which is binding
upon it or its assets, and will not result in the creation or imposition of
any
lien, security interest, charge or encumbrance of any nature whatsoever upon
or
in any of its assets, except as contemplated by this Agreement; and no consent
of any other party, and no consent, license approval or authorization of or
registration or declaration with any governmental bureau or agency, is required
in connection with the execution, delivery, performance, validity and
enforceability of this Agreement, the Note, the Registration Rights Agreement
or
any of the other Transaction Documents.
4.3. Capitalization.
4.3.1. The
authorized and outstanding capital stock of NaturalNano as
of the
date of this Agreement
and as
adjusted to reflect issuances pursuant to or contemplated by this Agreement
is
set forth in Schedule 4.3.1 to the Disclosure Schedule. Schedule
4.3.1
contains
all shares and derivatives currently and potentially outstanding. The Borrower
hereby represents that any and all shares and current potentially dilutive
events have been included in Schedule 4.3.1,
including employment agreements, acquisition, consulting agreements, debts,
payments, financing or business relationships that could be paid in equity,
derivatives or resulting in additional equity issuances.
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17 -
4.3.2. All
outstanding shares of capital stock have been duly authorized and are validly
issued, and are fully paid and non-assessable and free from preemptive rights.
All shares of capital stock described above to be issued have been duly
authorized and when issued, will be validly issued, fully paid and
non-assessable and free from preemptive rights.
4.3.3. Except
for the issuance of Common Stock upon conversion of the Notes and upon exercise
of the Warrants or as set forth in Schedule 4.3.1
to the
Disclosure Schedule as of the date hereof and as of the Closing Date, there
are
not now outstanding options, warrants, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of any class of capital stock
of
the Borrower, or agreements, understandings or arrangements to which the
Borrower is a party, or by which the Borrower is or may be bound, to issue
additional shares of its capital stock or options, warrants, scrip or rights
to
subscribe for, calls or commitment of any character whatsoever relating to,
or
securities or rights convertible into or exchangeable for, any shares of any
class of its capital stock. The Borrower agrees to inform the Investors in
writing of any additional options, warrants, rights or convertible securities
granted prior to the Closing Date or which, prior to the Closing Date, the
Borrower agrees to issue.
4.3.4. The
Borrower on the Closing Date (i) will have full right, power, and authority
to
sell, assign, transfer, and deliver, by reason of record and beneficial
ownership, to the Investors, the Notes and Warrants, free and clear of all
liens, charges, claims, options, pledges, restrictions, and encumbrances
whatsoever; and (ii) upon conversion of the Notes or exercise of the Warrants,
the Investors will acquire title to such underlying shares of Common Stock,
free
and clear of all liens, charges, claims, options, pledges, restrictions, and
encumbrances whatsoever
except
for any of the foregoing which results from actions or omissions on the part
of
the Investor.
4.3.5. The
capital stock of NN Research consists of 30,000,000 authorized shares of common
stock, par value $.01 per share, of which 10,000,000 shares are issued and
outstanding and owned by NaturalNano, free and clear of any lien, option,
security interest, purchase right or other encumbrance. Except
as
contemplated by this Agreement, the Note, the Warrants and the Supplemental
Agreements and except as set forth in Schedule 4.3.1 to the Disclosure Schedule,
the Borrower does not have any agreements or understandings pertaining to the
purchase or sale of its equity.
4.3.6. Except
as
set forth in Schedule 4.3.7, Borrower does not have any Subsidiary and there
is
no Person in which Borrower has an equity interest or to which Borrower has
advanced money, whether or not represented by a note, or directly or indirectly
guaranteed obligations or provided security for the obligations of such
Person.
4.3.7. The
Borrower’s executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders
of
the Borrower’s equity or rights to receive equity of the Borrower. The board of
directors of the Borrower has concluded, in its good faith business judgment
that the issuance of the Securities is in the best interests of the Borrower.
The Borrower specifically acknowledges that its obligation to issue the shares
of Common Stock upon conversion of the Notes and upon exercise of the Warrants
is binding upon the Borrower and enforceable regardless of the dilution such
issuance may have on the ownership interests of other stockholders of the
Borrower or parties entitled to receive equity of the Borrower.
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18 -
4.4. Financial
Statements; SEC Documents.
4.4.1. Borrower
has delivered to the Investors its audited consolidated balance sheet at
December 31, 2005 and its audited consolidated statements of operations for
the
year ended December 31, 2005, the period from inception (December 22, 2004)
to
December 31, 2004 and the cumulative period from December 22, 2004 to December
31, 2005, statement of stockholders’ equity for the year ended December 31,
2005, for the period from December 22, 2004 to December 31, 2004 and
the cumulative period from December 22, 2004 to December 31, 2005, and
statements of cash flows for the year ended December 31, 2005, for the
period from December 22, 2004 to December 31, 2004 and the cumulative period
from December 22, 2004 to December 31, 2005 together with notes to the financial
statements, and its unaudited consolidated condensed balance sheet at September
30, 2006, consolidated statements of operations for the nine months ended
September 30, 2006 and the period from December 22, 2004 through September
30,
2006, statements of stockholders’ equity for the period from December 22, 2004
through September 30, 2006, and statements of cash flows for the nine months
ended September 30, 2006 and 2005 and the period from December 22, 2004 through
September 30, 2006 together with notes to financial statements. The audited
financial statements were audited by, and the unaudited financial statements
were reviewed, but not audited, by Xxxxxxxxx Xxxxx Xxxxxxx LLP, registered
independent accounting firm. Xxxxxxxxx Xxxxx Xxxxxxx LLP is independent within
the rules and regulations of the Commission. The financial statements present
and reflect, in accordance with generally accepted accounting principles,
consistently applied, the Borrower’s financial position on the balance sheet
date and the results of its operations, changes in stockholders’ equity and cash
flows for the periods covered in accordance with generally accepted accounting
principles consistently applied; provided, however, that the financial
statements for the interim period were prepared in accordance with the rules
and
regulations of the Commission applicable to quarterly reports on Form 10-QSB.
The
books
and records of the Borrower have been, and are being, maintained in all material
respects in accordance with generally accepted accounting principles
consistently applied and any other applicable legal and accounting requirements
and reflect only actual transaction. The
Borrower has no liabilities or obligations which are material, individually
or
in the aggregate, which are not disclosed in the financial statements, other
than those incurred in the ordinary course of the Company’s businesses since
September 30, 2006, and which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
4.4.2. As
of the
date of the financial information submitted, there were no material unrealized
or anticipated losses from any unfavorable commitments of the Borrower; and
there has been no material adverse change in the business or assets or in the
condition, financial or otherwise, of the Borrower from that set forth in said
financial statements.
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19 -
4.4.3. The
Borrower has provided the Investors with a copy of:
(a) Each
letter of comment received from the Commission since December 22,
2004.
(b) Each
letter responding to the comments of the Commission.
(c) Each
so-called management letter from the Borrower’s independent registered
accounting firm which sets forth any comments on the Borrower’s financial
statement, financial controls or other financial procedures or the Borrower’s
books and records, or, if no such letter has been issued, a letter from the
independent registered accounting firm to that effect.
(d) Any
response to any management letter.
4.4.4. The
Common Stock is traded on the OTC Bulletin Board, and, at or prior to the
effective date of the Registration Statement, as defined in the Registration
Rights Agreement, will be, eligible
for transfer pursuant to the Depository Trust Company Automated Securities
Transfer Program (the “DTC Program”). The name, address, telephone number, fax
number, contact person and e-mail address of the NaturalNano’s transfer agent
are set forth on Schedule 4.4.4 to the Disclosure Schedule. The
Borrower has not taken any action which is likely to cause the Common Stock
to
be delisted from trading on the OTC Bulletin Board or to lose its eligibility
for transfer pursuant to the DTC Program, and the Borrower does not know of
any
event which is likely to result in such delisting or ineligibility. NaturalNano
will take such action as is necessary in order to file its 10-KSB for the year
ended December 31, 2006 in a timely manner without the need to file for an
extension pursuant to Section 12b-25 of the Exchange Act.
4.4.5. The
Borrower has responded to all comments from the Commission relating to any
filing made by the Borrower pursuant to the Securities Act or the Exchange
Act,
other than comments relating to a registration statement on Form SB-2 which
will
be withdrawn.
4.4.6. All
of
the Borrower’s filings with the Commission pursuant to the Exchange Act comply
as to form with the requirements of the Exchange Act and the information
contained therein does not contain a material misstatement of fact or the
omission of a fact necessary to make the information presented not
misleading.
4.5. Title,
Liens and Encumbrances.
4.5.1. The
Borrower has good and marketable title, and the right to grant a security
interest in, to all Collateral, and none of the Collateral is subject to any
pledge, lease, trust, bailment, lien, security interest, encumbrance, charge
or
title retention or other security agreement or arrangement of any character
whatsoever other than as permitted in the Supplemental Agreements.
