THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT, DATED AS OF THE
DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES,
INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH (A) LIMIT THE CONVERSION RIGHTS
OF THE HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT, PREPAYMENT AND
REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF DEFAULT FOLLOWING
WHICH THE REMAINING BALANCE DUE AND OWING HEREUNDER MAY BE ACCELERATED.
No. 1 $1,250,000.00
Avitar, Inc.
SECURED NOTE
Avitar, Inc., a Delaware corporation (together with its successors, the
"Company"), for value received hereby promises to pay to:
Global Capital Funding Group, L.P.
(the "Holder") and registered assigns, the principal sum of One Million Two
Hundred Fifty Thousand Dollars ($1,250,000.00) or, if less, the principal amount
of this Note then outstanding, on the Maturity Date by wire transfer of
immediately available funds to the Holder in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts, and to pay interest, which shall begin to
accrue on the date of this Secured Note ("Note"), quarterly in arrears, on (i)
the last day of March, June, September and December of each year until the
Maturity Date, commencing December 31, 2002 (unless such day is not a Business
Day, in which event on the next succeeding Business Day) (each an "Interest
Payment Date"), (ii) the Maturity Date, and (iii) the date the principal amount
of the Note shall be declared to be or shall automatically become due and
payable, on the principal sum hereof outstanding in like coin or currency, at
the rates per annum set forth below, from the most recent Interest Payment Date
to which interest has been paid on this Note, or if no interest has been paid on
this Note, from the date of this Note until payment in full of the principal sum
hereof has been made.
The interest rate shall be fourteen percent (14%) per annum (the "Interest
Rate") or, if less, the maximum rate permitted by applicable law. At the option
of the Company, interest may be paid in cash or in shares of Common Stock. The
number of shares of Common Stock issued as interest shall be determined by
dividing the dollar amount of interest due on the applicable Interest Payment
Date by the Market Price then in effect. "Market Price" shall mean the lowest
closing bid price for the Common Stock as reported by Bloomberg, L.P., for five
trading days immediately prior to the date such interest becomes due. Past due
amounts (including interest, to the extent permitted by law) will also accrue
interest at the Interest Rate plus 2% per annum or, if less, the maximum rate
permitted by applicable law, and will be payable on demand (`Default Interest").
Interest on this Note will be calculated on the basis of a 360-day year of
twelve 30 day months. All payments of principal and interest hereunder shall be
made for the benefit of the Holder pursuant to the terms of the Agreement
(hereafter defined).
This Note (this "Note") is secured by a Security Agreement (the "Security
Agreement") of even date herewith made by the Company (or one of its
subsidiaries, as applicable) and Holder creating a security interest in favor of
Holder in certain of the assets described in the Security Agreement (the
"Collateral").
This Note is a duly authorized issuance of $1,250,000.00 aggregate
principal amount of Notes of the Company dated as of the date hereof of the
Company referred to in that certain Securities Purchase Agreement dated as of
the date hereof between the Company and the Purchaser named therein (the
"Agreement"). The Agreement and the Security Agreement contain certain
additional agreements among the parties with respect to the terms of this Note,
including, without limitation, provisions which (A) specify voluntary and
mandatory repayment, prepayment and redemption rights and obligations and (B)
specify Events of Default following which the remaining balance due and owing
hereunder may be accelerated. All such provisions are an integral part of this
Note and are incorporated herein by reference. This Note is transferable and
assignable to one or more Persons, in accordance with the limitations set forth
in the Agreement.
The Company shall keep a register (the "Register") in which shall be
entered the names and addresses of the registered holder of this Note and
particulars of this Note held by such holder and of all transfers of this Note.
References to the Holder or "Holders" shall mean the Person listed in the
Register as registered holder of such Notes. The ownership of this Note shall be
proven by the Register.
1. Certain Terms Defined. All terms defined in the Agreement and not
otherwise defined herein shall have for purposes hereof the meanings provided
for in the Agreement.
