SECURITIES PURCHASE
AGREEMENT
Dated as of September 30, 2003
between
AVITAR, INC.
and
GRYPHON MASTER FUND, L.P.
TABLE OF CONTENTS
ARTICLE I Purchase and Sale of Preferred Stock and Warrants.......................................................1
Section 1.1 Purchase and Sale of Preferred Stock and Warrants......................................1
Section 1.2 Closings...............................................................................1
Section 1.3 Warrants...............................................................................2
Section 1.4 Conversion Shares and Warrant Shares...................................................2
ARTICLE II Representations and Warranties.........................................................................2
Section 2.1 Representations and Warranties of the Company..........................................2
Section 2.2 Representations and Warranties of the Purchaser.......................................12
ARTICLE III Covenants 14
Section 3.1 Disclosure of Transactions and Other Material Information........................... 14
Section 3.2 Registration and Listing..............................................................15
Section 3.3 Inspection Rights.....................................................................15
Section 3.4 Compliance with Laws..................................................................15
Section 3.5 Keeping of Records and Books of Account...............................................16
Section 3.6 Other Agreements......................................................................16
Section 3.7 Preemptive Rights.....................................................................16
Section 3.8 Reservation of Shares.................................................................18
Section 3.9 Non-public Information................................................................18
Section 3.10 Shareholders' Meeting; Proxy Materials................................................18
ARTICLE IV Conditions 19
Section 4.1 Conditions Precedent to the Obligation of the Company to Close and to Sell the Shares and
Warrants on the First Closing Date....................................................19
Section 4.2 Conditions Precedent to the Obligation of the Purchaser to Close and to Purchase the
Shares and Warrants on the First Closing Date.........................................19
Section 4.3 Conditions Precedent to the Obligation of the Company to
Close and to Sell the Shares and Warrants
on the Second Closing Date............................................................22
Section 4.4 Conditions Precedent to the Obligation of the Purchaser to
Close and to Purchase the Shares and Warrants
on the Second Closing Date............................................................22
ARTICLE V Certificate Legend.....................................................................................24
Section 5.1 Legend................................................................................24
ARTICLE VI Termination...........................................................................................25
Section 6.1 Termination by Mutual Consent.........................................................25
Section 6.2 Effect of Termination.................................................................25
ARTICLE VII Indemnification......................................................................................25
Section 7.1 General Indemnity.....................................................................25
Section 7.2 Indemnification Procedure.............................................................26
ARTICLE VIII Miscellaneous.......................................................................................27
Section 8.1 Fees and Expenses.....................................................................27
Section 8.2 Specific Enforcement; Consent to Jurisdiction.........................................27
Section 8.3 Entire Agreement; Amendment...........................................................28
Section 8.4 Notices...............................................................................28
Section 8.5 Waivers...............................................................................29
Section 8.6 Headings..............................................................................29
Section 8.7 Successors and Assigns................................................................29
Section 8.8 No Third Party Beneficiaries..........................................................29
Section 8.9 Governing Law.........................................................................29
Section 8.10 Survival..............................................................................30
Section 8.11 Counterparts..........................................................................30
Section 8.12 Publicity.............................................................................30
Section 8.13 Severability..........................................................................30
Section 8.14 Further Assurances....................................................................30
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT this ("Agreement"), dated as of
September 30, 2003, by and between Avitar, Inc., a Delaware corporation (the
"Company"), and Gryphon Master Fund, L.P., a Bermuda limited partnership (the
"Purchaser"), for the purchase and sale by the Purchaser of shares of the
Company's 6% Convertible Preferred Stock, par value $0.001 per share (the
"Preferred Stock"), and warrants to purchase shares of the Company's common
stock, par value $0.01 per share (the "Common Stock").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Preferred Stock and Warrants
Section 1.1 Purchase and Sale of Preferred Stock and Warrants. Upon the
following terms and conditions, the Company shall issue and sell to the
Purchaser, and the Purchaser shall purchase from the Company, an aggregate of
2,000 shares of Preferred Stock (the "Shares") and warrants to purchase shares
of Common Stock (the "Warrants"), for an aggregate purchase price of $2,000,000
(the "Purchase Price"), as follows: (a) at the First Closing on the First
Closing Date (as both terms are defined in Section 1.2(a)), 1,000 Shares, and
that number of Warrants as described in Section 1.3, for an aggregate purchase
price of $1,000,000; and (b) at the Second Closing on the Second Closing Date
(as both terms are defined in Section 1.2(b)), 1,000 Shares, and that number of
Warrants as described in Section 1.3, for an aggregate purchase price of
$1,000,000. The Company and the Purchaser are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded by Section 4(2) of the U.S. Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "Securities
Act"), including Regulation D ("Regulation D"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments to be made hereunder.
Section 1.2 Closings.
(a)First Closing. The closing of the sale to and purchase by the Purchaser
of the Shares and Warrants contemplated by Section 1.1(a) (the "First Closing")
shall take place at the offices of the Company located at 00 Xxx Xxxx, Xxxxxx,
Xxxxxxxxxxxxx 00000 at 10:00 a.m., Eastern Standard Time (i) on or before
September 30, 2003, provided, that all of the conditions set forth in Sections
4.1 and 4.2 hereof shall have been fulfilled or waived in accordance herewith,
or (ii) at such other time and place or on such date as the Purchaser and the
Company may agree upon (the "First Closing Date"). At the First Closing, the
Company shall deliver to the Purchaser a certificate or certificates evidencing
the Shares being purchased by it on the First Closing Date which shall be
registered in the Purchaser's name as stated on Exhibit A hereto, against
delivery to the Company of payment by certified check or wire transfer in an
amount equal to $1,000,000, less the $20,000 expense reimbursement contemplated
by Section 8.1.
(b)Second Closing. The closing of the sale to and purchase by the Purchaser
of the Shares and Warrants contemplated by Section 1.1(b) (the "Second Closing"
and together with the First Closing, the "Closings") shall take place at the
offices of the Company located at 00 Xxx Xxxx, Xxxxxx, Xxxxxxxxxxxxx 00000 at
10:00 a.m., Eastern Standard Time (i) on or before the six (6) month anniversary
of the First Closing Date, provided, that all of the conditions set forth in
Sections 4.3 and 4.4 hereof shall have been fulfilled or waived in accordance
herewith, or (ii) at such other time and place or on such date as the Purchaser
and the Company may agree upon (the "Second Closing Date"). At the Second
Closing, the Company shall deliver to the Purchaser a certificate or
certificates evidencing the Shares being purchased by it on the Second Closing
Date which shall be registered in the Purchaser's name as stated on Exhibit A
hereto, against delivery to the Company of payment by certified check or wire
transfer in an amount equal to $1,000,000.
Section 1.3 Warrants. At the First Closing, the Company shall issue to the
Purchaser Warrants to purchase an aggregate of 6,666,667 shares of Common Stock,
in substantially the form attached hereto as Exhibit B-1. Such Warrants shall be
exercisable for five (5) years from the date of issuance and shall have an
initial exercise price equal to $0.05 per share. At the Second Closing, the
Company shall issue to the Purchaser Warrants to purchase that number of shares
of Common Stock equal to 100% of the number of shares of Common Stock into which
the Shares being purchased on the Second Closing Date are initially convertible,
in substantially the form attached hereto as Exhibit B-2. Such Warrants shall be
exercisable for five (5) years from the date of issuance and shall have an
initial per share exercise price equal to the greater of (a) $0.075, and (b) 50%
of the 30-day moving average closing price of the Common Stock ending on the
trading day immediately prior to (but not including) the Second Closing Date.
Section 1.4 Conversion Shares and Warrant Shares. The Company has
authorized and has reserved and covenants to continue to reserve, free of
preemptive rights and other similar contractual rights of stockholders, a number
of its authorized but unissued shares of Common Stock equal to the aggregate
number of shares of Common Stock necessary to effect the conversion of all the
Shares and the exercise of all the Warrants. Any shares of Common Stock issuable
upon conversion of the Shares (and such shares when issued) are herein referred
to as the "Conversion Shares". Any shares of Common Stock issuable upon exercise
of the Warrants (and such shares when issued) are herein referred to as the
"Warrant Shares". The Shares, the Conversion Shares, the Warrants and the
Warrant Shares are sometimes collectively referred to herein as the
"Securities".
ARTICLE II
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. In order to
induce the Purchaser to enter into this Agreement and to purchase the Shares and
Warrants, the Company hereby makes the following representations and warranties
to the Purchaser:
(a) Organization, Good Standing and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power to own, lease and
operate its properties and assets and to conduct its business as it is now being
conducted. The Company does not have any Subsidiaries (as defined in Section
2.1(g)) or own securities of any kind in any other entity, except as set forth
on Schedule 2.1(g) hereto. The Company and each such Subsidiary is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except for any jurisdiction(s)
(alone or in the aggregate) in which the failure to be so qualified will not
have a Material Adverse Effect. For the purposes of this Agreement, "Material
Adverse Effect" means any adverse effect on the business, operations,
properties, prospects or financial condition of the Company or its Subsidiaries
and which is material to such entity or other entities controlling or controlled
by such entity or which is likely to materially hinder the performance by the
Company of its obligations hereunder and under the other Transaction Documents
(as defined in Section 2.1(b) hereof).
(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Certificate of
Designations, the Registration Rights Agreement, the Warrants, and the other
agreements and documents contemplated hereby and thereby and executed by the
Company or to which the Company is party (collectively, the "Transaction
Documents"), and to issue and sell the Shares and the Warrants in accordance
with the terms hereof. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action, and, except as set forth in Schedule 2.1(b), no
further consent or authorization of the Company or its Board of Directors or
stockholders is required. This Agreement has been duly executed and delivered by
the Company. The other Transaction Documents will have been duly executed and
delivered by the Company at the First Closing. Each of the Transaction Documents
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor's rights and remedies or by other equitable principles of general
application.
(c) Capitalization. The authorized capital stock of the Company and the
shares thereof currently issued and outstanding as of September 1, 2003 are set
forth on Schedule 2.1(c) hereto. All of the outstanding shares of the Company's
Common Stock and any other security of the Company have been duly and validly
authorized. Except as set forth on Schedule 2.1(c) hereto, no shares of Common
Stock or any other security of the Company are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, call or commitments of any character whatsoever relating
to, or securities or rights convertible into, any shares of capital stock of the
Company. Furthermore, except as set forth on Schedule 2.1(c) hereto, there are
no contracts, commitments, understandings, or arrangements by which the Company
is or may become bound to issue additional shares of the capital stock of the
Company or options, securities or rights convertible into shares of capital
stock of the Company. Except for customary transfer restrictions contained in
agreements entered into by the Company in order to sell restricted securities or
as provided on Schedule 2.1(c) hereto, the Company is not a party to or bound by
any agreement or understanding granting registration or anti-dilution rights to
any person with respect to any of its equity or debt securities. Except as set
forth on Schedule 2.1(c), the Company is not a party to, and it has no knowledge
of, any agreement or understanding restricting the voting or transfer of any
shares of the capital stock of the Company. Except as set forth on Schedule
2.1(c) hereto, the offer and sale of all capital stock, convertible securities,
rights, warrants, or options of the Company issued prior to the First Closing
complied with all applicable federal and state securities laws, and no holder of
such securities has a right of rescission or claim for damages with respect
thereto which could have a Material Adverse Effect. The Company has furnished or
made available to the Purchaser true and correct copies of the Company's
Certificate of Incorporation as in effect on the date hereof (the
"Certificate"), and the Company's Bylaws as in effect on the date hereof (the
"Bylaws").
(d) Issuance of Securities. The Shares and the Warrants to be issued at
each Closing have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the Shares shall be
validly issued and outstanding, fully paid and nonassessable and free and clear
of all liens, encumbrances and rights of refusal of any kind and the holders
shall be entitled to all rights accorded to a holder of Preferred Stock. When
the Conversion Shares are issued in accordance with the terms of the Preferred
Stock, such shares will be duly authorized by all necessary corporate action and
validly issued and outstanding, fully paid and nonassessable, free and clear of
all liens, encumbrances and rights of refusal of any kind and the holders shall
be entitled to all rights accorded to a holder of Common Stock. When the Warrant
Shares are issued and paid for in accordance with the terms of this Agreement
and as set forth in the Warrants, such shares will be duly authorized by all
necessary corporate action and validly issued and outstanding, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of refusal
of any kind and the holders shall be entitled to all rights accorded to a holder
of Common Stock.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) violate any
provision of the Certificate or Bylaws or any Subsidiary's comparable charter
documents, (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries'
respective properties or assets are bound, (iii) create or impose a lien,
mortgage, security interest, charge or encumbrance of any nature on any property
or asset of the Company or any of its Subsidiaries under any agreement or any
commitment to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound or by which any of their
respective properties or assets are bound, or (iv) result in a violation of any
federal, state, local or foreign statute, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Company or any of its Subsidiaries or by which any property or asset of
the Company or any of its Subsidiaries is bound or affected, except, in all
cases other than violations pursuant to clauses (i) or (iv) (with respect to
federal and state securities laws) above, for such conflicts, defaults,
terminations, amendments, acceleration, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect. The
business of the Company and its Subsidiaries is not being conducted in violation
of any laws, ordinances or regulations of any governmental entity, except for
possible violations which singularly or in the aggregate do not and will not
have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries
is required under federal, state, foreign or local law, rule or regulation 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 its obligations under the Transaction Documents or
issue and sell the Shares, the Conversion Shares, the Warrants or the Warrant
Shares in accordance with the terms hereof or thereof (other than any filings
which may be required to be made by the Company with the Securities and Exchange
Commission (the "Commission"), the American Stock Exchange prior to or
subsequent to each Closing, or state securities administrators subsequent to
each Closing, or any registration statement which may be filed pursuant hereto
or thereto).
(f) Commission Documents; Financial Statements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, except as disclosed on Schedule
2.1(f) hereto, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Commission
pursuant to the reporting requirements of the Exchange Act, including material
filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the
foregoing, including filings incorporated by reference therein, being referred
to herein as the "Commission Documents"). The Company has not provided to the
Purchaser any material non-public information or other information which,
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company but which has not been so disclosed, other than with
respect to the transactions contemplated by this Agreement. At the time of its
filing, the Form 10-QSB for the fiscal quarter ended June 30, 2003 (the "Form
10-Q") complied in all material respects with the requirements of the Exchange
Act and the rules and regulations of the Commission promulgated thereunder and
other federal, state and local laws, rules and regulations applicable to such
documents, and the Form 10-Q did not contain any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. At the time of its filing, the Form
10-KSB/A1 for the fiscal year ended September 30, 2002 (the "Form 10-K")
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission promulgated thereunder and other
federal, state and local laws, rules and regulations applicable to such
documents, and the Form 10-K did not contain any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. As of their respective dates, the
financial statements of the Company included in the Commission Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the Notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements), and fairly present
in all material respects the financial position of the Company and its
Subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each Subsidiary of the
Company, showing the jurisdiction of its incorporation or organization and
showing the percentage of each person's ownership of the outstanding stock or
other interests of such Subsidiary. For the purposes of this Agreement,
"Subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries. All of the
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary for the purchase
or acquisition of any shares of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any Subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence except as set forth on Schedule 2.1(g) hereto. Neither
the Company nor any Subsidiary is party to, nor has any knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of any Subsidiary.
(h) No Material Adverse Change. Since June 30, 2003, the Company has not
experienced or suffered any Material Adverse Effect, except as disclosed on
Schedule 2.1(h) hereto. (i) No Undisclosed Liabilities. Except as disclosed on
Schedule 2.1(i) hereto, neither the Company nor any of its Subsidiaries has any
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than
those set forth on the balance sheet included in the Form 10-Q or incurred in
the ordinary course of the Company's or its Subsidiaries respective businesses
since June 30, 2003 and which, individually or in the aggregate, do not or would
not have a Material Adverse Effect on the Company or its Subsidiaries.
(j) No Undisclosed Events or Circumstances. Since June 30, 2003, except as
disclosed on Schedule 2.1(j) hereto, no event or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
businesses, properties, prospects, operations or financial condition, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.
(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the date hereof
all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For the
purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities for
borrowed money in excess of $100,000 (other than trade accounts payable incurred
in the ordinary course of business), (b) all guaranties, endorsements and other
contingent obligations in respect of Indebtedness of others, whether or not the
same are or should be reflected in the Company's balance sheet (or the Notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business, and
(c) the present value of any lease payments in excess of $100,000 due under
leases required to be capitalized in accordance with GAAP. Except as disclosed
on Schedule 2.1(k), neither the Company nor any Subsidiary is in default with
respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the Subsidiaries has good and
marketable title to all of its real and personal property, free and clear of any
mortgages, pledges, charges, liens, security interests or other encumbrances of
any nature whatsoever, except for those indicated on Schedule 2.1(l) hereto or
such that, individually or in the aggregate, do not have a Material Adverse
Effect. All said leases of the Company and each of its Subsidiaries are valid
and subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary which questions the validity of this Agreement or any of the other
Transaction Documents or any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth on Schedule 2.1(m) hereto, there is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against or involving the
Company, any Subsidiary or any of their respective properties or assets, which
individually or in the aggregate, would have a Material Adverse Effect. There
are no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against the Company or any
Subsidiary or any officers or directors of the Company or any Subsidiary in
their capacities as such, which individually, or in the aggregate, would have a
Material Adverse Effect.
(n) Compliance with Law. The business of the Company and the Subsidiaries
has been and is presently being conducted in accordance with all applicable
federal, state and local governmental laws, rules, regulations and ordinances,
except as set forth in the Commission Documents or on Schedule 2.1(n) hereto or
such that, individually or in the aggregate, the noncompliance therewith would
not have a Material Adverse Effect. The Company and each of its Subsidiaries
have all franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals necessary for the conduct of its
business as now being conducted by it unless the failure to possess such
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(o) Taxes. Except as set forth on Schedule 2.1(o) hereto, the Company and
each of the Subsidiaries has accurately prepared and filed all federal, state
and other tax returns required by law to be filed by it, has paid or made
provisions for the payment of all taxes shown to be due and all additional
assessments, and adequate provisions have been and are reflected in the
financial statements of the Company and the Subsidiaries for all current taxes
and other charges to which the Company or any Subsidiary is subject and which
are not currently due and payable. Except as disclosed on Schedule 2.1(o)
hereto, none of the federal income tax returns of the Company or any Subsidiary
have been audited by the Internal Revenue Service. The Company has no knowledge
of any additional assessments, adjustments or contingent tax liability (whether
federal or state) of any nature whatsoever, whether pending or threatened
against the Company or any Subsidiary for any period, nor of any basis for any
such assessment, adjustment or contingency.
(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, the
Company has not employed any broker or finder or incurred any liability for any
brokerage or investment banking fees, commissions, finders' structuring fees,
financial advisory fees or other similar fees in connection with the Transaction
Documents.
(q) Disclosure. To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchaser by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) Intellectual Property. Schedule 2.1(r) contains a complete and correct
list of all patents, trademarks, domain names (whether or not registered) and
any patentable improvements or copyrightable derivative works thereof, websites
and intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations, and all rights with respect to the
foregoing (collectively, the "Proprietary Rights"), held by the Company or any
of its Subsidiaries. The Company and each of the Subsidiaries owns or possesses
all the Proprietary Rights, which are necessary for the conduct of its business
as now conducted without any conflict with the rights of others. As of the date
of this Agreement, neither the Company nor any of its Subsidiaries has received
any written notice that any Proprietary Rights have been declared unenforceable
or otherwise invalid by any court or governmental agency. As of the date of this
Agreement, there is, to the knowledge of the Company, no material existing
infringement, misuse or misappropriation of any Proprietary Rights by others.
From June 30, 2003 to the date of this Agreement, neither the Company nor any of
its Subsidiaries has received any written notice alleging that the operation of
the business of the Company or any of its Subsidiaries infringes in any material
respect upon the intellectual property rights of others.
(s) Environmental Compliance. Except as disclosed on Schedule 2.1(s)
hereto, the Company and each of its Subsidiaries have obtained all material
approvals, authorization, certificates, consents, licenses, orders and permits
or other similar authorizations of all governmental authorities, or from any
other person, that are required under any Environmental Laws. Schedule 2.1(s)
hereto sets forth all material permits, licenses and other authorizations issued
under any Environmental Laws to the Company or its Subsidiaries. "Environmental
Laws" shall mean all applicable laws relating to the protection of the
environment including, without limitation, all requirements pertaining to
reporting, licensing, permitting, controlling, investigating or remediating
emissions, discharges, releases or threatened releases of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. Except as set
forth on Schedule 2.1(s) hereto, the Company has all necessary governmental
approvals required under all Environmental Laws and used in its business or in
the business of any of its Subsidiaries, except for such instances as would not
individually or in the aggregate have a Material Adverse Effect. The Company and
each of its Subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws. Except for such instances as
would not individually or in the aggregate have a Material Adverse Effect, there
are no past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its Subsidiaries
that violate or may violate any Environmental Law after the First Closing or
that may give rise to any Environmental Liabilities, or otherwise form the basis
of any claim, action, demand, suit, proceeding, hearing, study or investigation
(i) under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including, without
limitation, underground storage tanks), disposal, transport or handling, or the
emission, discharge, release or threatened release of any hazardous substance.
"Environmental Liabilities" means all liabilities of a person (whether such
liabilities are owed by such person to governmental authorities, third parties
or otherwise) whether currently in existence or arising hereafter which arise
under or relate to any Environmental Law.
(t) Books and Records; Internal Accounting Controls. The books, records and
documents of the Company and its Subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
Subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any Subsidiary. The Company and each of its Subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate actions are taken with respect to any differences.
(u) Material Agreements. Except for the Transaction Documents or as set
forth on Schedule 2.1(u) hereto, or those that are included as exhibits to the
Commission Documents, neither the Company nor any Subsidiary is a party to any
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, a copy of which would be required to be filed with the Commission
(collectively, "Material Agreements") if the Company or any Subsidiary were
registering securities under the Securities Act. The Company and each of its
Subsidiaries has in all material respects performed all the obligations required
to be performed by them to date under the foregoing agreements, have received no
notice of default and, to the best of the Company's knowledge, are not in
default under any Material Agreement now in effect, the result of which could
cause a Material Adverse Effect. No written or oral contract, instrument,
agreement, commitment, obligation, plan or arrangement of the Company or of any
Subsidiary limits or shall limit the payment of dividends on its Common Stock.
(v) Transactions with Affiliates. Except as set forth on Schedule 2.1(v)
hereto, there are no loans, leases, agreements, contracts, royalty agreements,
management contracts or arrangements or other continuing transactions between
(a) the Company, any Subsidiary or any of their respective customers or
suppliers, on the one hand, and (b) on the other hand, any officer, employee,
consultant or director of the Company, or any of its Subsidiaries, or any person
owning any capital stock of the Company or any Subsidiary or any member of the
immediate family of such officer, employee, consultant, director or stockholder
or any corporation or other entity controlled by such officer, employee,
consultant, director or stockholder.
(w) Securities Act of 1933. The Company has complied and will comply with
all applicable federal and state securities laws in connection with the offer,
issuance and sale of the Shares, the Conversion Shares, the Warrants and the
Warrant Shares hereunder. Neither the Company nor anyone acting on its behalf,
directly or indirectly, has or will sell, offer to sell or solicit offers to buy
any of the Securities, or similar securities to, or solicit offers with respect
thereto from, or enter into any preliminary conversations or negotiations
relating thereto with, any person, or has taken or will take any action so as to
bring the issuance and sale of any of the Securities under the registration
provisions of the Securities Act and applicable state securities laws. Neither
the Company nor any of its affiliates, nor any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) in connection with
the offer or sale of any of the Securities.
(x) Governmental Approvals. Except as set forth on Schedule 2.1(x) hereto,
and except for the filing of any notice prior or subsequent to each Closing that
may be required under applicable state and/or federal securities laws (which if
required, shall be filed on a timely basis), no authorization, consent,
approval, license, exemption of, filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is or will be necessary for, or in connection with, the
execution or delivery of the Shares and the Warrants, or for the performance by
the Company of its obligations under the Transaction Documents.
(y) Employees. Neither the Company nor any Subsidiary has any collective
bargaining arrangements or agreements covering any of its employees. Except as
set forth in the Commission Documents or on Schedule 2.1(y) hereto, neither the
Company nor any Subsidiary has any employment contract, agreement regarding
proprietary information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such Subsidiary. Since September 30, 2002,
no officer, consultant or key employee of the Company or any Subsidiary whose
termination, either individually or in the aggregate, could have a Material
Adverse Effect, has terminated or, to the knowledge of the Company, has any
present intention of terminating his or her employment or engagement with the
Company or any Subsidiary.
(z) Absence of Certain Developments. Except as set forth in the Commission
Documents or on Schedule 2.1(z) hereto, since June 30, 2003, neither the Company
nor any Subsidiary has:
(i) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto; (ii) borrowed any amount
or incurred or become subject to any liabilities (absolute or contingent)
except current liabilities incurred in the ordinary course of business
which are comparable in nature and amount to the current liabilities
incurred in the ordinary course of business during the comparable portion
of its prior fiscal year, as adjusted to reflect the current nature and
volume of the Company's or such Subsidiary's business; (iii) discharged or
satisfied any lien or encumbrance or paid any obligation or liability
(absolute or contingent), other than current liabilities paid in the
ordinary course of business; (iv) declared or made any payment or
distribution of cash or other property to stockholders with respect to its
stock, or purchased or redeemed, or made any agreements so to purchase or
redeem, any shares of its capital stock; (v) sold, assigned or transferred
any other tangible assets, or canceled any debts or claims, except in the
ordinary course of business; (vi) sold, assigned or transferred any patent
rights, trademarks, trade names, copyrights, trade secrets or other
intangible assets or intellectual property rights, or disclosed any
proprietary confidential information to any person except in the ordinary
course of business or to the Purchaser or their representatives; (vii)
suffered any substantial losses or waived any rights of material value,
whether or not in the ordinary course of business, or suffered the loss of
any material amount of prospective business; (viii) made any changes in
employee compensation except in the ordinary course of business and
consistent with past practices; (ix) made capital expenditures or
commitments therefor that aggregate in excess of $25,000; (x) entered into
any other transaction other than in the ordinary course of business, or
entered into any other material transaction, whether or not in the ordinary
course of business; (xi) made charitable contributions or pledges in excess
of $25,000; (xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance; (xiii) experienced any material
problems with labor or management in connection with the terms and
conditions of their employment; (xiv) effected any two or more events of
the foregoing kind which in the aggregate would cause a Material Adverse
Effect; or (xv) entered into an agreement, written or otherwise, to take
any of the foregoing actions.
(aa) Use of Proceeds. Except as set forth on Schedule 2.1(aa), the proceeds
from the sale of the Shares and the Warrants will be used by the Company for
working capital purposes and, except as set forth on Schedule 2.1(aa), shall not
be used to repay any outstanding Indebtedness or any loans to any officer,
director, affiliate or insider of the Company.
(bb) Public Utility Holding Company Act and Investment Company Act Status.
The Company is not a "holding company" or a "public utility company" as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended.
The Company is not, and as a result of and immediately upon each Closing will
not be, an "investment company" or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended.
(cc) ERISA. No liability to the Pension Benefit Guaranty Corporation has
been incurred with respect to any Plan by the Company or any of its Subsidiaries
which is or would cause a Material Adverse Effect. The execution and delivery of
this Agreement and the issue and sale of the Shares and the Warrants will not
involve any transaction which is subject to the prohibitions of Section 406 of
ERISA or in connection with which a tax could be imposed pursuant to Section
4975 of the Internal Revenue Code of 1986, as amended (the "Code"); provided
that, if the Purchaser, or any person or entity that owns a beneficial interest
in the Purchaser, is an "employee pension benefit plan" (within the meaning of
Section 3(2) of ERISA) with respect to which the Company is a "party in
interest" (within the meaning of Section 3(14) of ERISA), the requirements of
Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in this
Section 2.1(cc), the term "Plan" shall mean an "employee pension benefit plan"
(as defined in Section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company or
any Subsidiary or by any trade or business, whether or not incorporated, which,
together with the Company or any Subsidiary, is under common control, as
described in Section 414(b) or (c) of the Code.
(dd) Delisting Notification. The Company has not received a delisting
notification from the American Stock Exchange, and, to its knowledge and except
as disclosed to Purchaser in writing prior to each Closing, there are no
existing facts or circumstances that could give rise to the delisting of the
Common Stock from the American Stock Exchange.
(ee) Xxxxxxxx-Xxxxx. The Company is in compliance with any and all
applicable requirements of the Xxxxxxxx-Xxxxx Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the Commission thereunder that are effective as of the date hereof, except
where such noncompliance would not have, individually or in the aggregate, a
Material Adverse Effect.
Section 2.2 Representations and Warranties of the Purchaser. The Purchaser
hereby makes the following representations and warranties to the Company:
(a) Organization and Standing of the Purchaser. The Purchaser is a limited
partnership duly organized, validly existing and in good standing under the laws
of Bermuda.
(b) Authorization and Power. The Purchaser has the requisite power and
authority to enter into and perform the Transaction Documents and to purchase
the Shares and Warrants being sold to it hereunder. The execution, delivery and
performance of the Transaction Documents by the Purchaser and the consummation
by it of the transactions contemplated hereby have been duly authorized by all
necessary partnership action, and no further consent or authorization of the
Purchaser or its partners is required. This Agreement has been duly authorized,
executed and delivered by the Purchaser. The other Transaction Documents
constitute, or shall constitute when executed and delivered, valid and binding
obligations of the Purchaser enforceable against the Purchaser 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, creditor's rights and remedies or by other
equitable principles of general application.
c) Acquisition for Investment. The Purchaser is purchasing the Shares and
acquiring the Warrants solely for its own account for the purpose of investment
and not with a view to or for sale in connection with the distribution thereof.
The Purchaser does not have a present intention to sell any of the Securities,
nor a present arrangement (whether or not legally binding) or intention to
effect any distribution of any of the Securities to or through any person or
entity; provided, however, that by making the representations herein and subject
to Section 2.2(e) below, the Purchaser does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of any of the Securities at any time in accordance with federal and
state securities laws applicable to such disposition. The Purchaser acknowledges
that it (i) has such knowledge and experience in financial and business matters
such that the Purchaser is capable of evaluating the merits and risks of its
investment in the Company, (ii) is able to bear the financial risks associated
with an investment in the Securities, and (iii) has been given full access to
such records of the Company and the Subsidiaries and to the officers of the
Company and the Subsidiaries as it has deemed necessary or appropriate to
conduct its due diligence investigation.
(d)Rule 144 and Other Dispositions. The Purchaser understands that the
Securities must be held indefinitely unless such Securities are registered under
the Securities Act or an exemption from registration is available. The Purchaser
acknowledges that it is familiar with Rule 144 of the rules and regulations of
the Commission, as amended, promulgated pursuant to the Securities Act ("Rule
144"), and that the Purchaser has been advised that Rule 144 permits resales
only under certain circumstances. The Purchaser understands that to the extent
that Rule 144 is not available, the Purchaser will be unable to sell any
Securities without either registration under the Securities Act or the existence
of another exemption from such registration requirement. The Purchaser will not,
prior to the effectiveness of the Registration Statement (as defined in the
Registration Rights Agreement), if then prohibited by law or regulation, sell,
offer to sell, solicit offers to buy, dispose of, loan, pledge or grant any
right with respect to the Securities. Without limiting the generality of the
foregoing, the Purchaser will not, prior to the effectiveness of the
Registration Statement, sell any of the Securities short "against the box".
(e)General. The Purchaser understands that the Securities are being offered
and sold in reliance on a transactional exemption from the registration
requirements of federal and state securities laws and the Company is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to
determine the applicability of such exemptions and the suitability of the
Purchaser to acquire the Securities. The Purchaser understands that no United
States federal or state agency or any government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
(f)Opportunities for Additional Information. The Purchaser acknowledges
that the Purchaser has had the opportunity to ask questions of and receive
answers from, or obtain additional information from, the executive officers of
the Company concerning the financial and other affairs of the Company, and to
the extent deemed necessary in light of the Purchaser's personal knowledge of
the Company's affairs, the Purchaser has asked such questions and received
answers to the full satisfaction of the Purchaser, and the Purchaser desires to
invest in the Company.
(g)No General Solicitation. The Purchaser acknowledges that the Securities
were not offered to the Purchaser by means of any form of general or public
solicitation or general advertising, or publicly disseminated advertisements or
sales literature, including (i) any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media, or
broadcast over television or radio, or (ii) any seminar or meeting to which the
Purchaser was invited by any of the foregoing means of communications.
(h) Accredited Investor. The Purchaser is an accredited investor (as
defined in Rule 501 of Regulation D), and the Purchaser has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Securities. The Purchaser acknowledges that an
investment in the Securities is speculative and involves a high degree of risk.
ARTICLE III
Covenants
The Company covenants with the Purchaser as follows, which covenants
are for the benefit of the Purchaser and its permitted assignees.
Section 3.1 Disclosure of Transactions and Other Material Information. On
or before 8:30 a.m., New York City time, on the Business Day immediately
following the First Closing Date, the Company shall file a Current Report on
Form 8-K with the Commission describing the terms of the transactions
contemplated by the Transaction Documents and including as exhibits to such
Current Report on Form 8-K this Agreement, the Warrants, the Certificate of
Designations and the Registration Rights Agreement, and the schedules hereto and
thereto in the form required by the Exchange Act (including all attachments, the
"8-K Filing"). From and after the filing of the 8-K Filing with the Commission,
the Purchaser shall not be in possession of any material, nonpublic information
received from the Company, any of its Subsidiaries or any of their respective
officers, directors, employees or agents that is not disclosed in the 8-K
Filing. The Company shall not, and shall cause each of its Subsidiaries and its
and each of their respective officers, directors, employees and agents not to,
provide the Purchaser with any material, nonpublic information regarding the
Company or any of its Subsidiaries from and after the filing of the 8-K Filing
with the Commission without the express written consent of the Purchaser.
Neither the Company nor the Purchaser shall issue any press releases or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Purchaser, to make any press release or other public disclosure
with respect to such transactions (i) in substantial conformity with the 8-K
Filing and contemporaneously therewith, and (ii) as is required by applicable
law and regulations, including the applicable rules and regulations of the
American Stock Exchange (provided that in the case of clause (i) above, the
Purchaser shall be consulted by the Company (although the consent of the
Purchaser shall not be required) in connection with any such press release or
other public disclosure prior to its release).
Section 3.2 Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Section 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement, and will not take any action or file
any document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange Act
or Securities Act, except as permitted herein. The Company shall use its best
efforts to continue the listing or trading of its Common Stock on the American
Stock Exchange or any successor market. The Company will promptly file the
"Listing Application" for, or in connection with, the issuance and delivery of
the Conversion Shares and the Warrant Shares.
Section 3.3 Inspection Rights. In the event the Registration Statement is
not effective or has been suspended, the Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, the Purchaser
or any employees, agents or representatives thereof, so long as the Purchaser
shall be obligated hereunder to purchase the Shares or shall beneficially own
the Shares or Conversion Shares, or shall own Warrant Shares or the Warrants
which, in the aggregate, represent more than two percent (2%) of the total
combined voting power of all voting securities then outstanding, to examine and
make reasonable copies of and extracts from the records and books of account of,
and visit and inspect, during the term of the Warrants, the properties, assets,
operations and business of the Company and any Subsidiary, and to discuss the
affairs, finances and accounts of the Company and any Subsidiary with any of its
officers, consultants, directors, and key employees.
Section 3.4 Compliance with Laws. The Company shall comply, and cause each
Subsidiary to comply, with all applicable laws, rules, regulations and orders,
the noncompliance with which could have a Material Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company shall keep
and cause each Subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability of the Company or any Subsidiary to perform under any
Transaction Document.
Section 3.7 Preemptive Rights.
(a) Until the first anniversary of the date that the Registration Statement
is first declared effective by the Commission, and for so long as the Purchaser
or its assigns shall own any Shares, the Company hereby grants to the Purchaser
a right (the "Preemptive Right") to purchase all or any part of the Purchaser's
pro rata share of any "New Securities" (as defined in Section 3.7(b)) that the
Company may, from time to time, propose to sell and issue. The pro rata share
for the Purchaser, for purposes of the Preemptive Right, is the ratio of (x) the
number of shares of Common Stock then held by the Purchaser immediately prior to
the issuance of the New Securities (assuming the full conversion of the Shares
and full exercise of the Warrants), to (y) the total number of shares of Common
Stock of the Company outstanding immediately prior to the issuance of the New
Securities (after giving effect to the full conversion of the Shares and full
exercise of the Warrants, but not including any shares of Common Stock issuable
upon the exercise, conversion or exchange of any other security).
(b) For purposes of this Section 3.8, "New Securities" shall mean any
Common Stock or Preferred Stock, whether or not authorized on the date hereof,
and rights, options or warrants to purchase Common Stock or Preferred Stock and
securities of any type whatsoever that are, or may become, convertible into
Common Stock or Preferred Stock; provided, however, that "New Securities" does
not include the following:
(i) shares of capital stock of the Company issuable upon conversion or
exercise of any currently outstanding securities or any New Securities
issued in accordance with this Agreement (including the Conversion Shares
and the Warrant Shares); (ii) shares or options or warrants for Common
Stock granted to officers, directors and employees of, and consultants to,
the Company pursuant to stock option or purchase plans or other
compensatory agreements approved by the Board of Directors; (iii) shares of
Common Stock or Preferred Stock issued in connection with any pro rata
stock split, stock dividend or recapitalization by the Company; (iv) shares
of capital stock, or options or warrants to purchase capital stock, issued
to a strategic investor in connection with a strategic commercial agreement
as determined by the Board of Directors; (v) shares of capital stock, or
options or warrants to purchase capital stock, issued pursuant to
commercial borrowing, secured lending or lease financing transaction
approved by the Board of Directors; (vi) shares of capital stock, or
options or warrants to purchase capital stock, issued pursuant to the
acquisition of another corporation or entity by the Company by
consolidation, merger, purchase of all or substantially all of the assets,
or other reorganization in which the Company acquires, in a single
transaction or series of related transactions, all or substantially all of
the assets of such other corporation or entity or fifty percent (50%) or
more of the voting power of such other corporation or entity or fifty
percent (50%) or more of the equity ownership of such other corporation or
entity; (vii) shares of capital stock issued in an underwritten public
securities offering pursuant to a registration statement filed under the
Securities Act; (viii) shares of capital stock, or options or warrants to
purchase capital stock, issued to current or prospective customers or
suppliers of the Company approved by the Board of Directors as compensation
or accommodation in lieu of other payment, compensation or accommodation to
such customer or supplier; (ix) shares of capital stock, or warrants to
purchase capital stock, issued to any person or entity that provides
services to the Company as compensation therefor pursuant to an agreement
approved by the Board of Directors; (x) shares of capital stock, or options
or warrants to purchase capital stock, offered in a transaction where
purchase of such securities by the Purchaser would cause such transaction
to fail to comply with applicable federal or state securities laws or would
cause an applicable registration or qualification exemption to fail to be
available to the Company; (xi) securities issuable upon conversion or
exercise of the securities set forth in paragraphs (i) - (x) above.
(c) In the event that the Company proposes to undertake an issuance of New
Securities, it shall give the Purchaser written notice (the "Notice") of its
intention, describing the type of New Securities, the price, and the general
terms upon which the Company proposes to issue the same. The Purchaser shall
have twenty (20) Business Days after receipt of such notice to agree to purchase
all or any portion of its pro rata share of such New Securities at the price and
upon the terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased. In the event
that any New Securities subject to the Preemptive Right are not purchased by the
Purchaser within the twenty (20) Business Day period specified above, the
Company shall have ninety (90) days thereafter to sell (or enter into an
agreement pursuant to which the sale of New Securities that had been subject to
the Preemptive Right shall be closed, if at all, within sixty (60) days from the
date of said agreement) the New Securities with respect to which the rights of
the Purchaser were not exercised at a price and upon terms, including manner of
payment, no more favorable to the purchasers thereof than specified in the
Notice. In the event the Company has not sold all offered New Securities within
such ninety (90) day period (or sold and issued New Securities in accordance
with the foregoing within sixty (60) days from the date of such agreement), the
Company shall not thereafter issue or sell any New Securities, without first
complying again with the procedures set forth in this Section 3.7.
Section 3.8 Reservation of Shares. So long as the Shares or Warrants remain
outstanding, the Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, the maximum number of
shares of Common Stock to effect the conversion of the Shares and the exercise
of the Warrants.
Section 3.9 Non-public Information. Neither the Company nor any of its
officers or agents shall disclose any material non-public information about the
Company to the Purchaser, and neither the Purchaser nor any of its affiliates,
officers or agents will solicit any material non-public information from the
Company.
Section 3.10 Stockholders' Meeting; Proxy Materials.
(a)The Company shall cause a special meeting of its stockholders to be duly
called and held as soon as reasonably practicable after the execution of this
Agreement for the purpose of voting on the approval of the Transaction Documents
and the sale and issuance to the Purchaser of the Shares and Warrants to be
purchased by the Purchaser on the Second Closing Date. The Board of Directors of
the Company shall recommend such approval by the stockholders of the Company and
include in the Proxy Statement (as defined in subsection (b) immediately below)
such recommendation and take all reasonable and lawful action to solicit and
obtain such approval; provided, however, that the Board of Directors of the
Company may withdraw such recommendation if (but only if) such Board of
Directors, after consultation with its outside legal counsel, determines that it
is required, in order to fulfill its fiduciary duties under applicable law, to
not recommend that the Company's stockholders approve the Transaction Documents
and the sale and issuance to the Purchaser of the Shares and Warrants to be
purchased by the Purchaser on the Second Closing Date.
(b)The Company (i) as promptly as reasonably practicable following the
execution of this Agreement, shall prepare and file with the Commission a proxy
statement, together with a form of proxy, with respect to such stockholders'
meeting (such proxy statement, together with any amendments thereof or
supplements thereto, being called the "Proxy Statement"), (ii) shall use
reasonable efforts to have the Proxy Statement cleared by the Commission as soon
as reasonably practicable, if such clearance is required, and (iii) as soon as
reasonably practicable thereafter, shall cause copies of such Proxy Statement
and form of proxy to be mailed to its stockholders in accordance with the
provisions of the Delaware General Corporation Law. Before the filing of the
Proxy Statement and form of proxy with the Commission, the Company shall provide
reasonable opportunity for the Purchaser to review and comment upon the contents
of the Proxy Statement and form of proxy. The Company shall notify the Purchaser
promptly upon the receipt of any comments from the Commission or its staff or
any other government officials and of any request by the Commission or its staff
or any other government officials for amendments or supplements to the Proxy
Statement or for additional information, and shall supply the Purchaser with
copies of all correspondence between the Company or any of its representatives,
on the one hand, and the Commission, or its staff or any other government
officials, on the other hand, with respect to the Proxy Statement. The Proxy
Statement and form of proxy shall comply as to form in all material respects
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder. After the delivery to the
Company's stockholders of copies of the Proxy Statement and form of proxy, the
Company shall use reasonable efforts to solicit proxies in connection with such
shareholders meeting in favor of approval of the Transaction Documents and the
sale and issuance to the Purchaser of the Shares and Warrants to be purchased by
the Purchaser on the Second Closing Date.
ARTICLE IV
Conditions
Section 4.1 Conditions Precedent to the Obligation of the Company to Close
and to Sell the Shares and Warrants on the First Closing Date. The obligation
hereunder of the Company to close and issue and sell the Shares and the Warrants
to the Purchaser on the First Closing Date is subject to the satisfaction or
waiver, at or before the First Closing, of the conditions set forth below. These
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct in all
material respects as of the date when made and as of the First Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchaser. The Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Purchaser at or prior to the First Closing Date.
(c) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the Shares and
Warrants being purchased at the First Closing shall have been delivered to the
Company at the First Closing.
(e) Delivery of Transaction Documents. The Transaction Documents to which
the Purchaser is party shall have been duly executed and delivered by the
Purchaser to the Company.
.Section 4.2 Conditions Precedent to the Obligation of the Purchaser to
Close and to Purchase the Shares and Warrants on the First Closing Date. The
obligation hereunder of the Purchaser to purchase the Shares and Warrants on the
First Closing Date and consummate the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before the First
Closing, of each of the conditions set forth below. These conditions are for the
Purchaser's sole benefit and may be waived by the Purchaser at any time in its
sole discretion.
(a)Accuracy of the Company's Representations and Warranties. Each of the
representations and warranties of the Company in this Agreement and the
Registration Rights Agreement shall be true and correct in all material respects
as of the First Closing Date, except for representations and warranties that
speak as of a particular date, which shall be true and correct in all material
respects as of such date.
(b)Performance by the Company. The Company shall have performed, satisfied
and complied in all respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the First Closing Date.
(c)No Suspension, Etc. Trading in the Company's Common Stock shall not have
been suspended by the Commission (except for any suspension of trading of
limited duration agreed to by the Company, which suspension shall be terminated
prior to the First Closing), and, at any time prior to the First Closing Date,
trading in securities generally as reported by Bloomberg Financial Markets
("Bloomberg") shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by Bloomberg,
or on the American Stock Exchange, nor shall a banking moratorium have been
declared either by the United States or New York State authorities, nor shall
there have occurred any national or international calamity or crisis of such
magnitude in its effect on any financial market which, in each case, in the
reasonable judgment of the Purchaser, makes it impracticable or inadvisable to
purchase the Shares and the Warrants being purchased on the First Closing Date.
(d)No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(e)No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any Subsidiary, or any of the officers, directors or affiliates
of the Company or any Subsidiary, seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(f)Opinion of Counsel, Etc. The Purchaser shall have received an opinion of
counsel to the Company, dated the First Closing Date, in the form of Exhibit C
hereto, and such other certificates and documents as the Purchaser or its
counsel shall reasonably require incident to the First Closing.
(g)Warrants and Shares. The Company shall have delivered to the Purchaser
the originally executed Warrants (in such denominations as the Purchaser may
request) and shall have delivered certificates representing the Shares (in such
denominations as the Purchaser may request) being acquired by the Purchaser at
the First Closing.
(h)Resolutions. The Board of Directors of the Company shall have adopted
resolutions consistent with Section 2.1(b) hereof in a form reasonably
acceptable to the Purchaser (the "Resolutions").
(i) Certificate of Designations. As of the First Closing Date, the Company
shall have filed with the Delaware Secretary of State a Certificate of
Designations establishing the Shares in the form of Exhibit D attached hereto
(the "Certificate of Designations").
(j)Reservation of Shares. As of the First Closing Date, the Company shall
have reserved out of its authorized and unissued Preferred Stock, solely for the
purpose of effecting the issuance of the Shares, a number of shares of Preferred
Stock equal to the aggregate number of the Shares. As of the First Closing Date,
the Company shall have reserved out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Shares and the
exercise of the Warrants, a number of shares of Common Stock equal to the number
of Conversion Shares and the number of Warrant Shares issuable upon conversion
of the Preferred Stock and the exercise of the Warrants, respectively, assuming
all of the Warrants were granted on the First Closing Date (after giving effect
to the Warrants to be issued on the First Closing Date and the Second Closing
Date and assuming the Warrants were fully exercisable on such date regardless of
any limitation on the timing or amount of such exercises).
(k) Secretary's Certificate. The Company shall have delivered to the
Purchaser a secretary's certificate, dated as of the First Closing Date, as to
(i) the Resolutions, (ii) the Certificate, (iii) the Bylaws, each as in effect
at the First Closing, and (iv) the authority and incumbency of the officers of
the Company executing the Transaction Documents and any other documents required
to be executed or delivered in connection therewith.
(l) Officer's Certificate. On the First Closing Date, the Company shall
have delivered to the Purchaser a certificate of an executive officer of the
Company, dated as of the First Closing Date, confirming the accuracy of the
Company's representations, warranties and covenants as of the First Closing Date
and confirming the compliance by the Company with the conditions precedent set
forth in this Section 4.2 as of the First Closing Date.
(m)Fees and Expenses. As of the First Closing Date, all fees and expenses
required to be paid by the Company shall have been or authorized to be paid by
the Company as of the First Closing Date.
(n)Registration Rights Agreement. As of the First Closing Date, the parties
shall have entered into the Registration Rights Agreement in the form of Exhibit
E attached hereto.
(o)Material Adverse Effect. No Material Adverse Effect shall have occurred.
Section 4.3 Conditions Precedent to the Obligation of the Company to Close
and to Sell the Shares and Warrants on the Second Closing Date. The obligation
hereunder of the Company to close and issue and sell the Shares and the Warrants
to the Purchaser on the Second Closing Date is subject to the satisfaction or
waiver, at or before the Second Closing, of the conditions set forth below.
These conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion.
(a) Accuracy of the Purchaser' Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct in all
material respects as of the date when made and as of the Second Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchaser. The Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Purchaser at or prior to the Second Closing Date.
(c) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the Shares and
Warrants being purchased at the Second Closing shall have been delivered to the
Company at the Second Closing.
(e) Stockholder Approval. The stockholders of the Company shall have
approved the Transaction Documents and the sale and issuance to the Purchaser of
the Shares and Warrants to be purchased by the Purchaser on the Second Closing
Date; provided, however, that from and after the six (6) month anniversary of
the First Closing Date, the condition set forth in this subsection (e) shall be
deemed satisfied and/or waived and, therefore, no longer applicable.
Section 4.4 Conditions Precedent to the Obligation of the Purchaser to
Close and to Purchase the Shares and Warrants on the Second Closing Date. The
obligation hereunder of the Purchaser to purchase the Shares and Warrants on the
Second Closing Date and consummate the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before the Second
Closing, of each of the conditions set forth below. These conditions are for the
Purchaser's sole benefit and may be waived by the Purchaser at any time in its
sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of the
representations and warranties of the Company in this Agreement and the
Registration Rights Agreement shall be true and correct in all material respects
as of the Second Closing Date, except for representations and warranties that
speak as of a particular date, which shall be true and correct in all material
respects as of such date, except for (i) transactions contemplated by this
Agreement or incurred in the ordinary course of business since the date of this
Agreement and (ii) such other transactions as have been approved by the
Company's Board of Directors since the First Closing Date.
(b) Performance by the Company. The Company shall have performed, satisfied
and complied in all respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Second Closing Date.
(c) No Suspension, Etc. Trading in the Company's Common Stock shall not
have been suspended by the Commission (except for any suspension of trading of
limited duration agreed to by the Company, which suspension shall be terminated
prior to the Second Closing), and, at any time prior to the Second Closing Date,
trading in securities generally as reported by Bloomberg shall not have been
suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by Bloomberg, or on the American Stock
Exchange, nor shall a banking moratorium have been declared either by the United
States or New York State authorities, nor shall there have occurred any national
or international calamity or crisis of such magnitude in its effect on any
financial market which, in each case, in the reasonable judgment of the
Purchaser, makes it impracticable or inadvisable to purchase the Shares and the
Warrants being purchased on the Second Closing Date.
(d) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any Subsidiary, or any of the officers, directors or affiliates
of the Company or any Subsidiary, seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(f) Opinion of Counsel, Etc. The Purchaser shall have received an opinion
of counsel to the Company, dated the Second Closing Date, in the form of Exhibit
C hereto, and such other certificates and documents as the Purchaser or its
counsel shall reasonably require incident to the Second Closing.
(g) Warrants and Shares. The Company shall have delivered to the Purchaser
the originally executed Warrants (in such denominations as the Purchaser may
request) and shall have delivered certificates representing the Shares (in such
denominations as the Purchaser may request) being acquired by the Purchaser at
the Second Closing.
(h) Resolutions. The Resolutions shall be in full force and effect as of
the Second Closing and shall not have been amended or modified unless such
amendment or modification was approved by the Purchaser.
(i) Certificate of Designations. The Certificate of Designations shall be
in full force and effect as of the Second Closing under the laws of Delaware and
shall not have been amended or modified unless such amendment or modification
was approved by the Purchaser, and the Company shall not have adopted or filed
any other document designating terms, relative rights or preferences of the
Preferred Stock.
(j) Officer's Certificate. On the Second Closing Date, the Company shall
have delivered to the Purchaser a certificate of an executive officer of the
Company, dated as of the Second Closing Date, confirming the accuracy of the
Company's representations, warranties and covenants as of the Second Closing
Date and confirming the compliance by the Company with the conditions precedent
set forth in this Section 4.4 as of the Second Closing Date.
(k) Fees and Expenses. As of the Second Closing Date, all fees and expenses
required to be paid by the Company shall have been or authorized to be paid by
the Company as of the Second Closing Date.
(l) Material Adverse Effect. No Material Adverse Effect shall have occurred
since the First Closing Date.
(m) Stockholder Approval. The stockholders of the Company shall have
approved the Transaction Documents and the sale and issuance to the Purchaser of
the Shares and Warrants to be purchased by the Purchaser on the Second Closing
Date; provided, however, that from and after the six (6) month anniversary of
the First Closing Date, the condition set forth in this subsection (m) shall be
deemed satisfied and/or waived and, therefore, no longer applicable.
ARTICLE V
Certificate Legend
Section 5.1 Legend. Each certificate representing the Shares, the
Conversion Shares, the Warrants and the Warrant Shares shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or "blue sky"
laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES
ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR AVITAR, INC. SHALL HAVE
RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES
UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing any of the
Securities, without the legend set forth above, if at such time, prior to making
any transfer of any such Securities, such holder thereof shall give written
notice to the Company describing the manner and terms of such transfer and
removal as the Company may reasonably request. Such proposed transfer will not
be effected until: (a) the Company has notified such holder that either (i) in
the opinion of Company counsel, the registration of the Shares, the Conversion
Shares, Warrants or Warrant Shares under the Securities Act is not required in
connection with such proposed transfer, or (ii) a registration statement under
the Securities Act covering such proposed disposition has been filed by the
Company with the Commission and has become effective under the Securities Act;
and (b) the Company has notified such holder that either (i) in the opinion of
Company counsel, the registration or qualification under the securities or "blue
sky" laws of any state is not required in connection with such proposed
disposition, or (ii) compliance with applicable state securities or "blue sky"
laws has been effected. The Company will use its best efforts to respond to any
such notice from a holder within five (5) days. In the case of any proposed
transfer under this Section 5.1, the Company will use reasonable efforts to
comply with any such applicable state securities or "blue sky" laws, but shall
in no event be required, in connection therewith, to qualify to do business in
any state where it is not then qualified or to take any action that would
subject it to tax or to the general service of process in any state where it is
not then subject. The restrictions on transfer contained in this Section 5.1
shall be in addition to, and not by way of limitation of, any other restrictions
on transfer contained in any other section of this Agreement.
ARTICLE VI
Termination
Section 6.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the First Closing Date by the mutual written consent of the
Company and the Purchaser.
Section 6.2 Effect of Termination. If this Agreement is terminated as
provided in Section 6.1 herein, this Agreement shall become void and of no
further force and effect, except for Sections 8.1 and 8.2, and Article VII
herein.
ARTICLE VII
Indemnification
Section 7.1 General Indemnity. The Company agrees to indemnify and hold
harmless the Purchaser (and its directors, officers, employees, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
the Purchaser or any such person as a result of any inaccuracy in or breach of
the representations, warranties or covenants made by the Company herein. The
Purchaser agrees to indemnify and hold harmless the Company and its directors,
officers, employees, affiliates, agents, successors and assigns from and against
any and all losses, liabilities, deficiencies, costs, damages and expenses
(including, without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by the Company as result of any inaccuracy in or breach
of the representations, warranties or covenants made by the Purchaser herein.
Section 7.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect to such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VII to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VII shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE VII
Miscellaneous
Section 8.1 Fees and Expenses. Each party shall pay the fees and expenses
of its advisors, counsel, accountants and other experts, if any, and all other
expenses, incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement; provided, however, that
the Company shall pay $20,000 to the Purchaser to reimburse it for the fees and
expenses (including attorneys' fees and expenses) incurred by it in connection
with its due diligence review of the Company and the preparation, negotiation,
execution, delivery and performance of this Agreement and the other Transaction
Documents and the transactions contemplated thereunder (including the
Purchaser's counsel's review of the Registration Statement (as contemplated by
the Registration Rights Agreement) as special counsel), which amount shall be
due and payable in cash at the First Closing (and only if the First Closing
occurs). If the First Closing occurs, the Company hereby authorizes and directs
the Purchaser to deduct $20,000 from the Purchase Price to be paid by the
Purchaser at the First Closing and remit such amount directly to the Purchaser's
counsel in payment and satisfaction of such $20,000 due and payable by the
Company at the First Closing. In addition, the Company shall pay all reasonable
fees and expenses incurred by the Purchaser in connection with any amendments,
modifications or waivers of this Agreement or any of the other Transaction
Documents or incurred in connection with the enforcement of this Agreement and
any of the other Transaction Documents, including, without limitation, all
reasonable attorneys' fees, disbursements and expenses.
Section 8.2 Specific Enforcement; Consent to Jurisdiction.
(a) The Company and the Purchaser acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement or
the other Transaction Documents were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement or the other Transaction Documents
and to enforce specifically the terms and provisions hereof or thereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.
(b) The Company and the Purchaser (i) hereby irrevocably submit to the
exclusive jurisdiction of the United States District Court sitting in the
Northern District of Texas and the courts of the State of Texas located in
Dallas County for the purposes of any suit, action or proceeding arising out of
or relating to this Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby, and (ii) hereby waive, and agree
not to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. The Company and the Purchaser consent to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 8.2 shall affect
or limit any right to serve process in any other manner permitted by law. The
Company and the Purchaser hereby agree that the prevailing party in any suit,
action or proceeding arising out of or relating to the Shares, this Agreement,
the Registration Rights Agreement or the Warrants, shall be entitled to
reimbursement for reasonable legal fees from the non-prevailing party.
Section 8.3 Entire Agreement; Amendment. This Agreement and the Transaction
Documents contain the entire understanding and agreement of the parties with
respect to the matters covered hereby and, except as specifically set forth
herein or in the other Transaction Documents, neither the Company nor the
Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the holders of at least a majority in
interest of the then-outstanding Shares, and no provision hereof may be waived
other than by a written instrument signed by the party against whom enforcement
of any such amendment or waiver is sought. No such amendment shall be effective
to the extent that it applies to less than all of the holders of the Shares then
outstanding. No consideration shall be offered or paid to any person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration is also offered to all of the parties to
the Transaction Documents or holders of Shares, as the case may be.
Section 8.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received), or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company: Avitar, Inc.
00 Xxx Xxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xx. Xxx X. Xxxxxxxxxx, Xx.,
Chief Financial Officer
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
with copies (which copies
shall not constitute notice
to the Company) to: Dolgenos Xxxxxx & Xxxxxx LLP
00 Xxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
If to the Purchaser: At the address of the Purchaser set forth on
Exhibit A to this Agreement.
with copies (which copies
shall not constitute notice
to the Purchaser) to: Xxxxxx X. Garden, P.C.
000 Xxxxxxxx Xxxxx
Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Garden, Esq.
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 8.5 Waivers. No waiver by any party of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter.
Section 8.6 Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 8.7 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. After
the First Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
The Purchaser may assign the Shares, the Warrants and its rights under this
Agreement and the other Transaction Documents and any other rights hereto and
thereto without the consent of the Company.
Section 8.8 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person (other than indemnified parties, as contemplated by Article
VII).
Section 8.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware, without
giving effect to the choice of law provisions. This Agreement shall not be
interpreted or construed with any presumption against the party causing this
Agreement to be drafted.
Section 8.10 Survival. The representations and warranties of the Company
and the Purchaser contained in Sections 2.1(o) and 2.1(s) shall survive
indefinitely and those contained in Article II, with the exception of Sections
2.1(o) and 2.1(s), shall survive the execution and delivery hereof and each
Closing until the date three (3) years from the Second Closing Date, and the
agreements and covenants set forth in Articles I, III, V, VII and VIII of this
Agreement shall survive the execution and delivery hereof and each Closing
hereunder.
Section 8.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart.
Section 8.12 Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Purchaser without
the consent of the Purchaser in accordance with Section 8.3, which consent shall
not be unreasonably withheld or delayed, or unless and until such disclosure is
required by law, rule or applicable regulation, and then only to the extent of
such requirement.
Section 8.13 Severability. The provisions of this Agreement are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision or part of a provision of this Agreement and this Agreement
shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of such provision, had never been contained herein, so that
such provisions would be valid, legal and enforceable to the maximum extent
possible.
Section 8.14 Further Assurances. From and after the date of this Agreement,
upon the request of the Purchaser or the Company, the Company and the Purchaser
shall execute and deliver such instruments, documents and other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement, the Warrants and the
Registration Rights Agreement.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers or agents as of the date
first above written.
AVITAR, INC.
By:_____________________________________
Name: Xxxxx X. Xxxxxxxx
Title: Chief Executive Officer
PURCHASER:
GRYPHON MASTER FUND, L.P.
By: Gryphon Partners, L.P., its General Partner
By: Gryphon Management Partners, L.P.,
its General Partner
By: Gryphon Advisors, LLC, its General Partner
By: _____________________________
Xxxxxx X. Garden, Authorized Agent
A-1
EXHIBIT A
THE PURCHASER
Names and Address of Number of Shares Number of Warrants Dollar Amount
Purchaser Purchased Purchased of Investment
Gryphon Master Fund, L.P. 2,000 6,666,667 at First Closing $2,000,000
000 Xxxxxxxx Xxxxx
Xxxxx 000 TBD at Second Closing
Xxxxxx, Xxxxx 00000 (see Section 1.3)
Attn: Xxxx X. Xxxxxxx
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
B-2
EXHIBIT B-1
FORM OF WARRANT
(First Closing)
EXHIBIT B-2
FORM OF WARRANT
(Second Closing)
C-2
EXHIBIT C
FORM OF OPINION
1. The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and has the requisite
corporate power to own, lease and operate its properties and assets, and to
carry on its business as presently conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the failure to so qualify would have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Transaction Documents and to issue
the Shares, the Conversion Shares, the Warrants and the Warrant Shares. The
execution, delivery and performance of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated thereby have
been duly and validly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors is
required. Each of the Transaction Documents have been duly executed and
delivered, and the Shares and the Warrants have been duly executed, issued and
delivered by the Company and each of the Transaction Documents constitutes a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its respective terms. The Shares, the Conversion
Shares and the Warrant Shares are not subject to any preemptive rights under the
Certificate or the Bylaws.
3. The Shares have been duly authorized and, when delivered against payment
in full as provided in the Purchase Agreement, will be validly issued, fully
paid and nonassessable. The Conversion Shares have been duly authorized and
reserved for issuance, and, when delivered upon conversion of the Shares, will
be validly issued, fully paid and nonassessable. The Warrant Shares have been
duly authorized and reserved for issuance, and, when delivered upon exercise or
against payment in full as provided in the Warrants, will be validly issued,
fully paid and nonassessable.
4. The execution, delivery and performance of and compliance with the terms
of the Transaction Documents and the issuance of the Shares, the Conversion
Shares, the Warrants and the Warrant Shares do not (a) violate any provision of
the Certificate or Bylaws, (b) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Company is a party and which is known to us, (c) create or impose a lien, charge
or encumbrance on any property of the Company under any agreement or any
commitment known to us to which the Company is a party or by which the Company
is bound or by which any of its respective properties or assets are bound, or
(d) result in a violation of any Federal, state, local or foreign statute, rule,
regulation, order, judgment, injunction or decree (including Federal and state
securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected, except, in all cases
other than violations pursuant to clauses (a) and (d) above, for such conflicts,
default, terminations, amendments, acceleration, cancellations and violations as
would not, individually or in the aggregate, have a Material Adverse Effect.
5. No consent, approval or authorization of or designation, declaration or
filing with any governmental authority on the part of the Company is required
under Federal, state or local law, rule or regulation in connection with the
valid execution, delivery and performance of the Transaction Documents, or the
offer, sale or issuance of the Shares, the Conversion Shares, the Warrants or
the Warrant Shares other than filings as may be required by applicable Federal
and state securities laws and regulations and the American Stock Exchange rules
and regulations.
6. To our knowledge, there is no action, suit, claim, investigation or
proceeding pending or threatened against the Company which questions the
validity of the Agreement or the transactions contemplated thereby or any action
taken or to be taken pursuant thereto. There is no action, suit, claim,
investigation or proceeding pending, or to our knowledge, threatened, against or
involving the Company or any of its properties or assets and which, if adversely
determined, is reasonably likely to result in a Material Adverse Effect. There
are no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against the Company or any
officers or directors of the Company in their capacities as such.
7. The offer, issuance and sale of the Shares and the Warrants and the
offer, issuance and sale of the Conversion Shares and the Warrant Shares
pursuant to the Agreement and the Warrants, as applicable, are exempt from the
registration requirements of the Securities Act of 1933, as amended.
8. The Company is not, and as a result of and immediately upon Closing will
not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
D-2
EXHIBIT D
FORM OF CERTIFICATE OF DESIGNATIONS
EXHIBIT E
FORM OF REGISTRATION RIGHTS AGREEMENT