4.5.2. The
security interest granted by this Agreement constitutes a valid, binding and
enforceable first priority security interest on the Collateral, except as
enforceability may be affected by bankruptcy, insolvency and other laws of
general applications affecting the enforcement of creditors’ rights.
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20 -
4.6. No
Material Litigation.
There
is no litigation or administrative proceeding of or before any Government Entity
is pending or, to the Knowledge of the Borrower, threatened against the Borrower
or any of its property which, if adversely determined based on the claims made
against the Borrower, would have a Material Adverse Effect.
4.7. No
Default.
The
Borrower is not, on the date hereof, in default with respect to the payment
or
performance of any of its obligations or in the performance of any covenants
or
conditions to be performed by it pursuant to the terms and provisions of any
indenture, agreement or instrument to which it is a party or by which it may
be
bound and the Borrower has received no notice of default
thereunder.
4.8. Compliance
with Laws.
The
Borrower has complied in all material respects with and will continue to comply
with all applicable statutes and regulations of the United States of America,
and all states, counties, municipalities and agencies of any thereof with
respect to (a) any restrictions, specifications or other requirements pertaining
to products or technology which the Borrower develops, manufactures or sells,
or
to the services it performs; (b) the conduct of its business operations; (c)
the
use, maintenance and operation of the real and personal properties owned or
leased by it in the operation of its business, including compliance with all
application zoning and environmental laws and regulations; and (d) the issued
and outstanding capital stock of the Borrower and the disclosure of material
facts and information to its stockholders.
4.9. No
Secondary Liabilities.
There
are no outstanding contracts or agreements of guaranty or suretyship made by
the
Borrower, or to which it is a party, or to which the Borrower or any of the
Borrower’s assets are subject.
4.10. Taxes.
The
Borrower has filed or caused to be filed or obtained extensions for the filing
of, and will continue to file and cause to be filed, all federal, state and
local tax returns required by law to be filed, and has paid and will continue
to
pay all taxes shown to be due and payable on said returns or on any assessment
made against it, except if being contested in good faith and adequate provision
has been made therefor on its books of account. No claims are being asserted
with respect to such taxes which are not reflected in the financial statements
which have been furnished by the Borrower to the Investors.
4.11. Intellectual
Property Rights.
4.11.1.
Schedule
4.11 to the Disclosure Schedule sets
forth a true and complete list of any existing Patents and patent applications,
Trademark registrations and applications, service xxxx registrations and
applications, computer software (other than off-the-shelf software for which
the
Borrower has the required number of use licenses), copyright registrations
and
applications, material unregistered trademarks, service marks, and copyrights,
and internet domain names used or held for use in connection with the Borrower’s
business, together with all licenses related to the foregoing, whether the
Borrower is the licensee or licensor thereunder.
Schedule
4.11 specifically identified each of the TI Patents.
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21 -
4.11.2. The
Borrower is the sole and exclusive owner or valid licensee of all Patents,
Trademarks and other intellectual property which is shown on said Schedule
4.11
to be owned by it, free and clear of all encumbrances other than the rights
of
licensees under license agreements which are set forth on said Schedule 4.11,
and, with respect to licensed intellectual property, encumbrances incurred
by
Persons other than the Borrower, except as disclosed in the said Schedule 4.11
with respect to one of Patents; provided, however, that the failure to have
title Patent will not have a Material Adverse Effect. The Borrower is the
licensee under a valid and enforceable license agreement with respect to all
intellectual property shown on Schedule 4.11 as being licensed by the Borrower.
Neither the execution of this Agreement nor the enforcement of any rights which
the Investors or the Agent may have under this Agreement and the Other
Supplemental Agreements breaches or would result in a breach of the license
agreement or would give the licensor any right to terminate or otherwise modify
the terms of the license agreements.
4.11.3. All
patents, registrations and applications for intellectual property that are
owned
by the Borrower and listed in Schedule 4.11 (a) are, to the Knowledge of the
Borrower, valid, subsisting, in proper form and, to the Knowledge of Borrower,
have been duly maintained, including the submission of all necessary filings
and
fees in accordance with the legal and administrative requirements of the
appropriate jurisdictions and (b) except as disclosed on the Schedule 4.11,
have
not lapsed, expired or been abandoned, and no patent, registration or
application therefor is the subject of any opposition, interference,
cancellation proceeding or other legal or governmental proceeding before any
Governmental Entity in any jurisdiction. The Borrower has no Knowledge of any
facts that would make any intellectual property invalid or
unenforceable.
4.11.4. To
the
Knowledge of the Borrower, all Patents that are licensed by the Borrower are
valid and subsisting.
4.11.5. To
the
Borrower’s Knowledge, the Borrower owns or has the valid right to use all of the
intellectual property used by it or held for use by it in connection with its
business. To the Knowledge of the Borrower, there are no conflicts with or
infringements of any of the Borrower’s intellectual property by any third party.
To the Knowledge of the Borrower, the conduct of the Borrower’s businesses the
Borrower as currently conducted does not conflict with or infringe in any way
on
any proprietary right of any third party.
4.11.6. Except
as
set forth on Schedule 4.11, there is no claim, suit, action or proceeding
pending or, to the Knowledge of the Borrower, threatened against the Borrower
(i) alleging any such conflict or infringement with any third party’s
proprietary rights or (ii) challenging the ownership, use, validity or
enforceability of the intellectual property used by the Borrower in its
business.
4.11.7. All
consents, filings, and authorizations by or with Governmental Entities or third
parties, if any, necessary with respect to the consummation of the transactions
contemplated by this Agreement, as they may affect the Borrower’s intellectual
property, have been obtained.
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22 -
4.11.8. The
Borrower has not entered into any consent, indemnification, forbearance to
xxx,
settlement agreement or cross-licensing arrangement with any Person relating
to
the Borrower’s intellectual property or, to the Knowledge of the Borrower, any
intellectual property licensed by the Borrower, or the intellectual property
of
any third party, except as contained in any license agreements listed in
Schedule 4.11.
4.11.9. The
Borrower is not, nor will it be as a result of the execution and delivery of
this Agreement or the performance of its obligations under this Agreement,
the
Note or the Other Supplemental Agreements, in breach of any license, sublicense
or other agreement relating to the Borrower’s Intellectual
Property.
4.12. Absence
of Certain Changes.
Since
September 30, 2006, except as set forth in the Schedule 4.12 to the Disclosure
Schedule, the Borrower has conducted its business only in the ordinary and
usual
course consistent with past practice, and the Borrower has not:
4.12.1. Suffered
any Material Adverse Change;
4.12.2. Incurred
any liability or obligation (absolute, accrued, contingent or otherwise) except
for those incurred in the ordinary course of business and consistent with past
practice (counting obligations or liabilities arising from one transaction
or a
series of similar transactions, and all periodic installments or payments under
any lease or other agreement providing for periodic installments or payments,
as
a single obligation or liability) or increased, or experienced any change in
any
assumptions underlying or methods of calculating, any bad debt, contingency
or
other reserves;
4.12.3. Paid,
discharged or satisfied any claim, liability or obligation (whether absolute,
accrued, contingent or otherwise) other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice of liabilities and obligations reflected or reserved against in the
September 30, 2006 balance sheet or incurred in the ordinary course of business
and consistent with past practice since September 30, 2006;
4.12.4. Permitted
or allowed any of its property or assets (real, personal or mixed, tangible
or
intangible) to be subjected to any mortgage, pledge, lien, security interest,
encumbrance, restriction or charge of any kind;
4.12.5. Cancelled
any debts or waived any claims or rights of substantial value;
4.12.6. Sold,
transferred, or otherwise disposed of any of its properties or assets (real,
personal or mixed, tangible or intangible), except in the ordinary course of
business and consistent with past practice;
4.12.7. Disposed
of or permitted to lapse any rights to the use of any intellectual property,
or
disposed of or disclosed to any Person any trade secret, formula, process,
know-how or other Intellectual Property not theretofore a matter of public
knowledge;
4.12.8. Granted
any general increase in the compensation of officers or employees (including
any
such increase pursuant to any bonus, pension, profit sharing or other plan
or
commitment which is disclosed in the Borrower’s financial statements) or any
increase in the compensation payable or to become payable to any officer or
employee, and no such increase is customary on a periodic basis or required
by
agreement or understanding;
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23 -
4.12.9. Made
any
single capital expenditure or commitment in excess of $5,000 for additions
to
property, plant, equipment or intangible capital assets or made in the aggregate
capital expenditures and commitments in excess of $10,000 for additions to
property, plant, equipment or intangible capital assets;
4.12.10. Declared,
paid or set aside for payment any dividend or other distribution in respect
of
its capital stock or redeemed, purchased or otherwise acquired, directly or
indirectly, any shares of capital stock or other securities of the
Borrower;
4.12.11. Made
any
change in any method of accounting or accounting practice;
4.12.12. Paid,
loaned or advanced any amount to, or sold, transferred or leased any properties
or assets (real, personal or mixed, tangible or intangible) to, or entered
into
any agreement or arrangement with, any of its officers or directors or any
Affiliate of any of its officers or directors except for directors’ fees and
compensation to officers at rates not exceeding the rates disclosed in
NaturalNano’s most recent filings with the Commission;
4.12.13. Allowed
any obligations of the Borrower to become more than thirty (30) days past due;
or
4.12.14. Agreed,
whether in writing or otherwise, to take any action described in this Section
4.12.
4.12.15. Approved
any stock dividend, split or distribution, reverse split, combination of shares
or other recapitalization.
4.13. Employment
Agreements; Collective Bargaining Agreements.
4.13.1. Except
as
set forth in Schedule 4.13 to the Disclosure Schedule, the Borrower has not
entered into, and is not a party to, any employment, consulting or other
services agreement with any officer, director, 5% stockholder or other person
who has base compensation of more than $75,000. A copy of each of such
agreements has been provided to the Investors.
4.13.2. Schedule
4.13 also sets forth the directors’ compensation and any proposed changes in the
directors’ compensation.
4.13.3. The
Borrower is not a party to any collective bargaining agreements.
4.14. Employee
Benefit Plans.
To the
extent that any present or future pension or other employee benefit plan of
the
Borrower is subject to state or federal statutes or regulations, the Borrower
represents and warrants that it is and shall at all times be in compliance
with
said statutes and regulations and will furnish the Investors with copies of
such
reports as it may be required to furnish under said statutes or regulations.
A
description of each such plan is set forth in Schedule 4.15 to the Disclosure
Schedule.
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24 -
4.15. Commercial
Tort Claims.
The
Borrower shall promptly notify the Investors and the Agent in writing upon
incurring or otherwise obtaining a Commercial Tort Claim after the date hereof
against any third party and, upon the Agent’s reasonable request, enter into a
Supplemental Agreement and do such other acts and things required by Agent
or
the Investors to confirm Investors’ security interest in such Commercial Tort
Claim.
4.16. Other
Collateral.
Borrower
shall promptly notify Investor in writing upon acquiring or otherwise obtaining
any Collateral after the date hereof consisting of Deposit Accounts, Investment
Property, Letter-of-Credit Rights or Electronic Chattel Paper and, upon the
reasonable request of any Investor or the Agent, promptly execute such other
documents, and do such other acts or things deemed appropriate by Investors
or
the Agent to deliver to Investors control with respect to such Collateral;
promptly notify Investors in writing upon acquiring or otherwise obtaining
any
Collateral after the date hereof consisting of documents or other instruments
and, upon the reasonable request of any Investor or the Agent, will promptly
execute such other documents, and do such other acts or things deemed
appropriate by Investors or the Agent to deliver to Investors possession of
such
Documents which are negotiable and Instruments, and, with respect to
non-negotiable Documents, to have such nonnegotiable Documents issued in the
name of Investors; and with respect to Collateral in the possession of a third
party, other than Certificated Securities and Goods covered by a Document and
obtain an acknowledgment from the third party that it is holding the Collateral
for the benefit of Investor.
4.17. Lien
Perfection; Further Assurances.
Borrower
shall execute such UCC-1 financing statements as may be required by the UCC
and
such other instruments, assignments or documents as are necessary to perfect
Investor’s lien upon any of the Collateral and shall take such other action as
may be required to perfect or to continue the perfection of Investor’s lien upon
the Collateral. Unless prohibited by applicable law, Borrower hereby irrevocably
authorizes the Agent on behalf of the Investors to execute and/or file any
such
financing statements, including, without limitation, financing statements that
indicate the Collateral as all assets of Borrower or words of similar effect,
on
Borrower’s behalf. Borrower also hereby ratifies its authorization for the Agent
to have filed in any jurisdiction any like financing statements or amendments
thereto it filed prior to the date hereof. The parties agree that a photographic
or other reproduction of this Agreement shall be sufficient as a financing
statement and may be filed in any appropriate office in lieu thereof. At
Investors’ or the Agent’s reasonable request, Borrower shall also promptly
execute or cause to be executed and shall deliver to Investor any and all
documents, instruments and agreements deemed necessary by Investors or the
Agent
to give effect to or carry out the terms or intent of the Supplemental
Agreements. The Borrower shall further take such steps as the Investors or
the
Agent may reasonably request for the Investors (a) to obtain an acknowledgement,
in form and substance reasonably satisfactory to the Agent, of any bailee having
possession of any of the Collateral that the bailee holds such Collateral for
the Investors, (b) to obtain “control” of any Investment Property, Deposit
Accounts, Letter-of-Credit Rights or Electronic Chattel Paper (in accordance
with provisions in UCC Sections 9-104, 9-105, 9-106 and 9-107 relating to what
constitutes “control” for such items of Collateral), with any agreements
establishing control to be in form and substance satisfactory to the Investors,
and (c) otherwise to insure the continued perfection and priority of the
Investors’ security interest in any of the Collateral and of the preservation of
its rights therein, whether in anticipation and following the effectiveness
of
Revised Article 9 of the Uniform Commercial Code in any jurisdiction.
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25 -
4.18. Solvency. The
Borrower hereby represents to the Investor that it is solvent and is generally
paying its debts as such debts become due and that neither the execution of
this
Agreement nor the issuance of the Notes pursuant to this Agreement will render
the Borrower insolvent.
4.19. Investment
Company.
Neither
the Borrower nor any of its Affiliates is an investment company within the
meaning of the Investment Company Act of 1940.
4.20. No
Broker.
No
broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or commission in connection with the transactions contemplated by
this
Agreement based upon arrangements made by or on behalf of the Borrower. The
Borrower shall indemnify and hold harmless the Investors and the Agent for
any
loss, liability, damage or expense, including reasonable fees and expenses
of
counsel, they may incur as a result of a breach of this Section
4.20.
4.21. No
Disagreements with Accountants and Lawyers.
Except
as disclosed on Schedule 4.21, there are no disagreements of any kind presently
existing, or reasonably anticipated by the Borrower to arise, between the
Borrower and the accountants and lawyers formerly or presently employed by
the
Borrower, including but not limited to disputes or conflicts over payment owed
to such accountants and lawyers, nor have there been any such disagreements
during the two years prior to the Closing Date.
4.22. Predecessor.
All
representations and warranties by the Borrower shall, where applicable, relate
to the business of Cementitious
Materials, Inc. prior to the reverse merger with NaturalNano.
4.23. Accuracy
of Representations and Warranties.
No
representation or warranty by the Borrower contained in any certificate or
other
document furnished or to be furnished by the Borrower pursuant hereto or in
connection with the transactions contemplated hereunder, contains, or at the
time of delivery will contain, any untrue statement of material fact or omits
or
will omit to state a material fact necessary to make it not
misleading.
Section
5. REPRESENTATIONS
AND WARRANTIES OF THE INVESTORS.
Each
Investor, severally and not jointly, represents and warrants to the Borrower
that:
5.1. Authorization
and Power.
Such
Investor was
not
formed for the purpose of investing solely in the Securities. The execution,
delivery and performance of this Agreement by the Investor and the consummation
by the Investor of the transactions contemplated hereby have been duly
authorized by all necessary action where appropriate. The
state
in which any offer to purchase the Securities was made or accepted by the
Investor is the state shown as the Investor’s address. The
Investor has the requisite power and authority to enter into and perform this
Agreement and to purchase the Securities being sold to it hereunder.
This
Agreement, the Registration Rights Agreement and the Escrow Agreement have
been
duly executed and delivered by the Investor and at the Closing shall constitute
valid and binding obligations of the Investor enforceable against the Investor
in accordance with their terms, except as such enforceability may be limited
by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditors’ rights and remedies or by other
equitable principles of general application.
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26 -
5.2. No
Conflicts.
The
execution, delivery and performance of this Agreement and the consummation
by
the Investor of the transactions contemplated hereby or relating hereto do
not
and will not result in a violation of the Investor’s governing instruments. The
Investor is not required to obtain any consent, authorization or order of,
or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of the Investor’s obligations under
this Agreement or to purchase the Securities from the Borrower in accordance
with the terms hereof, provided that for purposes of the representation made
in
this sentence, the Investor is assuming and relying upon the accuracy of the
relevant representations and agreements of the Borrower herein.
5.3. Financial
Risks.
The
Investor acknowledges that the Investor is able to bear the financial risks
associated with an investment in the securities being purchased by the Investor
from the Borrower and that it has been given full access to such records of
the
Borrower and the subsidiaries and to the officers of the Borrower and the
subsidiaries as it has deemed necessary or appropriate to conduct its due
diligence investigation. The Investor is capable of evaluating the risks and
merits of an investment in the securities being purchased by the Investor from
the Borrower by virtue of its experience as an Investor and its knowledge,
experience, and sophistication in financial and business matters and the
Investor is capable of bearing the entire loss of its investment in the
securities being purchased by the Investor from the Borrower.
5.4. Accredited
Status.
The
Investor is (i) an “accredited investor” as that term is defined in Rule 501 of
Regulation D promulgated under the 1933 Act, (ii) experienced in making
investments of the kind described in this Agreement and the related documents,
(iii) able, by reason of the business and financial experience of its officers,
managers or general partners and professional advisors (who are not affiliated
with or compensated in any way by the Borrower or any of its affiliates or
selling agents), to protect its own interests in connection with the
transactions described in this Agreement, and the related documents, and (iv)
able to afford the entire loss of its investment in the Securities being
purchased by the Investor from the Borrower. The Investor is acquiring the
Securities for investment and not with a view to the sale or distribution
thereof and understands that such Securities are restricted securities, as
defined in the Rule 144 of the Commission under Securities Act, and may not
be
sold or otherwise distributed except pursuant to an effective registration
statement or an exemption from the registration requirements of the Securities
Act and that the certificates for the Securities and the Common Stock issuable
upon conversion of the Note or exercise of the Warrants shall have the legends
set forth below. Nothing in this Section 5.4 shall be construed to affect in
any
manner the right of the Investor to have the Common Stock issuable upon
conversion of the Notes and exercise of the Warrants registered pursuant to
the
Registration Rights Agreement.
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27 -
5.4.1. The
Notes
shall have the following or a similar legend:
“THIS
NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. NEITHER THIS NOTE NOR SUCH SHARES OF COMMON STOCK MAY BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUING
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.”
5.4.2. The
Warrants shall have the following or a similar legend:
“THIS
WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS. NEITHER THIS WARRANT NOR SUCH SHARES OF COMMON STOCK
MAY
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
ISSUING CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.”
5.4.3. The
Common Stock shall have the following or a similar legend:
“THE
SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
ANY
APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE ISSUING CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.”
5.5. Brokers.
No
broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or commission in connection with the transactions contemplated by
this
Agreement based upon arrangements made by or on behalf of the Investor. The
Investor shall indemnify and hold harmless the Borrower for any loss, liability,
damage or expense, including reasonable fees and expenses of counsel, the
Borrower may incur as a result of a breach by such Investor of this Section
5.5.
5.6. Full
Disclosure.
No
representation or warranty made by the Investor in this Agreement contains
any
untrue statement of a material fact, or omits to state a material fact necessary
to make the statements contained herein or therein not misleading.
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Section
6. NEGATIVE
COVENANTS.
So long
as any Obligations of the Borrower to the Investors remain outstanding and
unpaid and, with respect to Sections 6.5 of this Agreement, as long as the
Warrants are outstanding, the Borrower covenants and agrees as
follows:
6.1. Limitation
on Liens.
The
Borrower shall not create, assume or suffer to exist, any mortgage, pledge,
encumbrance, lien, security interest or charges of any kind upon any of its
assets (other than statutory liens provided same are paid within the time
provided for payment without penalty or interest) or equity interests, whether
now owned or hereafter acquired.
6.2. Limitation
on Advances and Investments.
The
Borrower shall not make or suffer to exist any advances or loans to, or any
investments in (by transfers or property, contributions to capital, purchase
of
stock or securities or evidence of indebtedness, acquisition of assets or
business or otherwise) any Person other than the securities of the United States
of America and certificates of deposits in a bank or trust Borrower or other
deposit account acceptable to the Agent, and the Borrower shall not prepay
any
financing-related debt obligations. Notwithstanding the forgoing, Borrower
may
make advances to employees in the normal course of business based upon its
employee expense reimbursement plan; provided, however, that all such advances
shall be in compliance with the provisions of Section 402 of the Xxxxxxxx-Xxxxx
Act of 2002.
6.3. Limitation
on Other Borrowing.
The
Borrower shall not incur, create, assume or permit to exist any indebtedness
or
liability outside of trade payables incurred in the ordinary course of the
Borrower’s business or any other indebtedness or liability evidenced by notes,
bonds, debentures or similar obligations or incorporated in any lease or license
agreement, except as provided in this Agreement or as set forth in Schedule
6.3
to the Disclosure Schedule.
6.4. Prohibition
on Dividends, Distributions and Purchases of Capital
Stock.
Borrower shall not declare or pay any dividend or distribution (whether in
cash,
property or otherwise) or redeem, retire, purchase or otherwise acquire for
value any equity interests.
6.5. Limitation
on Fundamental Changes.
The
Borrower shall not (a) convey, sell, lease or otherwise dispose of all or
substantially all of its property, assets or business; enter into any
transaction not in the usual course of business or (b) make any change in its
capital structure, including any stock split, dividend or distribution or
reverse split or combination of shares or other recapitalization not approved
by
Investors holding 75% of the principal amount of Notes then outstanding, or
(c)
make any change in any of its business objectives, purposes and operations
which
might in any way adversely affect the ability of the Borrower to repay the
Obligations, or (d) merge or consolidate with or into any other firm or
corporation or, without Investors’ approval or change its name, or (e) permit a
transfer of more than 10% of its equity interests without the prior written
consent of the Investors or (f) amend its articles of incorporation or by-laws
in any manner which adversely affects the holders of the Notes or Warrants.
6.6. Limitation
on Disposition of Assets. The
Borrower shall not, other than in the ordinary course of business, sell,
exchange or otherwise dispose of any of its assets, or any part thereof or
any
interest therein, without the express written authorization of the Investors.
The Borrower shall not take any action which would impair, or the effect of
which would impair, Borrower’s rights in its intellectual property, including
the Patents and Trademarks and licenses relating to intellectual property.
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6.7. Limitation
on Contingent Liabilities. The
Borrower shall not become liable as guarantor, surety, endorser or otherwise
for, or agree to purchase, repurchase or assume, any obligation of any Person,
except for endorsement of commercial paper for deposit, collection, or discount
in the ordinary course of business.
6.8. Limitation
on Acquisition of Affiliates.
The
Borrower shall not acquire, directly or indirectly, any Affiliates without
the
prior written consent of the Investors.
6.9. Reliance
on Financial Statements.
No
event or condition has occurred which requires the filing by the NaturalNano
of
an 8-K current report or any other report under the Exchange Act the effect
of
which is to state that previously filed financial statements cannot be relied
upon.
6.10. Limitation
on Grant of Equity-Based Incentives.
The
Borrower shall not, until all Obligations have been satisfied in full, grant
any
options or other equity-based incentives to its officers, directors, employees
or consultants except pursuant to stock option or long-term incentive plans
which are outstanding on the date of this Agreement and are listed on Schedule
6.11 to the Disclosure Schedule without the approval of the holders of 75%
of
the then outstanding principal amount of Notes.
6.11. Limitation
on Transactions with Affiliates.
As long
as at least 25% of the initial principal amount of Notes is outstanding, the
Borrower will not, without the written consent of the holders of a majority
of
the then outstanding principal amount of Notes, engage
in
any transactions with any officer, director, employee or any Affiliate of the
Borrower, including any contract, agreement or other arrangement providing
for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Borrower, any entity
in
which any officer, director, or any such employee has a substantial interest
or
is an officer, director, trustee or partner, in each case in excess of $20,000
other than (i) for payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Borrower and (iii)
for
other employee benefits, including stock option agreements under any stock
option plan of the Borrower.
Section
7. AFFIRMATIVE
COVENANTS.
The
Borrower covenants and agrees that, so long as any of the Obligations shall
remain outstanding, and, with respect to Sections with respect to Sections
7.1,
7.3, 7.5, 7.6, 7.8 (but not beyond the time period set forth therein), 7.11,
7.14, and 7.15 of this Agreement, as long as the Warrants are outstanding,
the
Borrower will perform and observe each and all of the covenants and agreements
herein set forth.
7.1. Performance
of Obligations under this Agreement, the Note and the Supplemental
Agreements.
The
Borrower will make punctual payment of all monies and will faithfully and fully
keep and perform all of the terms, conditions, covenants and agreements
contained on the Borrower’s part to be paid, kept or performed hereunder, and
will be bound in all respects as debtor under this Agreement, the Note, the
Warrants, the Registration Rights Agreement and the Supplemental Agreements;
and
will make punctual payment of all monies and will faithfully and fully keep
and
perform all of the terms, conditions, covenants and agreements on its part
to be
paid, kept or performed under the terms of any lease or mortgage of the premises
where Borrower operates or any license to which the Borrower is a party, whether
as licensor or licensee, and will promptly notify the Investors and the Agent
in
the event of any default on the part of the Borrower or receipt by the Borrower
of any notice of alleged default under any such lease, mortgage or license.
The
Borrower will pay and discharge at or before their maturity all taxes,
assessments, rents, claims, debts and charges.
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7.2. Information,
Access to Books and Inspection.
The
Borrower will furnish to the Investors such information regarding the business
affairs and financial condition of the Borrower as the Investors may reasonably
request, and upon reasonable notice to Borrower give any representative of
the
Investors access during normal business hours to, and permit such representative
to examine and copy, and make extracts from, any and all books, records and
documents in the possession of the Borrower relating to its affairs and to
inspect any of the properties of the Borrower. Notwithstanding the foregoing,
the Borrower shall not disclose to the Investors or the Agent any material
non-public information concerning the Borrower in violation of Section 7.15
of
this Agreement.
7.3. Existence,
Properties and Insurance.
The
Borrower will do or cause to be done all things necessary to preserve and keep
in full force and effect the legal existence of Borrower and its rights and
franchises, and comply with all laws applicable thereto; at all times maintain,
preserve and protect all franchises, patents, and trade names and preserve
all
the remainder of its property used or useful in the conduct of its business
and
keep the same in good condition and repair (normal wear and tear and
obsolescence excepted), and from time to time make, or cause to be made, all
needful and proper repairs, renewals, replacements, betterments and improvements
thereto, and will pay or cause to be paid, except when the same may be contested
in good faith, all rent due on premises where any property is held or may be
held, so that the business carried on in connection therewith may be
continuously conducted. The Borrower will have and maintain insurance at all
times with respect to its properties against risks of fire (including so-called
extended coverage), theft and such risks as the Investor may require containing
such terms, in such form, and for such periods, and written by such companies
as
may be satisfactory to the Investor. The Borrower will furnish the Investor
with
certificates or other evidence satisfactory to the Investor of compliance with
the foregoing insurance provisions. The Borrower will also at all times maintain
necessary workmen’s compensation insurance and such other insurance as may be
required by law or as may be reasonably required by the Investor.
7.4. Notices
of Default and Governmental Orders.
The
Borrower will promptly give notice in writing to the Investors of the occurrence
of any event which constitutes or which with notice or lapse of time, or both,
would constitute an Event of Default; of any court or governmental orders,
notices, claims, investigations, litigation and proceedings affecting the
Borrower, and of any dispute which may exist between the Borrower, on the one
hand, and any Governmental Entity or any other party, on the other hand, which,
if decided adversely against the Borrower, would have a Material Adverse Effect
and would prevent the Borrower to operate its business as presently
operated.
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31 -
7.5. SEC
Filings.
The
Borrower shall file with the Commission each filing required by the Exchange
Act
pursuant to Section 13 on or prior to the date that such filing is due. The
financial statements included in each annual report on Form 10-K or Form 10-KSB
and quarterly report on Form 10-Q or Form 10-QSB shall include financial
statements which comply in all material respects with the requirements of the
Exchange Act and the applicable requirements of Item 310 of Regulation S-B
or
Regulation S-X, as the case may be.
7.6. Independent
Board and Audit and Compensation Committees.
Not
later than the first to occur of NaturalNano’s next meeting of stockholders or
September 30, 2007, NaturalNano’s board of directors shall consist of a majority
of independent
directors and its audit and compensation committees shall consist solely of
independent directors, and the chairman of the audit committee shall be an
audit
committee financial expert. The independence of the directors shall be
determined by the rules of the Nasdaq Stock Exchange unless the Common Stock
is
listed on the New York or American Stock Exchange, in which event independence
shall be determined by the rules of such exchange.
7.7. Use
of Proceeds.
The
Borrower will use the net proceeds from the sale of the Securities as set forth
in Schedule 7.7 of the Disclosure Schedule.
7.8. Right
of First Refusal
7.8.1. In
the
event that, during the twelve months following the Closing Date, the Borrower,
which term, for purposes of this Section 7.8, shall include any subsidiary
of
the Borrower, seeks to raise additional funds through a private placement of
its
securities (a “Proposed Financing”), other than Exempt Issuances, each Investor
shall have the right to participate in the Proposed Financing on a pro rata
basis, based on the percentage that (a) the number of shares of Common Stock
held by the Investor plus the number of shares of Common Stock issuable upon
conversion of the Note then owned by the Investor plus the number of shares
of
Common Stock issuable upon conversion of the Warrants, in each case without
regard to the 4.99% Limitation, bears to (b) the total number of shares of
Common Stock outstanding plus the number of Shares issuable upon conversion
of
the Notes and the Warrants, without regard to the 4.99% Limitations any other
limitations on exercise such other convertible preferred stock or debt
securities.
7.8.2. The
terms
on which the Investor shall purchase securities pursuant to the Proposed
Financing shall be the same as such securities are purchased by other investors
in such Proposed Financing. The Borrower shall give the Investors not less
than
twenty (20) days notice setting forth the terms of the Proposed Financing.
In
the event that the terms of the Proposed Financing are changed, the Borrower
shall provide each Investor with the same notice of the revised terms that
are
provided to the other investors in such Proposed Financing.
7.8.3. In
the
event that any Investor does not exercise its right to participate in the
Proposed Financing, the Borrower may sell the securities in the Proposed
Financing at a price and on terms which are no more favorable to the investors
in such Proposed Financing than the terms offered to the Investors. If the
Borrower subsequently changes the price or terms so that the terms are at a
price or more favorable to the investors in the Proposed Financing, the Borrower
shall reoffer the securities to the Investors as provided in this Section
7.8.
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7.8.4. In
the
event that any Investor exercises its right of first refusal pursuant to this
Section 7.8, the references in this Agreement to 4.99% shall, from and after
the
purchase by the Investor of such securities, be deemed for all purposes to
mean,
with respect to that Investor only, 9.99%.
7.9. Right
to Convert into Subsequent Offering.
If
the
Borrower completes a private equity or equity-linked financing, each Investor
will have the right to exchange all or any portion of the unpaid principal
amount of its Note, plus all accrued but unpaid interest thereon, for securities
in such financing on the most favored terms available to other Investors,
provided that the exchange is made in compliance with applicable securities
laws.
7.10. Price
Adjustment.
The
Note and the Warrants shall include a provision to the effect that if, at any
time when the Note and Warrants are outstanding,
the
Borrower issues convertible debt securities, shares of Common Stock, or shares
of any class of preferred stock or other convertible securities at a price
per
share of Common Stock, or with a conversion right to acquire Common Stock at
a
price per share of Common Stock
or
warrants or options, such price being referred to as the “lower price” (other
than (x) an Exempt Issuance or (y) an issuance covered by the provisions of
the
Note and Warrants relating to stock dividends, distributions and reverse splits
or (z) an issuance of Common Stock upon exercise or upon conversion of warrants,
options or other convertible securities for which an adjustment has already
been
made pursuant to the applicable provisions of the Note or the
Warrants,
that is
less than the conversion price of the Note or exercise price of the Warrant
in
effect
at the time of such sale the conversion price of the Note and the exercise
price
of the Warrants shall be adjusted so that it equals the lower price. The initial
conversion price and exercise price shall be set forth in the Note and the
Warrants.
7.11. Employment
and Consulting Contracts.
For
three years after the Closing Date or such earlier date as all of the Notes
shall have been paid or converted and all of the Warrants shall have been
exercised and, in each case, the underlying Common Stock shall have been sold,
the Borrower must have a unanimous approval from the compensation committee
for
any officer, director or consultant whose compensation is more than $100,000
per
annum. This Section 7.12 does not apply to the Borrower’s attorneys and
accountants.
7.12. Subsequent
Equity Sales.
From
the date hereof until such time as all of the Notes shall have been paid or
converted and all of the Warrants shall have been exercised and, in each case,
the underlying Common Stock shall have been sold, NaturalNano shall not effect
or enter into an agreement to effect any financing involving a “Variable
Rate Transaction”
or
an
“MFN
Transaction”
(each
as defined below). The term “Variable
Rate Transaction”
shall
mean a transaction in which the Borrower issues or sells any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (i) at
a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or
(ii) with a conversion, exercise or exchange price that is subject to being
reset at some future date after the initial issuance of such debt or equity
security or upon the occurrence of specified or contingent events directly
or
indirectly related to the business of the Borrower or the market for the Common
Stock. The term “MFN
Transaction”
shall
mean a transaction in which the Borrower issues or sells any securities in
a
capital raising transaction or series of related transactions which grants
to an
investor the right to receive additional shares based upon future transactions
of the Borrower on terms which are more favorable to the Investor than the
terms
initially provided to the Investor in its initial securities purchase agreement
with the Borrower. The Investors shall be entitled to obtain injunctive relief
against the Borrower to preclude any such issuance, which remedy shall be in
addition to any right to collect damages. No Variable Rate Transaction or MFN
Transaction shall be an Exempt Issuance.
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33 -
7.13. Amendment
of Articles.
At
or
before the next annual meeting of the stockholders of NaturalNano, the board
of
directors shall propose and submit to the holders of the Common Stock for
approval, an amendment to the articles of incorporation that provides
substantially as follows:
“The
terms and conditions of any rights, options and warrants or other securities
approved by the Board of Directors may provide that any or all of such terms
and
conditions may not be waived or amended or may be waived or amended only with
the consent of the holders of a designated percentage of a designated class
or
classes of capital stock of the Corporation (or a designated group or groups
of
holders within such class or classes, including but not limited to disinterested
holders), and the applicable terms and conditions of any such rights, options
or
warrants so conditioned may not be waived or amended or may not be waived or
amended absent such consent.”
7.14. Stock
Splits.
All
forward and reverse stock splits shall affect all equity and derivative holders
proportionately.
7.15. No
Disclosure of Material Non-Public Information.
The
Borrower will not disclose to the Investors or the Agent any material non-public
information concerning the Borrower except (a) with the consent of Investors
or
the Agent and (b) if such consent is given, pursuant to a non-disclosure
agreement which provides, among other things, that the Investor or the Agent
will not disclose the material non-public information to any person and the
Investor or the Agent will not engage in any transactions involving
NaturalNano’s securities while in possession of material non-public
information.
7.16. Regulation
D Offering.
The
offer and issuance of the Securities to the Investors is being made pursuant
to
the exemption from the registration provisions of the Securities Act afforded
by
Section 4(2) or Section 4(6) of the Securities Act and/or Rule 506 of Commission
promulgated thereunder. On the Closing Date, the Borrower will provide an
opinion reasonably acceptable to Subscriber from the Borrower’s legal counsel
provided for in Section 9.4 of this Agreement. The Borrower will also provide,
at the Borrower’s expense, such other legal opinions in the future as are
reasonably necessary for the issuance and resale of the Common Stock issuable
upon conversion of the Notes and exercise of the Warrants pursuant to an
effective registration statement under the Securities Act, Rule 144 or an
exemption from registration.
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34 -
7.17. Indemnification.
7.17.1. The
Borrower agrees to indemnify, hold harmless, reimburse and defend the Investors,
the Investors’ officers, directors, agents, Affiliates, control persons, and
principal shareholders, against any claim, cost, expense, liability, obligation,
loss or damage (including reasonable legal fees) of any nature, incurred by
or
imposed upon the Investor or any such person which results, arises out of or
is
based upon (a) any material misrepresentation by Borrower or material breach
of
any warranty by Borrower in this Agreement or in any Exhibits or Schedules
attached hereto, or other agreement delivered pursuant hereto; or (b) after
any
applicable notice and/or cure periods, any material breach or default in
performance by the Borrower of any covenant or undertaking to be performed
by
the Borrower hereunder, or any other agreement entered into by the Borrower
and
Investor relating hereto.
7.17.2. Each
Investor agrees to indemnify, hold harmless, reimburse and defend the Borrower
and each of the Borrower’s officers, directors, agents, Affiliates, control
persons and principal shareholders against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Borrower or any such person which results,
arises out of or is based upon (a) any material misrepresentation by such
Investor in this Agreement or in any Exhibits or Schedules attached hereto,
or
other agreement delivered pursuant hereto; or (b) after any applicable notice
and/or cure periods, any material breach or default in performance by such
Investor of any covenant or undertaking to be performed by such Investor
hereunder, or any other agreement entered into by the Borrower and Investors,
relating hereto.
7.17.3. In
no
event shall the liability of any Investor or successor hereunder or under any
Transaction Document or other agreement delivered in connection herewith be
greater in amount than the lesser of (a) the principal amount of Notes purchased
by the Investor or (b) the dollar amount of the net proceeds actually received
by such Investor upon the sale of the shares of Common Stock issuable upon
conversion of the Notes or exercise of the Warrants.
7.17.4. The
procedures set forth in the Registration Rights Agreements with respect to
indemnification shall apply to the indemnification set forth in this Section
7.17.
7.18. Payment
of Due Diligence Expenses.
7.18.1. On
the
Closing Date, the Borrower will
pay
to the Agent a due diligence fee of $195,000 of which $97,500 will be paid
in
cash at the Closing and $97,500 will be paid in the form of a Note. With respect
to the $97,500 which is being paid to the Agent in the form of a Note, the
Agent
shall, for all purposes in this Agreement be deemed to be an Investor with
respect to such Note with the same effect as if the Agent purchased a Note
for
$97,500. NaturalNano shall also issue to the Agent at the Closing, warrants
(the
“Agent’s
Warrants”)
to
purchase 10% of the number of shares issuable upon exercise of each set of
the
Warrants sold to the Investors, which represents Warrants to purchase 1,141,194
shares of Common Stock at $.22 per share and 1,141,194 shares of Common Stock
at
$.33 per share. Except for the exercise price, the Agent’s Warrants shall be in
substantially the form of Exhibit D-2.
7.18.2. Upon
any
exercise of the Warrants issued to the Investors, the Borrower will pay the
Agent a fee of 6% of the proceeds, of which 3% of such proceeds will be paid
in
cash and the remaining 3% will be paid in the form of a Note with the same
effect as if the Agent were an Investor with respect to such additional Note
pursuant to this Agreement and shall receive the Warrants that would be issued
if the Agent had made an investment equal to the principal amount of the Note;
provided, however, that if the Warrants are exercised after the Notes are paid
in full or fully converted into Common Stock, such fee shall be paid in
cash.
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7.19. Actions
by Subsidiaries.
7.19.1. Each
Subsidiary of the Borrower shall be subject to the covenants set forth in
Sections 6 and 7 of this Agreement with the same force as if such subsidiary
were named in this Agreement.
7.19.2. In
the
event that the Borrower creates or acquires any Subsidiaries, the Borrower
shall
immediately (a) pledge the stock or other equity interest in the Subsidiary
pursuant to the Pledge Agreement, (b) cause the Subsidiary to grant the Lenders
a first priority security interest in all of its assets and (c) cause the
Subsidiary to agree to abide by the provisions of Sections 6 and 7 of this
Agreement.
7.19.3. In
the
event that the Borrower acquires an interests in a Person that is not a
Subsidiary, the Borrower shall immediately pledge the stock or other equity
interest in such Person pursuant to the Pledge Agreement.
7.20. Payments
to TI.
Without
the consent of the holders of a majority of the principal amount of the Notes
then outstanding, the Borrower shall not make any payment to TI on account
of
the Company’s obligations to TI for money borrowed as long as any Notes are
outstanding except from the proceeds from the exercise of Warrants, and the
Borrower shall deliver at the Closing the agreement of TI not to demand payment
prior to the date on which the Borrower may pay TI pursuant to this Section
7.20.
Section
8. DEFAULT
8.1. Events
of Default.
The
occurrence of any one or more of the following events or conditions shall
constitute an “Event
of Default”
under
this Agreement:
8.1.1. Borrower’s
failure to make any payment of principal or interest or any other sums within
fifteen (15) days of the date when due on any of the Obligations.
8.1.2. Any
representation or warranty or other statement made or furnished to the Investors
by or on behalf of the Borrower in this Agreement or in any document or
instrument furnished in connection with this Agreement proves to have been
false
or misleading in any material respect when made or furnished.
8.1.3. Breach
of
or failure in the due observance or performance in any material respect of
any
covenant, condition or agreement on the part of the Borrower to be observed
or
performed pursuant to this Agreement, the Registration Rights Agreement and
the
other Supplemental Agreements and the failure to cure (if curable) any such
breach or failure within fifteen (15) days after receipt of written notice
thereof from any Investor to the Borrower; provided, however, that the
obligations of NaturalNano with respect to its failure to file the registration
statement or the failure of the registration statement to be declared effective
shall be subject to the provisions of the Registration Rights Agreement and
not
this Section 8.
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8.1.4. Failure
of the Common Stock to be listed or quoted on the OTC Bulletin Board, the Nasdaq
Stock Market or the American or New York Stock Exchange for any
reason.
8.1.5. Failure
of the Common Stock to be eligible for transfer pursuant to the DTC Program
for
any reason on or after the effective date of the Registration Statement, as
defined in the Registration Rights Agreement.
8.1.6. Breach
of
or failure in the due observance or performance of any covenant, condition
or
agreement on the part of the Borrower to be observed or performed pursuant
to
any Supplemental Agreements or breach by Borrower of any other agreement with
Investors beyond the expiration of any grace or cure periods provided
therein.
8.1.7. A
judgment or judgments for the payment of money in excess of $25,000 shall be
rendered against the Borrower, and any such judgment shall remain unsatisfied
and in effect for any period of 30 consecutive days without a stay of execution;
or
8.1.8. The
Borrower shall (a) apply for or consent to the appointment of a receiver,
trustee or liquidator of all or a substantial part of any of its assets; (b)
be
unable, or admit in writing its inability, to pay its debts as they mature;
(c)
file or permit the filing of any petition, case arrangement, reorganization,
or
the like under any insolvency or bankruptcy law, or the adjudication of it
as a
bankrupt, or the making of an assignment for the benefit of creditors or the
consenting to any form or arrangement for the satisfaction, settlement or delay
of debt or the appointment of a receiver for all or any part of its properties;
or (d) any action shall be taken by the Borrower for the purpose of effecting
any of the foregoing; or
8.1.9. An
order,
judgment or decree shall be entered, or a case shall be commenced, against
the
Borrower, without its application, approval or consent by any court of competent
jurisdiction, approving a petition or permitting the commencement of a case
seeking reorganization or liquidation of the Borrower or appointing a receiver,
trustee or liquidator of the Borrower, or of all or a substantial part of the
assets of the Borrower, and Borrower, by any act, indicate its approval thereof,
consent thereto, or acquiescence therein, or such order, judgment, decree or
case shall continue unstayed and in effect for any period of 90 consecutive
days
or an order for relief in connection therewith shall be entered; or
8.1.10. If
the
Borrower shall dissolve or liquidate, or be dissolved or liquidated, or cease
to
legally exist, or merge or consolidate, or be merged or consolidated with or
into any other corporation; or
8.1.11. Failure
by the Borrower to pay any other indebtedness or obligation in excess of
$25,000, or if any such other indebtedness or obligation which is not subject
to
a bonafide dispute shall be accelerated, or if there exists any event of default
under any instrument, document or agreement governing, evidencing or securing
such other indebtedness or obligation which is not subject to a bonafide
dispute; or
-
37 -
8.1.12. Failure
by the Borrower to take all steps necessary to grant Investors a perfected
first
priority security interest in any intellectual property acquired subsequent
to
the Closing Date; or
8.1.13. Substantial
loss, theft, damage, or destruction of the Collateral provided to the Investors
pursuant to this Agreement, and not covered by insurance in any material
respect.
8.2. Acceleration.
Upon
and after an Event of Default, the entire unpaid balance owed under this
Agreement or any Note or other documents evidencing the same, plus any other
Obligations, shall, at the option of the Investors, upon written notice from
the
Requisite Investors or from the Agent on behalf of the Requisite Investors,
immediately become due and payable without presentment, demand, protest, notice
of protest, or other notice of dishonor of any kind, all of which are hereby
expressly waived by the Borrower, and Agent and the Investors shall immediately
be entitled to exercise all of its rights and remedies under this Agreement,
the
Pledge Agreement, the Supplemental Agreements and applicable law.
Section
9. CONDITIONS
TO INVESTORS’ OBLIGATIONS TO CLOSE.
The
obligations of the Investors to purchase the Securities shall be subject to
the
fulfillment,
on or prior to Closing Date unless specified otherwise, of the following
conditions:
9.1. Representations
True and Correct.
The
representations and warranties of the Borrower contained in this Agreement
shall
be true and correct in all material respects on and as of the Closing Date
with
the same force and effect as if made on as of the Closing Date and the Borrower
shall have performed and complied in all material respects with all covenants,
agreements, and conditions required by this Agreement to be performed or
complied with by it prior to or at the Closing Date, and the certificate of
the
chief executive officer and chief financial officer of Borrower as to the
matters set forth in this Section 9.1 and Section 9.2 of this
Agreement.
9.2. No
Adverse Proceedings.
On the
Closing Date, no action or proceeding shall be pending by any public authority
or individual or entity before any court or administrative body to restrain,
enjoin, or otherwise prevent the consummation of this Agreement or the
transactions contemplated hereby or to recover any damages or obtain other
relief as a result of the transactions proposed hereby.
9.3. Delivery
of Securities.
The
Borrower shall have delivered to the Investors, the Notes and Warrants set
forth
on Schedule A to this Agreement and to the Agent the payment, Note and Warrant
provided in Section 7.19 of this Agreement.
9.4. Opinion
of Counsel.
The
Borrower shall have delivered the opinion of counsel as to the matter set forth
in Exhibit E to this Agreement.
9.5. Lien
Search.
The
Borrower shall have delivered a lien search, which shall include a search of
the
Patent and Trademark Office, which shall show no security interest in the
Collateral other than the security interest contemplated by this
Agreement.
9.6. Recordings
of Liens.
The
Borrower shall have delivered evidence that UCC-1 filings have been made with
the Secretary of State of the State of Nevada with respect to NaturalNano and
Delaware with respect to NN Research and any other jurisdictions where such
filings are required in order to perfect the Investors’ security interest in the
Collateral, and that filings have been made with the Patent and Trademark Office
evidencing the Investor’s security interest in the Borrower’s Patent and
Trademarks.
-
38 -
9.7. Other
Deliveries.
The
Borrower shall have delivered to the Agent, on behalf of the
Investors:
9.7.1. The
executed Escrow Agreement.
9.7.2. The
assignment by TI of the TI Patents to NaturalNano in form for recording in
the
United States Patent and Trademark Office and the comparable government offices
in any other countries in which the TI Patents or an applications therefor
are
filed or registered in the forms of Exhibit F.
9.7.3. The
executed Registration Rights Agreement and other Supplemental
Agreements.
9.7.4. The
lock-up agreement of TI and such other agreements and documents as the Investors
may reasonably request, each to be in form and substance satisfactory to the
Investors.
9.7.5. Evidence
that the Borrower’s board of directors has approved the Transaction Documents
and, NatualNano’s board of directors has approved, subject to stockholder
approval, the amendment to NaturalNano’s certificate of incorporation set forth
in Section 7.13 of this Agreement.
9.7.6. Copies
articles of incorporation and all amendment of NaturalNano and NN Research
certified by the Secretary of State of the state of incorporation.
9.7.7. Copies
of
by-laws of NaturalNano and NN Research, certified by their respective
secretaries.
9.7.8. Good
standing certificates as to the good standing of NaturalNano and NN Research
in
the state of its incorporation.
9.7.9. The
certificate of insurance required by Section 3.13 of this
Agreement.
9.7.10. Such
other documents or instrument as may be reasonably requested by the Investors
or
the Agent.
Section
10. CONDITION
TO BORROWER’S OBLIGATIONS TO CLOSE.
The
obligations of the Investors to purchase the Securities shall be subject to
the
payment by the Investors of the purchase price of the Securities to the Escrow
Agent.
-
39 -
Section
11. MISCELLANEOUS
PROVISIONS.
11.1. Entire
Agreement.
This
Agreement, including all exhibits and schedules hereto
which
constitute an integral part of this Agreement,
sets
forth the entire agreement and understanding between the parties and supersedes
all prior
or
contemporaneous written or oral
agreements, promises, representations, understandings, letters
of intent and
negotiations, between
the parties with respect to the subject matter
of this
Agreement. No part of
this
Agreement
may be
modified or amended, nor may any right be waived,
except
by a written
instrument which expressly refers to this Agreement, states that it is a
modification or amendment of this Agreement or a waiver and is signed by the
parties to this Agreement, or, in the case of waiver, by the party granting
the
waiver. No course of conduct or dealing or trade usage or custom and no course
of performance shall be relied on or referred to by any party to contradict,
explain or supplement any provision of this Agreement, it being acknowledged
by
the parties that this Agreement is intended to be, and is, the complete and
exclusive statement of the agreement with respect to its subject matter, subject
to the Additional Agreements. Any waiver shall be limited to the express terms
thereof and shall not be construed as a waiver of any other provisions or the
same provisions at any other time or under any other circumstances. No delay
or
failure by either party to exercise any right under this Agreement, and no
partial or single exercise of that right, shall constitute a waiver of that
or
any other rights.
Notwithstanding the foregoing, 4.99% Limitation and the provisions relating
to
the 4.99% Limitation may not be modified, amended or waived by any Investor
or
by the Borrower.
11.2. Governing
Law.
This
Agreement and the rights of the parties shall be construed and enforced in
accordance with the laws of the State of New
York
applicable to agreements executed and to be performed wholly within such state
and without regard to
principles of conflicts of law.
Each
party irrevocably (a) consents to the jurisdiction of the federal and state
courts situated
in New
York County, New York in
any
action that may be brought pursuant to this Agreement, and (b)
submits to and accepts, with respect to its properties and assets, generally
and
unconditionally, the in personam jurisdiction of the aforesaid courts, waiving
any defense that such court is not a convenient forum. In any such litigation
to
the extent permitted by applicable law, each party waives personal service
of
any summons, complaint or other process, and agrees that the service thereof
may
be made either (i) in the manner for giving of notices provided in Section
11.4
of this Agreement (other than by telecopier) or (ii) in any other manner
permitted by law.
11.3. Waiver
of Right to Trial by Jury.
BORROWER
AND INVESTORS MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
THE
RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT
OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER DOCUMENTS CONTEMPLATED
TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR INVESTORS TO ACCEPT THIS
AGREEMENT.
11.4. Notice.
All
notices, requests or other communications required or permitted to be given
under this Agreement to any party shall be in writing and shall be deemed to
have been sufficiently given when delivered by personal service or sent by
certified or registered mail, overnight
courier services with provided evidence of delivery or attempted
delivery,
or
facsimile, to the recipient addressed to the parties at their respective
addresses set forth on the signature page of this Agreement to the attention
to
the person who executed this Agreement on behalf of the party.
Either
party may, be like notice, change the address or telecopy number or the person
to whom notice is to be given.
Notice
shall be deemed given when received or when attempted delivery is made, provided
that notice by telecopier shall be deemed given when receipt is acknowledged
by
the recipient.
-
40 -
11.5. Survival
of Agreements.
All
agreements, representations and warranties made herein, in any agreement and
in
any statements, notices, invoices, certificates, schedules, documents or other
instruments delivered to the Investor in connection with this Agreement or
any
other agreement shall survive the making of the loans and advances
hereunder.
11.6. Rights
of Assignee.
All
rights of each Investor in, to and under this Agreement shall pass to and may
be
exercised by any assignee thereof. The Borrower agrees that, in the event of
an
assignment of this Agreement and notice of such assignment to the Borrower,
the
liability of the Borrower to a holder for value of this Agreement shall be
immediate and absolute and not affected by any actions of the assigning
Investor; and that the Borrower will not set up any claim against the Investor
as a defense, counterclaim or setoff to any action for the unpaid balance owed
under this Agreement or for possession, brought by said holder.
11.7. Binding
Effect.
All
rights and obligations of the Investors hereunder shall inure to the benefit
of
and be binding upon its successors and assigns, and all the obligations of
the
Borrower contained in this Agreement shall bind the successors, heirs and
assigns of the Borrower. Since the Borrower consists of more than one party,
all
of the obligations, covenants, representations and warranties of the Borrower
contained in this Agreement shall be the joint and several obligations of the
parties constituting the “Borrower.”
11.8. Counsel
Fees and Expenses.
The
Borrower agrees to pay all reasonable counsel fees and expenses, including
recording and filing fees, incurred by the Investor in connection with the
financing of any kind and character hereafter incurred by the Investor, whether
in connection with efforts to collect the Obligations, or in the enforcement
or
defense of any of the provisions of this Agreement; or negotiations regarding
and consultation concerning this Agreement or any Supplemental Agreement, or
preparation therefor, or the financing extended thereunder; or the defense
of
any proceedings involving any claims made or threatened against or arising
out
of this Agreement or any Supplemental Agreement, or the financing extended
thereunder, or which the Investors may hereafter incur in protecting, enforcing,
increasing or releasing any security held by the Investors or any Obligation
or
any provision of this Agreement or any Supplemental Agreement. Borrower’s
obligation to pay such counsel fees and expenses of the Investors shall exist
whether or not proceedings are instituted or legal appearances are made in
any
court on behalf of the Investors or any of them. The legal fees for the
preparation of the Transaction Documents and the closing shall be $20,000,
plus
disbursements, of which $10,000 has been paid on account. If the Investors
engage special patent counsel, the Borrower shall also pay the reasonable fees
and expenses of patent counsel.
11.9. Descriptive
Headings. The
descriptive headings of the several sections of this Agreement are inserted
for
convenience only and shall not be deemed to affect the meaning or construction
of any of the provisions hereof.
-
41 -
11.10. Severability.
If any
provision of this Agreement or application thereof to any person or circumstance
shall to any extent be invalid, the remainder of this Agreement or the
application of such provision to persons, entities or circumstances other than
those as to which it is held invalid, shall not be affected thereby and each
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
11.11. Third
Party Purchaser. Each
Investor shall have the unrestricted right at any time or from time to time,
and
without Borrower’s consent, to sell, assign, endorse, or transfer all or any
portion of its rights and obligations hereunder to one or more entities (each,
an “Assignee”) and, Borrower agrees that it shall execute, or cause to be
executed such documents including without limitation, amendments to this
Agreement and to any other documents, instruments and agreements executed in
connection herewith as the Investors or the Agent shall deem necessary to effect
the foregoing. In addition, at the reasonable request of the Investors and
any
such Assignee, Borrower shall issue one or more new promissory notes, as
applicable, to any such Assignee. Upon the execution and delivery of appropriate
assignment documentation, amendments and any other documentation required by
an
Investor in connection with such assignment, such Assignee shall be a party
to
this Agreement and shall have all of the rights and obligations of the assigning
Investor hereunder (and under any and all other documents, instruments and
agreements executed in connection herewith) to the extent that such rights
and
obligations have been assigned by Investor pursuant to the assignment
documentation between Investor and Assignee.
11.12. Preparation
of Agreement.
Neither
this Agreement nor any of the other Transaction Documents shall be construed
more strongly against any party regardless of who is responsible for its
preparation. The parties acknowledge each contributed and is equally responsible
for its preparation. In
resolving any dispute regarding, or construing any provision in, this Agreement,
there shall be no presumption made or inference drawn because of the drafting
history of the Agreement, or because of the inclusion of a provision not
contained in a prior draft or the deletion or modification of a provision
contained in a prior draft.
IN
WITNESS WHEREOF, the
parties have caused this Agreement to be duly executed and delivered by the
proper and duly authorized officers as of the date and year first above
written.
[Signatures
on following page]
-
42 -
SIGNATURE
PAGE TO LOAN AND SECURITY AGREEMENT (A)
|
00
Xxxxxx Xxxxx
Xxxxxxxxx,
Xxx Xxxx 00000-0000
Telecopier:
(000) 000-0000
|
NATURALNANO,
INC.
a
Nevada corporation
|
||
| By: /s/ Xxxxx X. Xxxxxxxxx | |||
|
Name:
Xxxxx X. Xxxxxxxxx
Title:
President
|
|||
|
00
Xxxxxx Xxxxx
Xxxxxxxxx,
Xxx Xxxx 00000-0000
Telecopier:
(000) 000-0000
|
NATURALNANO
RESEARCH, INC.
a
Delaware corporation
|
||
|
By:
/s/
Xxxxxxxx X. Xxxxxx
|
|||
|
Name:
Xxxxxxxx X. Xxxxxx
Title:
CFO
|
|||
|
000
X. 00xx Xxxxxx, 00xx Xxxxx
Xxx
Xxxx, XX 00000
Telecopier:
(212)
|
PLATINUM
ADVISORS LLC
a
Delaware limited liability company
|
||
| By: /s/ Xxxx Xxxxxxxxx | |||
|
Name: Xxxx
Xxxxxxxxx
Title:
|
-
43 -
SIGNATURE
PAGE TO LOAN AND SECURITY AGREEMENT (B)
|
Investor
|
Purchase
Price
|
Note/Conversion
Shares
|
A
Warrants
|
B
Warrants
|
|||||||||
|
Platinum
Partners Long Term Growth IV
By:
/s/ Xxxx
Xxxxxxxxx
Name:
Xxxx Xxxxxxxxx
Title:
Address:
000
X. 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Telecopier:
(212)
|
$
|
2,750,000
|
$
|
2,750,000/
12,500,000
|
9,375,000
|
9,375,000
|
|||||||
|
Longview
Special Financing, Inc.
By:
/s/ François
Morax
Name:
François
Morax
Title:
Director
Address:
Xxxxxxxxxxxx
0
0000
Xxxx
Xxxxxxxxxxx
Telecopier:
|
500,000
|
$
|
500,000/
2,272,728
|
1,704,546
|
1,704,546
|
||||||||
|
Platinum
Advisors, LLC
By:
/s/ Xxxx
Xxxxxxxxx
Name:
Xxxx Xxxxxxxxx
Title:
Address:
000
X. 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Telecopier:
(212)
|
97,500
|
$
|
97,500/
443,182
|
332,387
|
332,387
|
||||||||
|
|
$
|
3,347,500
|
$
|
3,347,500/
|
11,411,933
|
11,411,933
|
|||||||
|
Total
|
15,215,910
|
-
44 -
List
of Exhibits
|
Exhibit
|
Description
|
Section
|
|
A
|
Notes
|
1.25
|
|
B
|
Pledge
Agreement
|
1.29
|
|
C
|
Registration
Rights Agreement
|
1.31
|
|
D-1
and D-2
|
A
Warrants and B Warrants, respectively
|
1.41
|
|
E
|
Opinion
of Counsel
|
9.4
|
|
F
|
Assignment
of TI Patents
|
9.7.2
|
-
45 -