2. Covenants. Unless the Majority Holders otherwise consent in writing, the
Company covenants and agrees to observe and perform each of its covenants,
obligations and undertakings contained in the Agreement, which obligations and
undertakings are expressly assumed herein by the Company and made for the
benefit of the holder hereof.
3. Payment of Principal. Subject to Section 4 of this Note, the Company
shall repay the remaining unpaid balance of this Note, plus accrued Interest, if
any, on August 26, 2005 (the "Maturity Date"). The Company may, and shall be
obligated to, prepay all or a portion of this Note on the terms specified in the
Agreement.
4. Pre-Payment of Principal. For so long as no Event of Default shall have
occurred and is continuing, the Company may, at its option, pre-pay the full
principal amount of this Note at any time before the Maturity Date at a
repayment price of (i) 103% of the Principal Amount of the Note, plus all
accrued but unpaid interest until the first anniversary of the date of this
Note; (ii) 102% of the Principal Amount of the Note, plus all accrued but unpaid
interest until the second anniversary of the Note; and (ii) 101% of the
Principal Amount of the Note, plus all accrued but unpaid interest until the
Maturity Date (the "Prepayment Price").
5. Ranking. This Note shall rank pari passu in right of payment (but not
with respect to the rights in the Collateral) to any other indebtedness of the
Company outstanding as of the date hereof.
6. Right of Conversion. Upon (i) an Event of Default (as defined in the
Agreement) and (ii) at any time following the Maturity Date, at the option of
Holder, this Note shall become convertible into Common Stock of the Company
according to the conversion price (the "Conversion Price") which is defined by
the formula F/P, where:
F = Principal amount of Note being converted, together with the accrued and
unpaid Interest through the date of conversion, and
P = 80% of the average of the three lowest volume weighted average sales
prices, as reported by Bloomberg LP, during the twenty (20) trading days
immediately preceding the date of the related notice of conversion. In
accordance with AMEX Rules and Guidelines, the number of Common shares issued
upon such conversion may not exceed twenty (20) per cent of the reported
outstanding Common shares of the Company at the Closing Date without the
approval of the shareholders of the Company.
The Company agrees and covenants to execute the necessary documentation to
amend this Note upon Holder's exercise of such right of conversion so that the
Common Shares issuable upon conversion of this Note will have the registration
rights set forth in the Agreement and the Registration Rights Agreement executed
the date hereof between the Company and Holder.
7. Miscellaneous. This Note shall be deemed to be a contract made under the
laws of the State of Delaware, and for all purposes shall be governed by and
construed in accordance with the laws of said State. The parties hereto,
including all guarantors or endorsers, hereby waive presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Note, except as specifically
provided herein, and asset to extensions of the time of payment, or forbearance
or other indulgence without notice. The Company hereby submits to the exclusive
jurisdiction of the United States District Courts of New York and of any New
York state court sitting in New York City and County for purposes of all legal
proceedings arising out of or relating to this Note. The Company irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum. The Company hereby irrevocably waives any
and all right to trial by jury in any legal proceeding arising out of or
relating to this Note.
The Holder of this Note by acceptance of this Note agrees to be bound by
the provisions of this Note which are expressly binding on such Holder.
Signature Page Follows
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.
Dated: August 26, 2002
AVITAR, INC.
/s/XXXXX X. XXXXXXXX
By:
Name: Xxxxx X. Xxxxxxxx
Title: CEO
ANNEX A
REPAYMENT LEDGER
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Date Principal Balance Interest Paid Principal Paid New Principal Balance Issuer Initials Holder Initials
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FULL NAME AND ADDRESS OF SUBSCRIBER FOR REGISTRATION PURPOSES:
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
DELIVERY INSTRUCTIONS (IF DIFFERENT FROM REGISTRATION NAME):
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
SPECIAL INSTRUCTIONS: