LOAN AGREEMENT
LOAN
AGREEMENT, effective as of November 29, 2006, is by and among Bio Solutions
Manufacturing, Inc., a New York corporation (the “Company”), and each of the
parties set forth on the signature page hereto (each, an “Investor” and
collectively, the “Investors”).
WHEREAS,
the Investors have previously purchased notes or other evidences of indebtedness
in the aggregate principal amount of Eight Hundred Two Thousand Five Hundred
Seventy Eight Dollars and Eight Six Cents ($802,857.86) (together with any
note(s) issued in replacement thereof, the “Prior Notes”), as set forth
immediately below such Investor’s name on the signature page
hereto.
WHEREAS,
the Company has requested that one or more of the Investors extend credit in
the
form of a series of term loans (each a “loan” and collectively, the “Loans”) to
be made to the Company from and after the Closing Date (as defined below) from
time to time in accordance with the terms hereof in an aggregate principal
amount of up to $3,000,000.
WHEREAS,
subject to the terms and conditions set forth in this Agreement, including
the
amendment and restatement of the Prior Notes as described under Section 1.1
below, the Investors are willing to make Loans to the Company, and the Company
desires to borrow from the Investors from time to time, up to an aggregate
principal amount of $3,000,000, in an amount per each Investor as set forth
immediately below such Investor’s name on the signature page
hereto.
Certain
capitalized terms used in this Agreement shall have the meanings set forth
in
Article V hereof.
NOW,
THEREFORE, in consideration of the mutual covenants contained in this Agreement
and for other good and valuable consideration the receipt and adequacy are
hereby acknowledged, the Company and the Investors agree as
follows:
ARTICLE
I
ISSUANCE
OF NOTES; LOANS
1.1 Amendment
and Restatement of Prior Notes.
At
Closing, the Company will sign and deliver a series of amended and restated
convertible promissory notes (the “Amended Notes”) in the form attached hereto
as “Exhibit A” to each Investor to amend and restate the Prior Note held by such
Investor. The amendment and restatement of the Prior Notes as set forth herein
is an express and absolute condition of the Investors’ entering into this
Agreement.
1.2 Procedure
for Lending.
(a) The
Company shall request that Loans be made hereunder by delivering to the
Investors a written request for a Loan (each, a “Loan Request”) in the form of
Annex A to the Note, at any time and from to time up to the fifth Business
Day
prior to the Maturity Date. The Company’s initial Loan Request may be made at
any time on or after the Closing Date. Subsequent Loan Requests may not be
delivered prior to the third Business Day following the making of a Loan
hereunder, regardless of the amount of such prior Loan. The amount of a Loan
requested in a Loan Request may not be less than $5,000 or greater than
$100,000, and the aggregate amount of all Loans made hereunder will not exceed
$3,000,000. Delivery of a Loan Request shall constitute a certification by
the
Company that (a) the representations and warranties contained in the
Transaction Documents are true and correct on and as of the date of such Loan
Request, as if such representations and warranties were first made on the date
thereof, (b) the Company has complied and is in compliance with all of its
covenants, agreements and other obligations under the Transaction Documents,
and
(c) if effective at such time, the Company has no reason to believe that
the Conversion Shares Registration Statement (as defined in Section 2.1 (f))
is
not effective and available for use by the Investors to resell the Conversion
Shares.
(b) The
Investors shall have the right, in their sole and absolute discretion, to accept
or reject any Loan Request made hereunder for any or no reason; provided, that,
the Investors will use their reasonable efforts to indicate whether and to
what
extent it has decided to accept or reject a Loan Request within two (2) Business
Days of its receipt of each such request. An Investor’s decision to reject in
whole or in part a Loan Request shall not limit or otherwise affect any
obligation of the Company or any other obligor or guarantor under any
Transaction Document. A failure to respond shall not be deemed an agreement
by
the Investors to extend the Loan requested in any Loan Request.
(c) If
an
Investor shall indicate a willingness to make the Loan requested in a Loan
Request, it will deliver to the Company an amended Loan Schedule (attached
to
the Note as Exhibit B), reflecting the amount of the Loan it has agreed to
extend and the aggregate principal amount that would be owing under the Note
(after giving effect to such agreed Loan). It shall be a precondition to an
Investor’s willingness to make such Loan that the Company attest to such
calculations by executing where indicated and returning to the Investor a copy
of such amended Loan Schedule. The Investor will consummate an accepted Loan
Request by delivering the applicable Loan amount by wire transfer of immediately
available funds to an account indicated therefor by the Company. The amounts
indicated on the amended Loan Schedule shall become controlling and enforceable
upon the Company and the Investor immediately and without further action when
the Investor receives receipt of a wire reference number for the amount of
the
Loan (less any fees for the wire as imposed by the sending and/or receiving
institution) to the account indicated therefor by the Company. Accordingly,
the
principal amount of the Loan outstanding from time to time shall be reflected
in
the amended Loan Schedule.
1.3 Deliveries
of Closing.
On or
prior to the Closing Date the Company shall deliver or cause to be delivered
to
the Investors the following:
(a) Duly
executed original Amended Notes for each Investor.
(b) A
duly
executed Pledge Agreement, and all securities and instruments pledged thereunder
shall have been duly and validly pledged thereunder to the Investors and
certificates representing such shares or such instruments accompanied by
instruments of transfer and stock powers endorsed in blank, shall be in the
actual possession of the Investors or such other action shall have been taken
under applicable laws to perfect the pledge.
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(c) A
duly
executed Security Agreement and IP Security Agreement. In addition each document
(including, without limitation, any Uniform Commercial Code financing
statements) required under the Security Agreement and IP Security Agreement
to
be filed, registered or recorded in order to create, in favor of the Investors,
a perfected security interest in or Lien upon the Collateral (as defined in
such
agreements) shall have been properly filed, registered or recorded in each
jurisdiction in which the filing, registration or recordation thereof is so
required or requested, and the Investors shall have received an acknowledgment
copy, or other evidence satisfactory to it, of each such filing, registration
or
recordation and satisfactory evidence of the payment of any necessary, fee,
tax
or expense relating thereto.
(d) A
duly
executed original of each other Transaction Document.
(e) An
acknowledgment copy of the Transfer Agent Instructions which shall have been
duly counter executed by the Company’s transfer agent.
(f) All
other
documents, instruments and writings required to have been executed and delivered
at or prior to the Closing by the Company and its Subsidiaries pursuant to
this
Agreement.
ARTICLE
II
REPRESENTATIONS
AND WARRANTIES
2.1 Representations
and Warranties of the Company.
The
Company hereby represents and warrants to the Investors:
(a) Organization
and Qualification.
The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of New York, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. The Company has no Subsidiaries other than as set forth
in Schedule 2.1(a). Each of the Subsidiaries is an entity, duly incorporated
or
otherwise organized, validly existing and in good standing under the laws of
the
jurisdiction of its incorporation or organization (as applicable), with the
full
power and authority to own and use its properties and assets and to carry on
its
business as currently conducted. Each of the Company and the Subsidiaries is
duly qualified to do business and is in good standing as a foreign corporation
in each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to
be
so qualified or in good standing, as the case may be, could not, individually
or
in the aggregate, (x) adversely affect the legality, validity or enforceability
of the Securities (as defined below) or any of the Transaction Documents, (y)
have or result in a material adverse effect on the results of operations,
assets, prospects, or condition (financial or otherwise) of the Company and
the
Subsidiaries, taken as a whole, or (z) adversely impair the Company’s ability to
perform fully on a timely basis its obligations under any of the Transaction
Documents (any of(x), (y) or (z), a “Material Adverse Effect”).
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(b) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction Documents
and otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no further
action is required by the Company. Each of the Transaction Documents has been
duly executed by the Company and, when delivered (or filed, as the case may
be)
in accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with
its
terms. Neither the Company nor any Subsidiary is in violation of any of the
provisions of its respective articles of incorporation, by-laws or other charter
documents.
(c) Capitalization.
The
authorized capital stock of the Company consists of 100,000,000 shares of Common
Stock and 10,000,000 shares of preferred stock, no par value (the “Preferred
Stock”). As of September 15, 2006, there were 34,395,037 shares of Common Stock
issued and outstanding and no shares of Preferred Stock issued and outstanding.
No shares of Common Stock or other securities of the company are entitled to
preemptive or similar rights, nor is any holder of the Company’s securities
entitled to preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of any of the Transaction Documents.
Except as a result of the issuance of the Amended Notes or any Note pursuant
to
any Loan (collectively, the “Notes”), there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into
or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which the Company or any Subsidiary is or may become bound
to
issue additional shares of Common Stock, or securities or rights convertible
or
exchangeable into shares of Common Stock. To the knowledge of the Company,
except as specifically disclosed in the SEC Documents (as defined below) or
Schedule 2.1(c), no Person or group of related Persons beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the Exchange Act) or has
the
right to acquire by agreement with or by obligation binding upon the Company,
in
excess of five percent (5%) of the Common Stock.
(d) Issuance
of the Notes.
The
Conversion Shares (as defined below) and the Notes are duly authorized and,
the
Conversion Shares, when issued and paid for in accordance with the terms hereof
and the Notes, will be duly and validly issued, fully paid and nonassessable,
free and clear of all liens, encumbrances and rights of first refusal of any
kind (collectively, “Liens”). The Company has on the date hereof and will, at
all times while there is any outstanding principal amount and interest due
under
the Notes, maintain an adequate reserve of duly authorized shares of Common
Stock, reserved for issuance to the holders of the Notes to enable it to perform
its conversion obligations under the Notes. Such number of reserved and
available shares of Common Stock is not less than 200% of the number of shares
of Common Stock which would be issuable upon conversion in full of the principal
amount available for borrowing and interest thereon under the Notes, assuming
that the Notes are outstanding for the full term, that such conversion occurred
at the Conversion Price (as defined in the Notes) on the date hereof and that
the outstanding principal amount due under the Notes is $1,577,500 (such number
of shares of Common Stock as contemplated above, the “Initial Minimum”). All
such authorized shares of Common Stock shall be duly reserved for issuance
to
the holders of the Notes. The shares of Common Stock issuable upon conversion
of
the Notes are collectively referred to herein as the “Conversion Shares.” When
issued in accordance with the Notes, the Conversion Shares will be duly
authorized, validly issued, fully paid and nonassessable, free and clear of
all
Liens.
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(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 thereby
do
not and will not (i) conflict with or violate any provision of its articles
of
incorporation, bylaws or other charter documents (each as amended through the
date hereof), or (ii) subject to obtaining the Required Approvals (as defined
below), 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 (with or without
notice, lapse of time or both) of, any agreement, loan, credit facility,
indenture or instrument (evidencing a Company debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which
any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including Federal and state securities laws
and
regulations), or by which any property or asset of the Company is bound or
affected, except in the case of each of clauses (ii) and (iii), as could not,
individually or in the aggregate, have or result in a Material Adverse Effect.
The business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except for violations
which, individually or in the aggregate, could not have or result in a Material
Adverse Effect.
(f) Filings,
Consents and Approvals.
Neither
the Company nor any Subsidiary is required to obtain any consent, waiver,
authorization or order of, give any notice to, or make any filing or
registration with, any court or other Federal, state, local or other govern-
mental authority or other Person in connection with the execution, delivery
and
performance by the Company of the Transaction Documents, other than (i) the
filings contemplated by the Security Agreement and the IP Security Agreement,
(ii) the filings required pursuant to Section 3.11 of this Agreement, (iii)
the filing with the Securities and Exchange Commission (the “Commission”) of one
or more registration statements meeting the requirements set forth in the
Registration Rights Agreement and covering the resale of the Conversion Shares
by the Investors (collectively, the “Conversion Shares Registration Statement”),
(iv) applicable Blue Sky filings and (v) in all other cases where the failure
to
obtain such consent, waiver, authorization or order, or to give such notice
or
make such filing or registration could not have or result in, individually
or in
the aggregate, a Material Adverse Effect (collectively, the “Required
Approvals”).
(g) Litigation
Proceedings.
There
is no action, suit, notice of violation, proceeding or investigation pending
or,
to the knowledge of the Company, threatened against or affecting the Company
or
any of its Subsidiaries or any of their respective properties before or by
any
court, governmental or administrative agency or regulatory authority (Federal,
state, county, local or foreign) which (i) adversely affects or challenges
the
legality, validity or enforceability of any of the Transaction Documents or
the
Securities ( as defined in Section 2(i)) or (ii) could, individually or in
the
aggregate, have or result in a Material Adverse Effect.
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(h) No
Default or Violation.
Neither
the Company nor any Subsidiary (i) is in default under or in violation of
(and no event has occurred which has not been waived which, with notice or
lapse
of time or both, would result in a default by the Company or any Subsidiary
under), nor has the Company or any Subsidiary received notice of a claim that
it
is in default under or that it is in violation of, any indenture, loan, or
credit agreement or any other agreement or instrument to which it is a party
or
by which it or any of its properties is bound, (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is in
violation of any statute, rule or regulation of any governmental authority,
in
each case of clauses (i), (ii) or (iii) above, except as could not individually
or in the aggregate, have or result in a Material Adverse Effect.
(i) Private
Offering.
Assuming the accuracy of the representations and warranties of the Investors
set
forth in Sections 2.2(b)-(g), the offer, issuance, and sale of the Notes and
the
Conversion Shares (collectively, the “Securities”) to the Investors as
contemplated hereby are exempt from the registration requirements of the
Securities Act. Neither the Company nor any Person acting on its behalf has
taken any action that could subject the offering, issuance or sale of the
Securities to the registration requirements of the Securities Act.
(j) SEC
Documents; Financial Statements.
Except
as set forth on Schedule 2.1.(j), the Company has filed all reports required
to
be filed by it under the Exchange Act, including pursuant to Section 13(a)
or
15(d) thereof, for the two (2) years preceding the date hereof (or such shorter
period as the Company was required by law to file such material) (the foregoing
materials being collectively referred to herein as the “SEC Documents” and,
together with the Schedules to this Agreement, the “Disclosure Materials”). As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained 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. All material agreements to which the Company
is
a party or to which the property or assets of the Company are subject have
been
filed as exhibits to the SEC Documents as required. The financial statements
of
the Company included in the SEC Documents comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles (“GAAP”) applied on a consistent basis during the periods
involved, except as may be otherwise specified in such financial statements
or
the notes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for 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, immaterial,
year-end audit adjustments. Since July 31, 2006, except as specifically
disclosed in the SEC Documents, (a) there has been no event, occurrence or
development that has or that could result in a Material Adverse Effect,
(b) the Company has not incurred any liabilities (contingent or otherwise)
other than (x) liabilities incurred in the ordinary course of business
consistent with past practice and (y) liabilities not required to be reflected
in the Company’s financial statements pursuant to GAAP or required to be
disclosed in filings made with the Commission, (c) the Company has not
altered its method of accounting and (d) the Company has not declared or
made any payment or distribution of cash or other property to its stockholders
or officers or directors (other than in compliance with existing Company stock
option plans) with respect to its capital stock, or purchased, redeemed (or
made
any agreements to purchase or redeem) any shares of its capital
stock.
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(k) Investment
Company.
The
Company is not, and is not an Affiliate (as defined in Rule 405 under the
Securities Act) of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.
(l) Certain
Fees.
No fees
or commissions will be payable by the Company to any broker, financial advisor
or consultant, finder, placement agent, investment banker, or bank with respect
to the transactions contemplated by this Agreement. The Investors shall have
no
obligation with respect to any fees or with respect to any claims made by or
on
behalf of any Person for fees of a type contemplated in this Section that may
be
due in connection with the transactions contemplated by this Agreement. The
Company shall indemnify and hold harmless the Investors, their employees,
officers, directors, agents, and partners, and their respective Affiliates,
from
and against all claims, losses, damages, costs (including the costs of
preparation and attorney’s fees) and expenses suffered in respect of any such
claimed or existing fees, as such fees and expenses are incurred.
(m) Solicitation
Materials.
Neither
the Company nor any Person acting on the Company’s behalf has solicited any
offer to buy or sell the Securities by means of any form of general solicitation
or advertising.
(n) Indebtedness.
Schedule 2.1(n) sets forth a complete and accurate list of all indebtedness
of
the Company or any of its Subsidiaries (other than the indebtedness incurred
pursuant to this Agreement and the other Transaction Documents), describes
the
agreement, note or other instrument evidencing such indebtedness and list the
parties thereto, and indicates the principal amount outstanding thereunder,
the
scheduled maturity thereof and the existence of any Liens in respect thereof.
No
indebtedness of the Company or any of its Subsidiaries is senior to the Notes
in
right of payment, whether upon liquidation or dissolution, or
otherwise.
(o) Listing
and Maintenance Requirements Compliance.
Except
as set forth in the SEC Documents, the Company has not, in the two (2) years
preceding the date hereof, received notice (written or oral) from any stock
exchange, market or trading facility on which the Common Stock is or has been
listed (or on which it has been quoted) to the effect that the Company is not
in
compliance with the listing or maintenance requirements of such exchange or
market. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such maintenance
requirements.
(p) Intellectual
Property Rights.
Each of
the Company and its Subsidiaries owns, or has the legal right to use pursuant
to
a valid license in full force and effect or otherwise, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, copyright applications, processes and formulae, whether or not
registered or qualified (collectively, the “Intellectual Property Rights”)
necessary or material for the conduct of its business as presently conducted
and
as presently proposed to be conducted, and which the failure to so have would
have a Material Adverse Effect. To the best knowledge of the Company all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.
No
claim has been made or, to the Company’s knowledge, has been threatened or is
reasonably likely to be made, that the use by the Company or any of its
Subsidiaries of any Intellectual Property Right presently used in the conduct
of
its business does or may violate or infringe the rights of any other Person,
or
otherwise contesting the validity, enforceability, use or ownership of any
such
Intellectual Property Right.
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(q) Registration
Rights; Rights of Participation.
Except
as set forth on Schedule 6(b) to the Registration Rights Agreement, the Company
has not granted or agreed to grant to any Person any rights (including
“piggy-back” registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority which has
not
been satisfied. No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.
(r) Regulatory
Permits.
The
Company and its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate Federal, state or foreign regulatory
authorities necessary to conduct their respective businesses as described in
the
SEC Documents, except where the failure to possess such permits could not,
individually or in the aggregate, have or result in a Material Adverse Effect
(“Material Permits”), and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification
of
any Material Permit.
(s) Ownership
of Properties.
The
Company and the Subsidiaries have good and marketable title in fee simple to
all
real property owned by them which is material to the business of the Company
and
its Subsidiaries and good and marketable title in all personal property owned
by
them which is material to the business of the Company and its Subsidiaries,
in
each case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its Subsidiaries. Any
real property and facilities held under lease by the Company and its
Subsidiaries are held by them under valid, subsisting, and enforceable leases
with such exceptions as are not material and do not interfere with the use
made
and proposed to be made of such property and buildings by the Company and its
Subsidiaries.
(t) Security
Documents.
(i) The
Pledge Agreement is effective to create in favor of the Secured Parties, a
legal, valid and enforceable security interest in the Collateral (as defined
in
the Pledge Agreement) and, when the Collateral is delivered to the Secured
Parties (as defined in the Pledge Agreement), the Pledge Agreement shall
constitute a fully perfected first priority Lien on, and security interest
in,
all right, title and interest of the pledgors thereunder in such Collateral,
in
each case prior and superior in right to any other Person.
(ii) The
Security Agreement is effective to create in favor of the Secured Parties,
a
legal valid and enforceable security interest in the Collateral (as defined
in
the Security Agreement ) and, when financing statements in appropriate form
are
filed in the offices specified on Schedule B to the Security Agreement, the
Security Agreement shall constitute a fully perfected Lien on, and security
interest in, all right, title and interest of the grantors thereunder in such
Collateral, in each case prior and superior in right to any other Person other
than with respect to Liens expressly permitted by Section 4.2.
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(iii) When
the
IP Security Agreement is filed in the United States Patent and Trademark Office
and the United States Copyright Office, the IP Security Agreement shall
constitute a fully perfected Lien on, and security interest in, all right,
title
and interest of the grantors thereunder in the Collateral (as defined in the
IP
Security Agreement), in each case prior and superior in right to any other
Person (it being understood that subsequent recordings in the United States
Patent and Trademark Office and the United States Copyright Office may be
necessary to perfect a lien on registered trademarks, trademark applications
and
copyrights acquired by the grantors after the date hereof).
(u) Disclosure.
The
Company confirms that it has not provided any of the Investors or their agents
or counsel with any information that constitutes or might constitute material
non-public information. The Company understands and confirms that the Investors
shall be relying on the foregoing representations in effecting transactions in
securities of the Company. All disclosure provided to the Investors regarding
the Company, its business and the transactions contemplated hereby, including
the Schedules to this Agreement, furnished by or on behalf of the Company are
true and correct and do not contain any untrue statement of a material fact
or
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
2.2 Representations
and Warranties of the Investors.
The
Investors hereby represent and warrant to the Company as follows:
(a) Organization;
Authority.
If
the
Investor is an entity, such Investor is a corporation, limited liability
company, partnership, or other entity duly incorporated or organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization. Each Investor has the requisite power and
authority to enter into and perform this Agreement and the other Transaction
Documents and to purchase the Securities being sold to it hereunder. The
execution, delivery, and performance of this Agreement and the other Transaction
Documents by each Investor and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate or partnership action, and no further consent or authorization of
each
Investor or its Board of Directors, stockholders, partners, members, as the
case
may be, is required. This Agreement has been duly authorized, executed, and
delivered by each Investor and constitutes, or shall constitute when executed
and delivered, a valid and binding obligation of the Investors enforceable
against the Investors in accordance with the terms thereof.
(b) Investment
Intent.
Each
Investor is acquiring any Securities offered and sold to it hereunder as
principal for its own account for investment purposes only and not with a view
to or for distributing or reselling the Securities or any part thereof or
interest therein, without prejudice, however, to such Investor’s right, subject
to the provisions of this Agreement and the Registration Rights Agreement,
at
all times to sell or otherwise dispose of all or any part of the Securities
pursuant to an effective registration statement under the Securities Act and
in
compliance with applicable state securities laws or under an exemption from
such
registration. By making this representation, the Investors do not represent
that
they will hold any acquired Securities for any period of time.
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(c) Experience
of the Investors.
The
Investors, either alone or together with their respective representatives,
has
such knowledge, sophistication and experience in business and financial matters
so as to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks of
such
investment. Each Investor is an “accredited investor” as defined in Rule 501 (a)
under the Securities Act.
(d) Ability
of the Investors to Bear Risk of Investment.
Each
Investor is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such
investment.
(e) Financing.
The
Investors have, and will have from the Closing Date through the Maturity Date,
sufficient funds to consummate the loans in the maximum aggregate principal
amount contemplated hereby.
(f) Access
to Information.
Each
Investor has reviewed the Disclosure Materials and has been afforded
(i) the opportunity to ask such questions as it has deemed necessary of,
and to receive answers from, representatives of the Company concerning the
terms
and conditions of the offering of the Securities and the merits and risks of
investing in the Securities; (ii) access to information about the Company
and the Company’s financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional information
which the Company possesses or can acquire without unreasonable effort or
expense that is necessary to make an informed investment decision with respect
to the investment and to verify the accuracy and completeness of the information
contained in the Disclosure Materials. Neither such inquiries nor any other
investigation conducted by or on behalf of the Investors or their respective
or
counsel shall modify, amend or affect the Investor’s right to rely on the truth,
accuracy and completeness of the Disclosure Materials and the Company’s
representations and warranties contained in the Transaction
Documents.
(g) Reliance.
Each
Investor understands and acknowledges that (i) the Securities are being
offered and sold to it without registration under the Securities Act in a
private placement that is exempt from the registration provisions of the
Securities Act and (ii) the availability of such exemption, depends in part
on, and the Company will rely upon the accuracy and truthfulness of, the
foregoing representations and such Investor hereby consents to such reliance.
The Company acknowledges and agrees that such Investor does not make nor has
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section
2.2.
-10-
ARTICLE
III
OTHER
AGREEMENTS OF THE PARTIES
3.1 Transfer
Restrictions.
(a) Securities
may only be disposed of pursuant to an effective registration statement under
the Securities Act or pursuant to an available exemption from or in a
transaction not subject to the registration requirements of the Securities
Act.
In connection with any transfer of Securities other than pursuant to an
effective registration statement or to the Company, except as otherwise set
forth herein, the Company may require the transferor thereof to provide to
the
Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred securities
under the Securities Act. Notwithstanding the foregoing, the Company hereby
consents to and agrees to register on the books of the Company and with any
transfer agent for the securities of the Company any transfer of Securities
by
an Investor to an Affiliate of an Investor or to one or more funds or managed
accounts under common management with such Investor, and any transfer among
any
such Affiliates or one or more funds or managed accounts, provided that the
transferee certifies to the Company that it is an “accredited investor” as
defined in Rule 501 (a) under the Securities Act and that it is acquiring the
Securities solely for investment purposes (subject to the qualifications
hereof). Any such transferee shall agree in writing to be bound by the terms
of
this Agreement and shall have the rights of such Investor under this Agreement
and the Registration Rights Agreement.
(b) Each
Investor agrees to the imprinting, so long as is required by this Section 3.1
(b), of the following legend on the Securities:
NEITHER
THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[EXERCISABLE] HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXCEPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
The
Conversion Shares shall not contain the legend set forth above nor any other
legend if the conversion of the principal amount and interest due under the
Notes or other issuances of Conversion Shares as contemplated hereby or by
the
Notes occurs at any time while an Conversion Shares Registration Statement
is
effective under the Securities Act or, in the event there is not an effective
Conversion Shares Registration Statement, at such time, in the opinion of
counsel to the Company, such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company shall cause
its counsel to issue the legal opinion included in the Transfer Agent
Instructions to the Company’s transfer agent on the day that the Conversion
Shares Registration Statement is declared effective by the Commission. The
Company agrees that, in the event any Conversion Shares are issued with a legend
in accordance with this Section 3.1 (b), it will, within three (3) Trading
Days
after request therefor by any Investor, provide such Investor with a certificate
or certificates representing such Conversion Shares, free from such legend
at
such time as such legend would not have been required under this Section 3.1
(b)
had such issuance occurred on the date of such request. The Company may not
make
any notation on its records or give instructions to any transfer agent of the
Company which enlarge the restrictions of transfer set forth in this
Section.
-11-
3.2 Acknowledgment
of Dilution.
The
Company acknowledges that the issuance of the Conversion Shares upon conversion
of the principal amount and interest due under the Notes in accordance with
the
terms of the Notes will result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligation to issue the Conversion Shares
upon conversion of the principal amount and interest due under the Notes in
accordance with the terms of the Notes is unconditional and absolute, subject
to
the limitations set forth herein, in the Notes, regardless of the effect of
any
such dilution.
3.3 Integration.
The
Company shall not, and shall use its best efforts to ensure that, no Affiliate
of the Company shall, sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the
sale
of the Securities to the Investor.
3.4 Increase
in Authorized Shares.
If on
any date the Company would be, if a notice of conversion under the Notes were
to
be delivered on such date, precluded from issuing (a) 200% of the number of
Conversion Shares as would then be issuable upon a conversion in full of the
outstanding principal amount and interest due under the Notes (the “Current
Required Minimum”) due to the unavailability of a sufficient number of
authorized but unissued or reserved shares of Common Stock, then the Board
of
Directors of the Company shall promptly (and in any case, within thirty (30)
Business Days from such date) prepare and mail to the stockholders of the
Company proxy materials requesting authorization to amend the Company’s articles
of incorporation to increase the number of shares of Common Stock which the
Company is authorized to issue to at least such number of shares as reasonably
requested by the Investors in order to provide for such number of authorized
and
unissued shares of Common Stock to enable the Company to comply with
its issuance,
conversion exercise and reservation of shares obligations as set forth in this
Agreement and the Notes (the sum of (x) the number of shares of Common Stock
then outstanding plus all shares of Common Stock issuable upon exercise of
all
outstanding options, warrants and convertible instruments, and (y) the Current
Required Minimum, shall be a reasonable number). In connection therewith, the
Board of Directors shall (a) adopt proper resolutions authorizing such increase,
(b) recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions (and hold a special meeting
of the stockholders no later than the 60th day after delivery of the proxy
materials relating to such meeting) and (c) within five (5) Business Days of
obtaining such stockholder authorization, file an appropriate amendment to
the
Company’s articles of incorporation to evidence such increase.
-12-
3.5 Reservation
and Listing of Underlying Shares.
(a) The
Company shall (i) in the time and mariner required by such other exchange,
market, or quotation system on which the Common Stock is then traded, prepare
and file with the such securities exchange or market or trading or quotation
facility a listing application or other required notice covering a number of
shares of Common Stock which is not less than the Initial Minimum,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing thereunder as soon as possible thereafter, and
(iii) shall maintain the listing of its Common Stock thereon. If the number
of Conversion Shares issuable upon conversion in full of the then outstanding
principal amount and interest due under the Notes exceeds 85% of the number
of
Conversion Shares previously listed on account thereof with such exchanges,
market, or trading or quotation facility, then the Company shall take the
necessary actions to immediately list a number of Underlying Shares as equals
no
less than the then Current Required Minimum.
(b) The
Company shall maintain a reserve of shares of Common Stock for issuance upon
conversion of the outstanding principal amount and interest due under the Notes
in accordance with this Agreement and the Notes in such amount as may be
required to fulfill its obligations in full under the Transaction Documents,
which reserve shall equal no less than the then Current Required
Minimum.
3.6 Conversion
and Exercise Procedures.
The
Transfer Agent Instructions and Conversion Notice (as defined in the Notes)
set
forth the totality of the procedures with respect to the conversion of the
of
then outstanding principal amount and interest due under the Notes, including
the form of legal opinion, if necessary, that shall be rendered to the Company’s
transfer agent and such other information and instructions as may be reasonably
necessary to enable the Investors to convert the outstanding principal amount
and interest due under the Notes.
3.7 Notice
of Breaches and Defaults.
Each
of
the Company and the Investors shall give prompt written notice to the other
of
(i) any breach by it of any representation, warranty or other agreement
contained in any Transaction Document, as well as any events or occurrences
arising after the date hereof which would reasonably be likely to cause any
representation or warranty or other agreement of such party, as the case may
be,
contained therein to be incorrect or breached as of the Closing Date, and
(ii) the occurrence of a Triggering Event under the Notes. However,
no disclosure by either party pursuant to this Section shall be deemed to cure
any breach of any representation, warranty, or other agreement contained in
any
Transaction Document or any Triggering Event.
3.8 Conversion
and Exercise Obligations of the Company.
The
Company shall honor conversions of the outstanding principal amount and interest
accrued thereon under the Notes and shall deliver the Conversion Shares in
accordance with the respective terms, conditions, and time periods set forth
in
the Notes.
-13-
3.9 Right
of First Refusal; Subsequent Registrations.
(a) Subject
to the provisions of Section 4.9, while the Notes are outstanding the Company
shall not, directly or indirectly, without the prior written consent of the
Investors, offer, sell, grant any option to purchase, or otherwise dispose
of
(or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates’ equity or equity-equivalent
securities including the issuance of any debt or other instrument at any time
over the life thereof convertible into or exchangeable for Common Stock, or
any
other transaction intended to be exempt or not subject to registration under
the
Securities Act (a “Subsequent Placement”), except (i) the granting of options,
warrants, or shares to employees, officers and directors, and the issuance
of
shares upon exercise of options granted, under any stock incentive plan
heretofore or hereinafter duly adopted by the Company, (ii) shares of Common
Stock issuable upon exercise of any currently outstanding warrants and upon
conversion of any currently outstanding convertible securities of the Company,
in each case disclosed in Schedule 2.1(c), (iii) shares of Common Stock issuable
upon conversion of the outstanding principal amount and interest due under
the
Notes in accordance with the Notes, unless (A) the Company delivers to the
Investors a written notice (the “Subsequent Placement Notice”) of its intention
to effect such Subsequent Placement, which Subsequent Placement Notice shall
describe in reasonable detail the proposed terms of such Subsequent Placement,
the amount of proceeds intended to be raised thereunder, the Person with whom
such Subsequent Placement shall be effected, and attached to which shall be
a
term sheet or similar document relating thereto and (B) the Investors shall
not
have notified the Company by 5:00 p.m. (New York City time) on the tenth (10th)
Trading Day after its receipt of the Subsequent Placement Notice of its
willingness to cause the Investors to provide (or to cause its sole designee
to
provide), subject to completion of mutually acceptable documentation, financing
to the Company on the same terms set forth in the Subsequent Placement Notice.
If the Investors shall fail to notify the Company of its intention to enter
into
such negotiations within such time period, the Company may effect the Subsequent
Placement substantially upon the terms and to the Persons (or Affiliates of
such
Persons) set forth in the Subsequent Placement Notice; provided, that the
Company shall provide the Investors with a second Subsequent Placement Notice,
and the Investors shall again have the right of first refusal set forth above
in
this paragraph (a), if the Subsequent Placement subject to the initial
Subsequent Placement Notice shall not have been consummated for any reason
on
the terms set forth in such Subsequent Placement Notice within thirty (30)
Trading Days after the date of the initial Subsequent Placement Notice with
the
Person (or an Affiliate of such Person) identified in the Subsequent Placement
Notice.
3.10 Certain
Securities Laws Disclosures; Publicity.
The
Company shall (i) file with the Commission a Current Report on Form 8-K
disclosing the transactions contemplated hereby and attaching as exhibits
thereto the Transaction Documents within four (4) Business Days after the
Closing Date (or, alternatively, provide disclosure of this transaction in
an
annual report on Form 10-KSB or a quarterly report on Form 10-QSB), and
(ii) if required, timely file with the Commission a Form D promulgated
under the Securities Act as required under Regulation D promulgated under the
Securities Act. The Company and the Investors shall consult with each other
in
issuing any press releases or otherwise making public statements or filings
and
other communications with the Commission or any regulatory agency or stock
market or trading facility with respect to the transactions contemplated hereby
and neither party shall issue any such press release or otherwise make any
such
public statement, filings or other communications without the prior written
consent of the other, which consent shall not be unreasonably withheld or
delayed, except that no prior consent shall be required if such disclosure
is
required by law, in which such case the disclosing party shall provide the
other
party with prior notice of such public statement, filing or other communication.
Notwithstanding the foregoing and except pursuant to the Conversion Shares
Registration Statement, the Company shall not publicly disclose the name of
the
Investors, or include the name of the Investors in any filing with the
Commission, or any regulatory agency, trading facility or stock market without
the prior written consent of the Investors, except to the extent such disclosure
(but not any disclosure as to the Controlling Persons thereof) is required
by
law, in which case the Company shall provide the Investors with prior notice
of
such disclosure.
-14-
3.11 Transfer
of Assets or Intellectual Property Rights.
Except
in connection with a bona fide licensing arrangement in the ordinary course
of
the Company’s business, the Company shall not transfer, sell or otherwise
dispose of any assets, including the Intellectual Property Rights, or allow
any
of the Intellectual Property Rights to become subject to any Liens, or fail
to
renew such Intellectual Property Rights (if renewable and it would otherwise
lapse if not renewed), without the prior written consent of the
Investors.
3.12 Use
of
Proceeds.
The
Company shall use the net proceeds from any Loans made hereunder to complete
products to meet sales demands and for working capital and general corporate
purposes only and not for the satisfaction of any Company debt (which, for
such
purposes, shall include accounts payable) without the prior written consent
of
the Investors.
3.13 Reimbursement.
If any
Investor, other than by reason of its gross negligence or willful misconduct,
becomes involved in any capacity in any action, proceeding or investigation
brought by or against any Person, including stockholders of the Company, in
connection with or as a result of the consummation of the transactions
contemplated by Transaction Documents, the Company will reimburse such Investor
for its reasonable legal and other expenses (including the cost
of
any investigation and preparation) incurred in connection therewith, as such
expenses are incurred. In addition, other than with respect to any matter in
which any Investor is a named party, the Company will pay such Investor the
charges, as reasonably determined by such Investor, for the time of any officers
or employees of such Investor devoted to appearing and preparing to appear
as
witnesses, assisting in preparation for hearings, trials or pretrial matters,
or
otherwise with respect to inquiries, hearings, trials, and other proceedings
relating to the subject matter of this Agreement. The reimbursement obligations
of the Company under this paragraph shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any Affiliates of any Investor who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and
Controlling Persons (if any), as the case may be, of such Investor and any
such
Affiliate, and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Company, such Investor and
any such Affiliate and any such Person. The Company also agrees that neither
the
Investors nor any such Affiliates, partners, directors, agents, employees or
Controlling Persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company in connection with
or
as a result of the consummation of the Transaction Documents except to the
extent that any losses, claims, damages, liabilities or expenses incurred by
the
Company result from the gross negligence or willful misconduct of the Investors
or entity in connection with the transactions contemplated by this
Agreement.
-15-
ARTICLE
IV
NEGATIVE
COVENANTS
The
Company covenants and agrees that from and after the Closing Date and so long
as
any amount may be borrowed hereunder or remains unpaid (including interest
thereon) on account of any Notes or Loans, or the Company shall have any other
obligation remaining hereunder or pursuant hereto, the Company shall not, and
shall not permit its Subsidiaries to, without the prior written consent of
the
Investors in each instance:
4.1 Indebtedness.
Incur,
create, assume, guarantee or suffer to exist, or become or remain liable,
directly or indirectly, for or on account of any Indebtedness,
except:
(a) Indebtedness
under the Transaction Documents;
(b) Existing
Indebtedness as set forth on Schedule 2.1(a) (including any extensions or
renewals thereof, provided there is no increase in the principal amount thereof
or other significant change in the terms thereof);
(c) Subordinated
Debt in an aggregate principal amount which does not exceed $100,000; provided,
that it shall be a precondition of the Investors’ consent to such debt that the
Company and the lender thereunder agree to make the repayment of such debt
subject to subordination provisions including, without limitation, stand-still
provisions, acceptable to the Investors in their sole discretion;
and
(d) Indebtedness
evidence by Capital Lease Obligations, so long as the aggregate principal amount
of all such Indebtedness outstanding under this paragraph (c) does not exceed
$50,000.
4.2 Liens.
Create,
incur, assume or suffer to exist any Lien on any property or assets (including,
without limitation, the Collateral and including stock or other securities
of
any Person, including any Subsidiary), tangible or intangible, now owned or
hereafter acquired, or agree or become liable to do so, except:
(a) Liens
on
property or assets of the Company and its Subsidiaries existing on the date
hereof and set forth in Schedule 4.2(a); provided that such Liens shall secure
only those obligations which they secure on the date hereof;
(b) any
Lien
created under the Transaction Documents;
(c) Liens
for
taxes not yet due or which are being contested in good faith for which adequate
reserves have been established;
(d) carriers’,
warehousemen’s, mechanic’s, materialmen’s, repairmen’s or other like Liens
arising in the ordinary course of business and securing obligations that are
not
due and payable or which are being contested in good faith for which adequate
reserves have been established;
(e) pledges
and deposits made in the ordinary course of business in compliance with
workmen’s compensation, unemployment insurance and other social security laws or
regulations;
-16-
(f) deposits
to secure the performance of bids, trade contracts (other than for
Indebtedness), leases (other than Capital Lease Obligations), statutory
obligations, surety and appeal bonds, performance bonds and other obligations
of
a like nature incurred in the ordinary course of business; and
(g) zoning
restrictions, easements, rights-of-way, restrictions on use of real property
and
other similar encumbrances incurred in the ordinary course of business which,
in
the aggregate, are not substantial in amount and do not materially detract
from
the value of the- property subject thereto or interfere with the ordinary
conduct of the business of the Company or any of its Subsidiaries.
4.3 Guaranties.
Directly or indirectly, become or be liable in respect of any Guaranty, or
assume, guarantee, become surety for, endorse or otherwise agree, become or
remain directly or contingently liable upon or with respect to any obligation
or
liability of any other Person, except for Guaranties of Indebtedness of the
Company permitted hereunder.
4.4 Loans
and Investments.
Make or
suffer to remain outstanding any loan or advance to, or purchase, acquire or
own
any stock, bonds, notes or securities of, or any partnership interest (whether
general or limited) or limited liability company interest in, or any other
investment or interest in, or make any capital contribution to, any other
Person, or agree, become or remain liable to do any of the foregoing,
except:
(i) trade
credit extended on usual and customary terms in the ordinary course of business;
and
(ii) Permitted
Investments.
4.5 Liquidations,
Mergers Consolidations, Acquisitions.
Dissolve, liquidate or wind- up its affairs, or become a party to any merger
or
consolidation, or acquire by purchase, lease or otherwise all or substantially
all of the assets or capital stock of any other Person, provided,
that:
(i) any
Subsidiary may consolidate or merge into another Subsidiary or the Company,
and
(ii) the
Company or any of its Subsidiaries may acquire, whether by purchase or by
merger, (A) all of the ownership interests of another Person or (B)
substantially all of assets of another Person or of a business or division
of
another Person, provided that the Investors have given prior written
consent.
-17-
4.6 Dispositions
of Assets or Subsidiaries.
Sell,
convey, assign, lease, abandon or otherwise transfer or dispose of, voluntarily
or involuntarily, any of its properties or assets, tangible or intangible
(including sale, assignment, discount or other disposition of accounts, contract
rights, chattel paper, equipment or general intangibles with or without recourse
or of capital stock, shares of beneficial interest, partnership interests or
limited liability company interests of a Subsidiary of the Company),
except:
(i) transactions
involving the sale of inventory in the ordinary course of business and for
usual
and ordinary prices;
(ii) any
sale,
transfer or lease of assets by any wholly owned Subsidiary to the Company or
another Subsidiary;
(iii) any
sale,
transfer or lease of assets in the ordinary course of business which are
replaced by substitute assets acquired or leased, provided such substitute
assets are subject to the Investors’ Prior Security Interest; or
(iv) any
sale,
transfer or lease of assets, other than those specifically excepted pursuant
to
clauses (i) through (iv) above, the fair market value of which does not exceed
$50,000 in the aggregate during the term o f this Agreement.
4.7 Subsidiaries;
Partnerships and Joint Ventures.
Own or
create, directly or indirectly, any Subsidiaries other than (i) any
Subsidiary which has joined this Agreement as Guarantor on the Closing Date;
and
(ii) any Subsidiary formed after the Closing Date which joins this
Agreement as a Guarantor, provided that the Investors shall have consented
to
such formation and joinder and that such Subsidiary and the Company and its
Subsidiaries, as applicable, shall grant and cause to be perfected first
priority Liens to the Investors in the assets held by, and stock of or other
ownership interests in, such Subsidiary. Each of the Company and its
Subsidiaries shall not become or agree to become (1) a general or limited
partner in any general or limited partnership, except that the Company and
its
Subsidiaries may be general or limited partners in other Loan parties,
(2) a member or manager of, or hold a limited liability company
interest in, a limited liability company, except that the Company and its
Subsidiaries may be members or managers of, or hold limited liability company
interests in, other Loan parties, or (3) a joint venturer or hold a joint
venture interest in any joint venture.
4.8 Issuance
of Stock.
Issue
any additional shares of its capital stock or any options, warrants or other
rights in respect thereof.
4.9 Changes
in Organizational Documents.
Amend
in any respect its articles of incorporation (including any provisions or
resolutions relating to capital stock), by-laws, certificate of limited
partnership, partnership agreement, certificate of formation, limited liability
company agreement or other organizational documents without providing at least
thirty (30) calendar days’ prior written notice to the Investors and, in the
event such change would be adverse to the Investors as determined by the
Investors in their sole discretion, obtaining the prior written consent of
the
Investors.
4.10 Leases.
Create,
incur, assume or suffer to exist, or permit any of its Subsidiaries to create,
incur, assume or suffer to exist, any obligation as lessee for the rental or
hire of any real or personal property, except: (i) leases (inclusive of
capital leases and operating leases) existing on the date of this Agreement
and
any extensions or renewals thereof; (ii) leases (other than capital leases)
which do not in the aggregate require the Company and its Subsidiaries, on
a
consolidated basis, to make payments (including taxes, insurance, maintenance
and similar expenses required under the terms of any lease) in any fiscal year
of the Company in excess of $50,000, and (iii) capital leases permitted by
Section 4.1.
4.11 Affiliates.
Enter
into or permit any Subsidiary to enter into any transaction (including without
limitation, the purchase, sale or exchange of securities or other property
or
the rendering of any service) with any Affiliate, except in the ordinary course
of and pursuant to the reasonable requirements of its business upon fair and
reasonable terms no less favorable to it as it would obtain in an arm’s length
transaction with a Person not an Affiliate.
-18-
4.12 Use,
Operation, etc. of Collateral.
Use,
service, repair, operate or locate (or cause to be used, serviced, repaired
or
operated) any of the Collateral in violation of any law, rule, regulation,
order, or ordinance of any Person having jurisdiction of the
Collateral.
4.13 Use
of
Proceeds.
Use the
proceeds of the Loans for any purpose other than as set forth in Section
2.l(v).
4.14 Nature
of Business.
Make
any material change in the nature or scope of the Company’s or any of its
Subsidiaries’ businesses, including, without limitation, material changes in
accounting policies and practices and changes in the fiscal year of any of
such
parties.
ARTICLE
V
DEFINITIONS
“Affiliate”
shall mean, when used with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
“Business
Day” shall mean any day (other than a day which is a Saturday, Sunday or legal
holiday in the State of New York) on which banks are open for business in New
York City.
“Capital
Lease Obligations” of any Person shall mean the obligations of such Person to
pay rent or other amounts under any lease of (or other arrangement conveying
the
right to use) real or personal property, or a combination thereof, which
obligations are required to be classified and accounted for as capital leases
on
a balance sheet of such Person under GAAP and, for the purposes of this
Agreement, the amount of such obligations at any time shall be the capitalized
amount thereof at such time determined in accordance with GAAP.
“Closing
Date” shall mean the date of this Agreement.
“Common
Stock” shall mean the shares of common stock, $0.001 par value, of the Company,
or such securities that such stock shall hereafter be reclassified
into.
“Control”
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through
the ownership of voting securities, by contract or otherwise, and “Controlling”
and “Controlled” shall have meanings correlative thereto.
“Default”
shall mean any event or condition which upon notice, lapse of time or both
would
constitute an Event of Default.
“Exchange
Act” shall mean the Securities Exchange Act of 1934, as
amended.
-19-
“Guarantee”
of or by any Person shall mean any obligation, contingent or otherwise, of
such
Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the “primary obligor”) in any manner, whether
directly or indirectly, and including any obligation of such Person, direct
or
indirect, (a) to purchase or pay (or advance or supply funds for the purchase
or
payment of) such Indebtedness or to purchase (or to advance or supply funds
for
the purchase of) any security for the payment of such Indebtedness, (b) to
purchase property, securities or services for the purpose of assuring the owner
of such Indebtedness of the payment of such Indebtedness or (c) to maintain
working capital, equity capital or other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay
such
Indebtedness; provided, however, that the term Guarantee shall not include
endorsements for collection or deposit, in either case in the ordinary course
of
business.
“Indebtedness”
of any Person shall mean, without duplication, (a) all obligations of such
Person for borrowed money or with respect to deposits or advances of any kind,
(b) all obligations of such Person evidenced by bonds, debentures, notes or
similar instruments, (c) all obligations of such Person upon which interest
charges are customarily paid, (d) all obligations of such Person under
conditional sale or other title retention agreements relating to property or
assets purchased by such Person, (e) all obligations of such Person issued
or
assumed as the deferred purchase price of property or services, (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien
on
property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations of such Person in respect of interest rate protection
agreements, foreign currency exchange agreements or other interest or exchange
rate hedging arrangements and (j) all obligations of such Person as an account
party in respect of letters of credit and bankers’ acceptances. The Indebtedness
of any Person shall include the Indebtedness of any partnership in which such
Person is a general partner.
“IP
Security Agreement” shall mean the Intellectual Property Security Agreement, in
the form of Exhibit C, between the Company and the Investors for the benefit
of
the Investors.
“Note”
shall mean the Secured Convertible Promissory Note, in the form of Exhibit
A,
made by the Company in favor of the Investors evidencing the Loans made
hereunder.
“Permitted
Investments” shall mean:
(a) direct
obligations of, or obligations the principal of and interest on which are
unconditionally guaranteed by, the United States of America (or by any agency
thereof to the extent such obligations are backed by the full faith and credit
of the United States of America), in each case maturing within three (3) months
from the date of acquisition thereof;
(b) investments
in commercial paper maturing within 90 days from the date of acquisition thereof
and having, at such date of acquisition, the highest credit rating obtainable
from Standard & Poor’s Corporation or from Xxxxx’x Investors Service, Inc.;
and
(c) investments
in certificates of deposit, banker’s acceptances and time deposits maturing
within three (3) months from the date of acquisition thereof issued or
guaranteed by or placed with, and money market deposit accounts issued or
offered by, any domestic office of any commercial bank organized under the
laws
of the United States of America or any State thereof which has a combined
capital and surplus and undivided profits of not less than
$250,000,000.
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“Person”
shall mean any natural person, corporation, business trust, joint venture,
association, company, partnership or other business entity or government, or
any
agency or political subdivision thereof.
“Registration
Rights Agreement” shall mean the Registration Rights Agreement, in the form of
Exhibit F, between the Company and the Investors.
“Securities
Act” shall mean the Securities Act of 1933, as amended.
“Security
Agreement” shall mean the Security Agreement, in the form of Exhibit B, between
the Company, the Subsidiaries, and the Investors for the benefit of the
Investors.
“Stock
Pledge Agreement” shall mean the Pledge Agreement, in the form of Exhibit D,
between the Company and the Investors.
“subsidiary”
shall mean, with respect to any Person (herein referred to as the “parent”), any
corporation, partnership, association or other business entity (a) of which
securities or other ownership interests representing more than 50% of the equity
or more than 50% of the ordinary voting power or more than 50% of the general
partnership interests are, at the time any determination is being made, owned,
Controlled or held, or (b) which is, at the time any determination is made,
otherwise Controlled by the parent or one or more subsidiaries of the parent
or
by the parent and one or more subsidiaries of the parent.
“Subsidiary”
shall mean any subsidiary of the Company.
“Subsidiary
Guaranty” shall mean a Subsidiary Guaranty, in the form of Exhibit E, made by
the Subsidiary Guarantors in favor and for the benefit of the
Investors.
“Subsidiary
Guarantor” shall mean each Subsidiary listed on Schedule 2.1(a), and each other
Subsidiary that is or becomes a party to the Subsidiary Guaranty in accordance
therewith.
“Trading
Day” shall have the meaning ascribed to it in Section 16 of the
Note.
“Transaction
Documents” shall mean this Agreement, the Notes, the Registration Rights
Agreement, the Security Agreement, the IP Security Agreement, the Pledge
Agreement, the Subsidiary Guaranty, and the Transfer Agent
Instructions.
“Transfer
Agent Instructions” shall mean the irrevocable transfer agent instructions, in
the form of Exhibit G, delivered to and acknowledged by the Company’s transfer
agent.
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ARTICLE
VI
MISCELLANEOUS
6.1 Fees
and Expenses.
At the
Closing, the Company shall reimburse the Investors for all of their legal fees
and expenses incurred in connection with the preparation and negotiation of
the
Transaction Documents. The Company shall pay all stamp and other taxes and
duties levied in connection with the issuance of the Securities.
6.2 Entire
Agreement.
The
Transaction Documents, together with the Exhibits and Schedules thereto, and
the
Transfer Agent Instructions and other ancillary documents set forth in this
Agreement contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents, exhibits and schedules.
6.3 Notices.
Any and
all notices or other communications or deliveries required or permitted to
be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 6:30 p.m. (New York City time) on a Business Day, (ii) the
Business Day after the date of transmission, if such notice or communication
is
delivered via facsimile at the facsimile telephone number specified in this
Agreement later than 6:30 p.m. (New York City time) on any date and earlier
than
11:59 p.m. (New York City time) on such date, (iii) the Business Day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to
be
given. The address for such notices and communications shall be as
follows:
|
If
to the Company:
|
|
|
0000
Xxxxxxx Xxxxxx # 0
|
|
|
Xxx
Xxxxx, XX 00000
|
|
|
Facsimile
No.: (000) 000-0000
|
|
|
Attn:
Secretary
|
If
to the
Investors: At
the
address set forth opposite their name on the signature page
or
such
other address as may be designated in writing hereafter, in the same manner,
by
such Person.
6.4 Amendments;
Waivers.
No
provision of this Agreement may be waived or amended except in a written
instrument signed, in the case of an amendment, by the Company and the
Investors, in the case of a waiver, by the party against whom enforcement of
any
such waiver is sought. No waiver 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 either party to exercise
any right hereunder in any manner impair the exercise of any such fight accruing
to it thereafter.
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6.5 Headings.
The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
6.6 Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Investors. This provision shall not limit the Investors’ right to
transfer securities or transfer or assign rights under the Registration Rights
Agreement.
6.7 No
Third-Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person.
6.8 Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. Each party hereby irrevocably submits
to
the exclusive jurisdiction of the state and federal courts sitting in the County
of New York, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of the any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process
and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) 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 contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.
6.9 Survival.
The
representations, warranties, agreements and covenants contained herein shall
survive the Closing and the delivery and conversion of the principal amount
and
interest due under the Notes.
6.10 Execution.
This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of
the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature page were an original
thereof.
6.11 Severability.
In case
any one or more of the provisions of this Agreement shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision which shall be a reasonable substitute therefor, and
upon
so agreeing, shall incorporate such substitute provision in this
Agreement.
-23-
6.12 Remedies.
In
addition to being entitled to exercise all rights provided herein or granted
by
law, including recovery of damages, the Investors will be entitled to specific
performance of the obligations of the Company under the Transaction Documents.
The Company and the Investors agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of its obligations
described in the foregoing sentence and hereby agrees to waive in any action
for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
IN
WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.
.
| BIO SOLUTIONS MANUFACTURING, INC |
| By: /s/ Xxxxx X. Xxxxxxx |
| Name: Xxxxx X. Xxxxxxx |
| Title: President |
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
INVESTOR
SIGNATURE PAGES FOLLOWS]
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INVESTORS:
[INTENTIONALLY
OMITTED]
