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EXHIBIT 4.4
NOTE AND WARRANT PURCHASE AGREEMENT
NOTE AND WARRANT PURCHASE AGREEMENT, dated effective as of March 29,
2001, by and among Integral Vision, Inc., a Michigan corporation (the
"Company"), and Mid-State Industrial Services, Inc. and those subsequent
purchasers listed on Exhibit A and whose names and signatures appear at the end
of this Agreement (the "Subsequent Purchasers") (each individually a "Purchaser"
and collectively, the "Purchasers", which term shall also include successors and
assigns and any permitted transferees of the Notes or the Warrants) and Warren
Cameron Faust & Asciutto, P.C., as Agent.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION 1. SALE AND PURCHASE OF NOTES AND WARRANTS
(a) The Company agrees to sell to the Purchasers and, subject to the
terms and conditions hereof and in reliance upon the representations and
warranties of the Company contained herein or made pursuant hereto, the
Purchasers agree to purchase from the Company on the Closing Date specified in
Section 2 hereof, (i) a Note or Notes in the aggregate principal amount set
forth opposite such Purchaser's name on Exhibit A hereto and (ii) a Warrant or
Warrants for the number of shares of the Company's Common Stock set forth
opposite such Purchaser's name on Exhibit A. The aggregate purchase price to be
paid to the Company by the Purchasers for such Notes and such Warrants is 100%
of the principal amount of the Notes to be purchased by the Purchasers, which
amount will be allocated in accordance with Section 2(c) hereof.
(b) As used herein, "Notes" means the aggregate in principal amount of
the Company's 15% Senior Subordinated Secured Notes Due March 31, 2005, together
with all Notes issued in exchange therefor or replacement thereof. Each Note
will be substantially in the form of the Note set forth as Exhibit B hereto.
Interest on the Notes shall accrue from the Closing Date and shall be payable
quarterly on the 30th day of March, June, September and December of each year
(the "Quarterly Payment Dates"), commencing in the case of Mid-State Industrial
Services, Inc. on June 30, 2001 and as to each Subsequent Purchaser on the
Quarterly Payment Date next following their Closing Date (which first interest
payment shall be for the period from and including the Closing Date specified in
Section 2 hereof through and including the next occurring Quarterly Payment
Date) at the interest rates and in the manner specified in the form of Note
attached hereto as Exhibit B. Principal on the Notes shall be paid in quarterly
installments on the Quarterly Payment Dates beginning June 30, 2002 through and
including March 30, 2005.
(c) If all or a portion of (i) the principal amount of the Notes, (ii)
the interest payable thereon or (iii) any fee or other amount payable hereunder
or under any other Loan Document shall not be paid when due (whether at the
stated maturity, by acceleration or otherwise), such overdue amount shall bear
interest at a rate per annum equal to the Default Rate from the date of
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such nonpayment until paid in full (both before and after judgment).
(d) As used herein, "Warrants" means the aggregate of Common Stock
Purchase Warrants evidenced by certificates substantially in the form of Exhibit
C hereto, together with all Warrants issued in exchange therefor or replacement
thereof. Such Warrants in the aggregate initially entitle the holders thereof to
purchase 2 shares of Common Stock of the Company, no par value, for each $1 in
value of the Notes issued to such holder at a purchase price of $0.50 per share,
as set forth therein, such number and such price being subject to adjustment as
provided in the form of Warrant attached hereto as Exhibit C.
SECTION 2. THE CLOSING
(a) Subject to the terms and conditions hereof, the closing (the
"Closing") of the purchase and sale of the Notes and Warrants will take place at
the offices of Warren Cameron Faust & Asciutto, P.C. on March 29, 2001 at 2:00
p.m. as to Mid-State Industrial Services, Inc. and at such time and date as
shall be mutually agreed to by the Company and the Subsequent Purchasers. Such
times and dates are herein referred to as the "Closing Dates" and individually
as a "Closing Date."
(b) Subject to the terms and conditions hereof, on each Closing Date
(i) the Company will deliver to each Purchaser (A) a Note or Notes,
substantially in the form of Exhibit B hereto, payable to such Purchaser (or its
nominee as notified to the Company), and dated the Closing Date, in the
aggregate principal amount set forth opposite such Purchaser's name on Exhibit
A, and (B) a Warrant or Warrants evidenced by certificates substantially in the
form of Exhibit C hereto and dated the Closing Date, for the number of shares of
the Company's Common Stock set forth opposite such Purchaser's name on Exhibit
A, and (ii) upon such Purchaser's receipt thereof, such Purchaser will deliver
to the Company by wire transfer an amount equal to the purchase price for such
Notes and Warrants (as specified in Section 1(a) hereof) payable to the order of
the Company in immediately available funds.
(c) The Purchasers acknowledge that the Notes and the Warrants
constitute an investment unit" within the meaning of Section 1273(c)(2) of the
Code and that the Company will allocate the "issue price" (within the meaning of
Section 1273(b) of the Code) of such investment unit, for all Income Tax
purposes, between the Notes and Warrants as follows: (i) the price at which each
of the Warrants were sold by the Company is $0.10 and (ii) the price at which
each $1 in principal of the Notes were sold was $0.90. Each Purchaser agrees to
abide by Treasury Regulation ss. 1. 1273-2(h)(2) with respect to such
allocation of the issue price.
SECTION 3. DEFINITIONS
(a) For purposes of the Loan Documents, the following definitions shall
apply (such definitions to be equally applicable to both the singular and plural
forms of the terms defined):
"Accountants" means Doeren Mayhew & Co., P.C. or another independent
certified public accounting firm selected by the Company and reasonably
satisfactory to the Majority
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Noteholders.
"Affiliate", when used with respect to any Person, means (i) if such
Person is a corporation, any officer or director thereof (other than a director
nominated by one of the Purchasers) and any Person (other than one of the
Purchasers) which is, directly or indirectly, the beneficial owner of more than
ten percent (10%) of the Voting Stock thereof, and, if such beneficial owner is
a partnership, any partner thereof, or if such beneficial owner is a
corporation, any Person, directly or indirectly through one or more
intermediaries, controlling, controlled by or under common control with such
beneficial owner, or any officer or director of such beneficial owner or of any
corporation occupying any such control relationship, (ii) if such Person is a
partnership, any partner thereof, (iii) in all cases, any Person (other than one
of the Purchasers) which, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with
such Person, and (iv) in all cases, any Person 10% or more of whose Voting Stock
is beneficially owned, directly or indirectly through one or more
intermediaries, by such Person. For purposes of this definition, "control"
(including the correlative terms "controlling", "controlled by" and "under
common control with"), with respect to any Person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
"Agent" means Warren Cameron Faust & Asciutto, P.C. or any successor
agent appointed pursuant to Section 21.7 hereof
"Aggregate Net Income" means the aggregate amount of positive annual
net income after taxes for each fiscal year of the Company and its Subsidiary on
a consolidated basis, as determined in accordance with GAAP, beginning with the
fiscal year ending December 31, 2001 through the date of determination, without
any offset for any negative net income during such period. Aggregate Net Income
will only be adjusted as of the last day of each fiscal year.
"Agreement" means this Agreement (together with exhibits and schedules)
as from time to time assigned, supplemented or amended or as the terms hereof
may be waived.
"Bankruptcy Code" means the United States Bankruptcy Code and any
successor thereto, and the rules and regulations issued thereunder.
"Board" or "Board of Directors" means, with respect to any Person which
is a corporation, a business trust or other entity, the board of directors or
other group, however designated, which is charged with legal responsibility for
the management of such Person, or any committee of such board of directors or
group, however designated, which is authorized to exercise the power of such
board or group in respect of the matter in question.
"Business" means the business conducted by the Company in the vision
industry and all other activities ancillary or related thereto.
"Business Day" means any day other than a Saturday, Sunday or other day
on which
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banks in Detroit, Michigan are required to close.
"Capital Expenditures" means for any period, the amount of all payments
made by the Company during such period for the lease, purchase, improvement,
construction or use of any Property, the value or cost of which under GAAP is
required to be capitalized and appears on the Company's balance sheet in the
category of property, plant or equipment, without regard to the manner in which
such payments or the instrument pursuant to which they are made is characterized
by the Company or any other Person, and shall include, without limitation, the
principal components of payments for the installment purchase of Property and
payments under Capitalized Leases.
"Capitalized Leases" means any lease to which the Company or the
Subsidiary is party as lessee, or by which it is bound, under which it leases
any property (real, personal or mixed) from any lessor other than the Company or
the Subsidiary, and which is required to be capitalized in accordance with GAAP,
but also including any such lease, whether or not so capitalized, where the
Company or a Subsidiary is treated as the owner of the leased property under the
Code.
"Change of Control Event" means the acquisition by any Person, or group
of Persons (other than the shareholders of the Company as of the Closing Date)
acting in concert, in one or more transactions, of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Securities Exchange Act) of
shares of capital stock of the Company the ownership of which entitles the
holder(s) to cast more than 50% of the votes entitled to vote generally in the
election of the Board of Directors of the Company.
"Claims" has the meaning set forth in the definition of "Environmental
Claim."
"Closing" has the meaning set forth in Section 2(a) hereof.
"Closing Date" has the meaning set forth in Section 2(a) hereof.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations and interpretations thereunder.
"Collateral" means the Property upon which the Agent is granted the
Security Interests, pursuant to the terms of the Collateral Assignment.
"Collateral Assignment" means the Collateral Assignment of Proprietary
Rights and Security Agreement to be entered into at the Closing by the Company
and the Agent.
"Commission" means the Securities and Exchange Commission and any other
similar or successor agency of the federal government administering the
Securities Act or the Securities Exchange Act.
"Common Stock" means that class of stock or other equivalent evidences
of ownership of a corporation, the holders of which are entitled to vote
generally to elect the Board of Directors
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of such corporation.
"Company" means Integral Vision, Inc., a Michigan corporation, its
successors and permitted assigns and also includes Integral Vision, Ltd., the
wholly owned subsidiary of the Company.
"Company's Obligations" means all loans, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), premiums, liabilities, obligations (including the
performance of the covenants of the Company contained herein or in the Loan
Documents), fees, lease payments, guaranties, covenants, and duties owing by the
Company to the Purchasers or the Agent of any kind and description (whether
pursuant to or evidenced by this Agreement, any of the other Loan Documents, or
any other note or other instrument, or by any other agreement between the
Purchasers or the Agent and the Company, and whether or not for the payment of
money), whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, and including any debt, liability, or
obligation owing from the Company to others that the Purchasers or the Agent may
have obtained by assignment or otherwise, and further including all interest not
paid when due.
"Consolidated," when used with reference to any financial term in this
Agreement, means the aggregate for the Company and the Subsidiary of the amounts
signified by such term for all such Persons, with intercompany items eliminated,
and, with respect to earnings, after eliminating the portion of earnings
properly attributable to minority interests, if any, in the capital of any such
Person (other than in the capital of the Company) and otherwise as determined in
accordance with GAAP.
"Consolidated Cash Flow" means for any period, the Consolidated Net
Income plus each of the following items, to the extent deducted from the
revenues of the Company in the calculation of net income for such period: (i)
Depreciation; (ii) amortization and other noncash charges; (iii) interest
expense incurred and fees paid to the Senior Lender pursuant to the Loan
Agreement; and (iv) Income Taxes determined as the accrued liability of the
Company and the Subsidiary in respect of such period, regardless of what portion
of such expense has actually been paid by the Company and the Subsidiary during
such period; and after deduction for (A) Income Taxes, to the extent actually
paid during such period; (B) all noncash income items recognized; (C) gain on
the sale of property, plant or equipment; and (D) all Capital Expenditures paid
by the Company and the Subsidiary.
"Consolidated Coverage Ratio" means, as of any date of determination,
the ratio of Consolidated Cash Flow to Consolidated Interest Expense.
"Consolidated Interest Expense" means, for any period, the total
interest payable during such period by the Company and the Subsidiary on account
of Indebtedness.
"Consolidated Liabilities" means, at any time, the total liabilities of
the Company and its Subsidiary, determined in accordance with GAAP and after
eliminating intercompany transactions among the Company and the Subsidiary.
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"Consolidated Net Income" means, for any period for which the amount
thereof is to be determined, the net income (net of any losses or expenses) or
loss of the Company and the Subsidiary on a consolidated basis, during such
period (such net income to be determined in accordance with GAAP) after Income
Taxes actually paid, but excluding:
(a) the earnings during such period of any Person to which the
assets of the Company or any Subsidiary shall have been sold,
transferred or disposed of, or into which the Company or such
Subsidiary shall have merged, prior to the date of such
transaction;
(b) any extraordinary gain or loss during such period arising from
the sale, exchange or other disposition of capital assets
(such term to include all fixed assets, whether tangible or
intangible, and all inventory sold in conjunction with the
disposition of fixed assets);
(c) any gain or loss during such period arising from the write-up
or write-down of any asset; and
(d) any earnings or gains during such period resulting from the
receipt of any proceeds of any life insurance policy.
"Consolidated Tangible Assets" means, at any time, the total assets of
the Company and its Subsidiaries determined in accordance with GAAP excluding
deferred assets, patents, copyrights, trademarks, goodwill, capitalized software
development costs and other General Intangibles, and Investments.
"Consolidated Net Worth " means, at any time, Consolidated Assets minus
Consolidated Liabilities.
"Contingent Liabilities" of any person means, as of any date, all
obligations of such person or of others for which such person is contingently
liable, as obligor, guarantor, surety or in any other capacity, or in respect of
which obligations such person assures a creditor against loss or agrees to take
any action to prevent any such loss (other than endorsements of negotiable
instruments for collection in the ordinary course of business), including all
reimbursement obligations of such person in respect of any letters of credit,
surety bonds or similar obligations and all obligations of such person to
advance funds to, or to purchase assets, property or services from, any other
person in order to maintain the financial condition of such other person.
"Default Rate" means a per annum rate equal to the interest rate on the
Notes plus four percent (4%).
"Depreciation" means, in respect of any period, all depreciation on
Property taken during such period, as determined in accordance with GAAP.
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"Earnings Available for Dividends" means the excess of (A) the sum of
(x) 50% of aggregate Consolidated Net Income, if positive, for each fiscal year
commencing on or after January 1, 2001 less 100% of aggregate Consolidated Net
Income, if negative, for each fiscal year commencing on or after January 1, 2001
plus (y) net proceeds from the sale by the Company of Common Stock (other than
pursuant to the Warrants) minus (B) all Restricted Payments and Restricted
Investments made since the Closing Date.
"Environment" means all air, surface water, groundwater, or land,
including land surface or subsurface, including all fish, wildlife, biota and
all other natural resources.
"Environmental Auditors" has the meaning set forth in Section 7.14
hereof
"Environmental Claim" means any and all administrative or judicial
actions, suits, orders, claims, liens, notices, notices of violations,
investigations, complaints, requests for information, proceedings, or other
communication (written or oral), whether criminal or civil, (collectively,
"Claims") pursuant to or relating to any applicable Environmental Law by any
person (including but not limited to any Governmental or Regulatory Authority,
private person and citizens' group) based upon, alleging, asserting, or claiming
any actual or potential (i) violation of or liability under any Environmental
Law, (ii) violation of any Environmental Permit, or (iii) liability for
investigatory costs, cleanup costs, removal costs, remedial costs, response
costs, natural resource damages, property damage, personal injury, fines, or
penalties arising out of, based on, resulting from, or related to the presence,
or Release into the Environment, of any Hazardous Materials at any location,
including but not limited to any off-site location to which Hazardous Materials
or materials containing Hazardous Materials were sent forth for handling,
storage, treatment or disposal.
"Environmental Clean-up Site" means any location which is listed or
proposed for listing on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System, or on any
similar state list of sites requiring investigation or cleanup, or which is the
subject of any pending or threatened action, suit, proceeding, or investigation
related to or arising from any alleged violation of any Environmental Law or the
presence or Release of a Hazardous Material.
"Environmental Law" means any and all current and future, federal,
state, local, provincial and foreign, civil and criminal laws, statutes,
ordinances, orders, codes, rules, regulations, Environmental Permits, policies,
guidance documents, judgments, decrees, injunctions, or agreements with any
Governmental or Regulatory Authority, relating to the protection of health and
the Environment, worker health and safety, and/or governing the handling, use,
generation, treatment, storage, transportation, disposal, manufacture,
distribution, formulation, packaging, labeling, or Release of Hazardous
Materials, whether now existing or subsequently amended or enacted, including
but not limited to: the Clean Air Act, 42 U.S.C. ss. 7401 et seq.; the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), 42 U.S.C. ss. 9601 et seq.; the Federal Water Pollution Control Act,
33 U.S.C. ss. 1251 et seq; the Hazardous Material Transportation Act 49 U.S.C.
ss. 1801 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act 7
U.S.C. ss. 136 et seq.; the Resource Conservation
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and Recovery Act of 1976 ("RCRA"), 42 U.S.C. ss. 6901 et seq.; the Toxic
Substances Control Act, 15 U.S.C. ss. 2601 et seq.; the Occupational Safety &
Health Act of 1970, 29 U.S.C. ss. 651 et seq.; the Oil Pollution Act of 1990, 33
U.S.C. ss. 2701 et seq.; and the state analogies thereto, all as amended or
superseded from time to time; and any common law doctrine, including but not
limited to, negligence, nuisance, trespass, personal injury, or property damage
related to or arising out of the presence, Release, or exposure to a Hazardous
Material.
"Environmental Permit" means any federal, state, local, provincial, or
foreign permits, licenses, approvals, consents or authorizations required by any
Governmental or Regulatory Authority under or in connection with any
Environmental Law and includes any and all orders, consent orders or binding
agreements issued or entered into by a Governmental or Regulatory Authority
under any applicable Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, or any successor statute.
"ERISA Affiliate" means each "person" (as defined in Section 3(9) of
ERISA) which is under "common control" with the Company or any of its
Subsidiaries (within the meaning of Section 414(b), (c), (m) or (o) of the
Code).
"Event of Default" has the meaning set forth in Section 14 hereof.
"Fair Market Value" of any property means the fair market sale value
which a willing buyer at retail would pay a willing seller, each under no
compulsion to buy or sell and in full possession of all relevant facts.
"GAAP" means generally accepted accounting principles, as in effect
from time to time, which shall include the official interpretations thereof by
the Financial Accounting Standards Board or any successor thereto, consistently
applied.
"General Intangibles" means all of the Company's and the Subsidiary's
present and future general intangibles and other personal Property (including
without limitation, any and all rights of the Company and the Subsidiary to all
choses or things in action, tax refund claims, credits, claims, demands,
goodwill, licenses, franchise agreements, subscription costs, patents, trade
names, trademarks, service marks, copyrights, rights to royalties, blueprints,
drawings, customer lists, purchase orders, computer programs, computer discs,
computer tapes, literature, reports, catalogs, methods, sales literature, video
tapes, confidential information and trade secrets, consulting agreements,
employment agreements, leasehold interests in real and personal Property,
insurance policies, deposits with insurers relating to workers' compensation
liabilities, deposit accounts, tax refunds and proprietary rights in any
equipment), other than "Equipment," "Inventory," "Accounts" and "Negotiable
Instruments," as each such term is defined in the UCC, as well as the Company's
and the Subsidiary's books and records of any kind relating to any of the
foregoing, and all products and proceeds of the foregoing.
"Governmental Regulations" means any and all laws, statutes,
ordinances, rules,
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regulations, judgments, writs, injunctions, decrees, orders, awards and
standards, or any similar requirement, of the government of the United States or
any foreign government or any state, province, municipality or other political
subdivision thereof or therein or any court, agency, instrumentality, regulatory
authority or commission of any of the foregoing.
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city or other political subdivision.
"Hazardous Materials" means petroleum, petroleum hydrocarbons or
petroleum products, petroleum by-products, radioactive materials, underground
storage tanks, asbestos or asbestos-containing materials, gasoline, diesel fuel,
pesticides, radon, urea formaldehyde, lead or lead-containing materials,
polychlorinated biphenyls, ionizing and non-ionizing radiation including radon
and electromagnetic frequency radiation; and any other chemicals, materials,
substances or wastes in any amount or concentration which are now or hereafter
become defined as or included in the definition of "hazardous substances,"
"hazardous materials," "hazardous wastes," "extremely hazardous waste,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants
"pollutants" "regulated substances," "solid wastes," or "contaminants" or words
of similar import, under any Environmental Law.
"Income Taxes" means all federal, state, local or foreign income,
taxes, assessments, duties, fees, levies or other governmental charges, whether
disputed or not, together with any interest, penalties, additions to tax or
additional amounts with respect thereto.
Indebtedness" means all liabilities, obligations and reserves,
contingent or otherwise, which in accordance with GAAP, would be reflected as a
liability on a balance sheet or would be required to be disclosed in a financial
statement, including, without duplication: (i) all Indebtedness for Borrowed
Money, (ii) all obligations secured by any Lien upon Property owned by the
Company, irrespective of whether such obligation or liability is assumed; (iii)
any obligation of the Company guaranteeing or intended to guarantee (whether
guaranteed, endorsed, co-made, discounted, or sold with recourse to the Company,
but exclusive of obligations arising as the result of the endorsement by the
Company of checks or other negotiable instruments in the ordinary course of the
Company's business for purposes of depositing such items) any indebtedness,
lease, dividend, letter of credit, or other obligation of any other Person; and
(iv) liabilities in respect of unfunded vested benefits under any Single
Employer Plan or in respect of withdrawal liabilities incurred under ERISA by
the Company or any ERISA Affiliate to any Multiemployer Plan.
"Indebtedness for Borrowed Money" means without duplication, all
Indebtedness (i) in respect of money borrowed, (ii) evidenced by a note,
debenture or other like written obligation to pay money (including, without
limitation, all of the Company's Obligations and the Permitted Senior
Indebtedness, and all reimbursement or other obligations of the Company in
respect of letters of credit (except for commercial letters of credit up to
$500,000), letter of credit guaranties, bankers acceptances, interest rate
swaps, controlled disbursement accounts, or other financial products (except
hedging transactions); (iii) in respect of Capitalized Leases or for the
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deferred purchase price of Property (other than trade payables arising in the
ordinary course of business that are not represented by promissory notes or by
other written evidence other than invoices); or (iv) in respect of obligations
under conditional sales or other title retention agreements, and all guaranties
of any or all of the foregoing.
"Indemnified Persons" has the meaning set forth in Section 18.2 hereof.
"Investment" means, with respect to any Person:
(i) the amount paid or committed to be paid, or the value of
property or services contributed or committed to be
contributed, by the Company for or in connection with the
acquisition by the Company of any stock, bonds, notes,
debentures, partnership or other ownership interests or other
securities of such Person; and
(ii) the amount of any advance, loan or extension of credit to, or
guaranty or other similar obligation with respect to any
Indebtedness of such Person by the Company and (without
duplication) any amount committed to be advanced, loaned, or
extended to, or the payment of which is committed to be
assured by a guaranty or similar obligation for the benefit
of, such Person by the Company.
"Joint Venture" means a corporation, limited partnership or other
limited liability business entity, formed in the ordinary course of business by
the Company or any Subsidiary with Persons other than Affiliates.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security interest of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement and any
financing lease or Capitalized Lease having substantially the same effect as any
of the foregoing and any assignment or other conveyance of any right to receive
income).
"Loan Agreement" means the Commercial Note and related documents, dated
as of June 7, 2000, as amended through the date hereof, between the Company and
the Senior Lender.
"Loan Documents" mean, collectively, the
(i) Agreement;
(ii) Notes;
(iii) Warrants;
(iv) Collateral Assignment;
(v) UCC financing statements; and
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(vi) such other instruments and documents as Purchasers may require
to evidence and perfect the Security Interests and the Notes,
and individually any one of them.
As to each of the foregoing, together with all alterations, amendments,
changes, extensions, modifications, refinancings, refundings, renewals,
replacements, restatements or supplements thereto.
"Losses" have the meaning set forth in Section 18.2 hereof.
"Majority Noteholders" means the holders of Notes evidencing more than
50% of the principal amount of all Notes then outstanding.
"Material Adverse Effect" means (i) a material adverse effect on the
assets, properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company and the
Subsidiary on a consolidated basis, (ii) an effect which is prejudicial in any
material respect to the holders of the Notes or the Warrants or (iii) an effect
on the ability of the Company or the Subsidiary to perform its obligations under
this Agreement, any Loan Document, the Notes or the Warrants.
"Multiemployer Plan" shall mean any multiemployer plan (within the
meaning of section 3(37) of ERISA) to which either the Company, the Subsidiary,
or any ERISA Affiliate has an obligation to contribute.
"Note" or "Notes" has the meaning set forth in Section l(b) hereof.
"Outstanding" or "outstanding" means, when used with reference to the
Notes or Warrants as of a particular time, all Notes or Warrants, as the case
may be, theretofore duly issued except (i) Notes or Warrants theretofore
reported as lost, stolen, mutilated or destroyed or surrendered for transfer,
exchange or replacement, in respect of which new or replacement Notes or
Warrants have been issued by the Company, (ii) Notes theretofore paid in full,
(iii) Warrants theretofore fully exercised and (iv) Notes theretofore canceled
by the Company, whether upon exercise of a Warrant in whole or in part or
otherwise; except that for the purpose of determining whether holders of the
requisite principal amount of Notes or Warrants have made or concurred in any
declaration, waiver, consent, approval, notice, annulment of acceleration or
other communication under this Agreement or under any Notes or Warrants, Notes
or Warrants registered in the name of, as well as Notes or Warrants owned
beneficially by, the Company, the Subsidiary or any of their Affiliates (other
than one of the Purchasers) shall not be deemed to be outstanding.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permits" has the meaning set forth in Section 4.10 hereof
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"Permitted Liens" means any of the following Liens:
(i) the Senior Security Interests;
(ii) the Security Interests;
(iii) Liens for taxes not delinquent or for taxes being contested in
good faith by appropriate proceedings and as to which adequate
financial reserves have been established on its books and
records;
(iv) Liens (other than any Lien imposed by ERISA) created and
maintained in the ordinary course of business which are not
material in the aggregate, and which would not constitute or
result in a Material Adverse Effect, and which constitute (A)
pledges or deposits under worker's compensation laws,
unemployment insurance laws or similar legislation, (B) good
faith deposits in connection with bids, tenders, contracts or
leases to which the Company or a Subsidiary is a party for a
purpose other than borrowing money or obtaining credit,
including rent security deposits, (C) Liens imposed by law,
such as those of carriers, warehousemen and mechanics, if
payment of the obligation secured thereby is not yet due or if
such Liens are discharged within sixty (60) days of the date
they are imposed, (D) Liens securing taxes, assessments or
other governmental charges or levies not yet subject to
penalties for nonpayment, and (E) pledges or deposits to
secure public or statutory obligations of a Company or a
Subsidiary, or surety, customs or appeal bonds to which the
Company or a Subsidiary is a party;
(v) Liens affecting real property which constitute minor survey
exceptions or defects or irregularities in title, minor
encumbrances, easements or reservations of, or rights of
others for, rights of way, sewers, electric lines, telegraph
and telephone lines and other similar purposes, or zoning or
other restrictions as to the use of such real property;
provided, however, that all of the foregoing, in the
aggregate, do not at any time materially detract from the
value of said properties or materially impair their use in the
operation of the businesses of the Company or the Subsidiary,
as the case may be; and
(vi) Purchase Money Liens securing purchase money Indebtedness;
provide, however, that the aggregate outstanding amount of
Indebtedness and secured by all such Purchase Money Liens for
the Company and all Subsidiaries shall not exceed, on an
aggregate basis, $500,000 at any time.
"Permitted Senior Indebtedness" means (1) Senior Indebtedness in an
amount up to $5 million and (ii) the interests of the lessor under any
Capitalized Leases permitted to exist hereunder.
"Person" means an individual, corporation, partnership, firm, limited
liability company, association, trust, unincorporated organization, government,
governmental body or political subdivision thereof.
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"Plan" shall mean any employee benefit plan (within the meaning of
section 3(3) of ERISA) maintained or contributed to by the Company, any
Subsidiary, or any ERISA Affiliate, other than a Multiemployer Plan.
"Potential Default" means a condition or event which, with notice or
lapse of time or both, would constitute an Event of Default.
"Prohibited Transaction" means any transaction involving any Plan which
is proscribed by Section 406 of ERISA or Section 4975 of the Code.
"Property" means all types of real, personal or mixed property and all
types of tangible or intangible property.
"Purchase Money Liens" means Liens securing purchase money Indebtedness
incurred in connection with the acquisition of capital assets by the Company in
the ordinary course of business; provided that (a) such Liens do not extend to
or cover assets or properties other than those purchased in connection with the
purchase in which such Indebtedness was incurred and (b) the obligation secured
by any such Lien so created shall not exceed 100% of the cost of the property
including transportation and installation costs, covered thereby.
"Purchaser(s)" has the meaning set forth in the first paragraph hereof.
"Real Estate" means all real estate and improvements located thereon
owned by the Company.
"Registration Demand" has the meaning set forth in Section 17 hereof.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing of a
Hazardous Material into the Environment.
"Reportable Event" shall mean, with respect to any Single Employer
Plan, an event described in section 4043(b) of ERISA, other than an event as to
which the notice requirement is waived under applicable PBGC regulations.
"Restricted Investment" means any Investment other than (1) obligations
of the United States government due within one year, (2) certificates of deposit
and bankers acceptances due within one year of a United States domiciled
commercial bank having capital funds of at least $100 million and whose
long-term unsecured debt obligations have been given a rating of at least A by
Standard & Poor's or A2 by Moody's, (3) commercial paper rated P-1 by Moody's or
A-1 by Standard & Poor's and maturing not more than 270 days from the date of
creation thereof, (4) debt of any state or political subdivision that is rated
AA or better by Moody's or Aa2 or better by Standard and Poor's and maturing in
less than one year, (5) investments in, and loans and advances to, Subsidiaries
or entities that will, concurrently with such investment become
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Subsidiaries, (6) trade credit extended in the ordinary course of the Company's
business, (7) loans and advances made in the ordinary course of business to
officers and employees of Company for relocation expenses, travel advances and
similar expenses relating to their employment, (8) endorsements of instruments
or items of payment for deposit to the Company's bank accounts, and (9)
additional Investments not to exceed $ 100,000 in the aggregate.
"Restricted Payment" means (i) every direct or indirect dividend or
other distribution paid, made or declared by the Company on or in respect of any
class of its capital stock or in respect of any partnership or Joint Venture, in
all cases whether now or hereafter outstanding, interests and any payment under
or with respect to anti-dilution provisions of any capital stock of the Company,
(ii) every payment in connection with the redemption, purchase, retirement or
other acquisition, direct or indirect, by or on behalf of the Company of any
shares of the Company's capital stock, whether or not owned by the Company or
any partnership or Joint Venture interests of the Company, or any warrants,
rights or options to acquire such stock or partnership interests, (iii) every
payment to or on behalf of any Affiliate of the Company on account of or with
respect to any lease arrangements and (iv) every payment by or on behalf of the
Company (whether as repayment or prepayment of principal or as interest or
otherwise) on or with respect to (A) any obligation to repay money borrowed
(other than the Notes) owing to any Affiliate of the Company or to any other
holder of shares of the Company's Common Stock (other than such a holder which
holds only Shares) or (B) any obligation to any Person, of any Affiliate of the
Company or of any other holder of shares of the Company's Common Stock, which
obligation is assumed or guaranteed by the Company; provided, however, (a) that
the restrictions of the foregoing clauses (i) and (ii) shall not apply to any
dividend, distribution, or other payment to the extent payable in shares of the
Common Stock of the Company or in options, warrants or other rights to purchase
such Common Stock, (b) that none of the foregoing clauses shall apply to any
payments from a Subsidiary to the Company, (c) that none of the foregoing
clauses shall apply to any purchases by the Company from a Wholly-Owned
Subsidiary of additional capital stock of such Subsidiary and (d) that none of
the foregoing clauses shall apply to any payments, distributions or other
transfers or actions on or with respect to the Notes or Warrants. For purposes
of this definition, "capital stock" shall also include warrants (other than the
Warrants) and other rights and options to acquire shares of capital stock.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules, regulations and interpretations thereunder.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules, regulations and interpretations thereunder.
"Security Interest" means the Liens granted to the Agent for the
benefit of the Purchasers pursuant to this Agreement and the Loan Documents.
"Senior Indebtedness" means indebtedness to the Senior Lender.
"Senior Lender" means National City Bank of Michigan/Illinois and its
successors and assigns.
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"Senior Security Interests" means Liens granted to the Senior Lender
pursuant to the Loan Agreement and certain "Loan Documents" (as defined in the
Loan Agreement), as in effect on the date hereof or amended so that the
obligations thereunder constitute Senior Indebtedness.
"Share" or "Shares" means shares of the Company's Common Stock, or
other securities, which can be obtained or have been obtained by an exercise in
whole or in part of any Warrant or the exchange of a Warrant for shares of the
Company's Common Stock pursuant to the terms of the Warrants. In the event that
any Shares are sold either in a public offering pursuant to an effective
registration statement under Section 6 of the Securities Act or pursuant to Rule
144 (but if sold under Rule 144, only if sold in "brokers' transactions" within
the meaning of Rule 144), then the transferees of such Shares shall not be
entitled to any benefits under this Agreement with respect to such Shares and
such Shares shall no longer be considered to be "Shares" for purposes of this
Agreement.
"Single Employer Plan" shall mean any Plan that is subject to Title IV
of ERISA.
"Solvent" has the meaning set forth in Section 4.19 hereto.
"Subsidiary" means any corporation in which at least a majority of the
shares (other than any directors' qualifying shares required by law) of each
class of the capital stock (other than preferred stock), at the time as of which
any determination is being made, is owned, beneficially and of record, directly
or indirectly, by the Company or its Subsidiary, or both.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of Michigan, as amended, or as in effect in any jurisdiction in
which Collateral is located.
"Voting Stock" means capital stock or a partnership or membership of
any class or classes of a corporation, partnership or other limited liability
entity, respectively, the holders of which are ordinarily entitled to elect the
directors, or persons performing similar functions, of such corporation,
partnership or entity.
"Warrant" or "Warrants" has the meaning set forth in Section l(d)
hereof.
"Wholly-Owned Subsidiary" means any Subsidiary, all of the equity
securities of which (other than directors' qualifying shares) are owned by the
Company or one or more other Wholly-Owned Subsidiary of the Company.
(e) For all purposes of the Loan Documents, except as otherwise
expressly provided or unless the context otherwise requires:
(i) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to the particular Loan Document
as a whole and not to any particular Section or other
subdivision thereof,
(ii) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with GAAP;
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(iii) all computations provided for herein, if any, shall be
made in accordance with GAAP, unless another method of
computation is herein specified;
(iv) any uses of the masculine, feminine or neuter gender
shall also be deemed to include any other gender, as
appropriate; and
(v) the exhibits and schedules to this Agreement shall be
deemed a part of this Agreement and any Exhibit, Annex or
Schedule to any other Loan Document shall be deemed a part of
such other Loan Document, as the case may be.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants as follows as of the date hereof
and as of the Closing Date:
4. 1. Corporate Existence and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and is duly qualified to do business, and is
in good standing, in all additional jurisdictions where such qualification is
necessary under applicable law. The Company has all requisite corporate power to
own or lease the properties used in its business and to carry on its business as
now being conducted and as proposed to be conducted, and to execute and deliver
this Agreement and the other Loan Documents to be executed and to engage in the
transactions contemplated hereby and thereby.
4.2. Corporate Authority. The execution, delivery and performance by
the Company of this Agreement and the other Loan Documents have been duly
authorized by all necessary corporate action and are not in contravention of any
applicable Governmental Regulation, or of the terms of the Company's charter or
by-laws, or of any contract or undertaking to which the Company is a party or by
which the Company or its property may be bound or affected and do not result in
the imposition of any Lien, except for Permitted Liens.
4.3. Binding Effect. This Agreement is, and each of the Loan Documents
to which the Company is a party when delivered hereunder will be, legal, valid
and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms.
4.4. Subsidiaries. The only Subsidiary of the Company is Integral
Vision Ltd., a company organized under the laws of England and Wales. The
Company directly owns all of the issued and outstanding shares of the
Subsidiary.
4.5. Financial Condition. The financial statements included in the
documents delivered pursuant to Section 10.6, copies of which have been
furnished to the Purchasers, fairly present, and the financial statements
delivered pursuant to Section 7.4 will fairly present, the financial position of
the Company and the Subsidiary as at the respective dates thereof, and the
results of operations of the Company and the Subsidiary for the respective
periods indicated, all on a
17
consolidated basis in accordance with GAAP (subject, in the case of interim
statements, to normal, immaterial year-end audit adjustments). There is no
material Contingent Liability of the Company or the Subsidiary that is not
reflected in such consolidated statements or in the notes thereto.
4.6. Use of Loans. The Company will use the proceeds of the sale of the
Notes and the Warrants for working capital and other general corporate purposes.
The Company does not extend or maintain, in the ordinary course of business,
credit for the purpose, whether immediate, incidental, or ultimate, of buying or
carrying margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of any
Note will be used for the purpose, whether immediate, incidental, or ultimate,
of buying or carrying any such margin stock or maintaining or extending credit
to others for such purpose.
4.7. Consents, Etc. Except for such consents, approvals,
authorizations, declarations, registrations or filings delivered by the Company
at or prior to the Closing pursuant to Section 10.5, if any, each of which is in
full force and effect, and the consent of the Senior Lender, no consent,
approval or authorization of or declaration, registration or filing with any
governmental authority or any nongovernmental person, including any creditor,
lessor or shareholder of the Company or any Subsidiary, is required on the part
of the Company or any Subsidiary in connection with the execution, delivery and
performance of this Agreement and the other Loan Documents or the transactions
contemplated hereby or thereby or as a condition to the legality, validity or
enforceability of this Agreement and the other Loan Documents.
4.8. Taxes. Each of the Company and the Subsidiary has filed all tax
returns (federal, state and local) required to be filed and have paid all taxes
shown thereon to be due, including interest and penalties, or has established
adequate financial reserves on its books and records for payment thereof. The
Company does not know of any actual or proposed tax assessment or any basis
therefor, and no extension of time for the assessment of deficiencies in any
federal or state tax has been granted to the Company.
4.9. Title to Properties. Except as otherwise disclosed in the latest
consolidated balance sheet delivered pursuant to Section 4.5, the Company and
the Subsidiary have a valid and indefeasible ownership interest in all of the
properties and assets reflected in the consolidated balance sheet of the Company
and the Subsidiary or subsequently acquired by the Company or the Subsidiary.
All of such properties and assets are free and clear of any Lien, except for
Permitted Liens.
4.10. Compliance with Governmental Relations. To the best of the
Company's knowledge, the Company and the Subsidiary is in compliance in all
material respects with all Governmental Regulations (including Environmental
Laws) applicable to such person or its business or properties. Without limiting
the generality of the foregoing, all licenses, permits, orders or approvals
which are required under any Governmental Regulation in connection with any of
the businesses or properties of the Company or the Subsidiary ("Permits") are in
full force and effect, no notice of any violation has been received in respect
of any such Permits and no proceeding is pending or, to the knowledge of the
Company, threatened to terminate, revoke or
18
limit any such Permits.
4.11. ERISA. To the best of the Company's knowledge, the Company and
its Plans are in compliance in all material respects with those provisions of
ERISA and of the Code which are applicable with respect to any Plan. No
Prohibited Transaction and no Reportable Event has occurred with respect to any
such Plan. The Company is not an employer with respect to any Multiemployer
Plan. The Company has met the minimum funding requirements under ERISA and the
Code with respect to its Plans, if any, and have not incurred any liability to
the PBGC or any Plan. There is no material unfunded benefit liability,
determined in accordance with Section 400 1 (a)(1 8) of ERISA, with respect to
any Plan of the Company.
4.12. Environmental Matters. Without limiting the generality of Section
4.10:
(a) No written demand, claim, notice, suit, suit in
equity, action, administrative action, investigation
or inquiry whether brought by any governmental
authority, private person or otherwise, arising
under, relating to or in connection with any
Environmental Laws is pending or, to the best of the
Company's knowledge, threatened against Company, the
Subsidiary any Property or any past or present
operation of the Company or the Subsidiary which
could result in a Material Adverse Effect.
(b) The Company does not have any knowledge that any
other person has ever received any notice, claim or
allegation of any violation, and the Company is not
aware of any existing violation, of Environmental
Laws at or about any Property, and the Company does
not have any knowledge of any actions commenced or
threatened by any party for or related to or arising
out of non-compliance with Environmental Laws which
apply to any Property, activities at any Property or
Hazardous Materials at, from or affecting any
Property.
(c) None of the Property appears on the National Priority
List (as defined under federal law) or any state
listing which identifies sites for remedial clean-up
or investigatory actions. To the best of the
Company's knowledge, none of the Property has been
contaminated with substances which give rise to a
clean-up obligation under any Environmental Law or
common law.
4.13. Investment Company Act. Neither Company nor the Subsidiary is an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
4.14. Disclosure. No report or other information furnished in writing
by or on behalf of the Company to any Purchaser in connection with the
negotiation or administration of this Agreement contains any material
misstatement of fact or omits to state any material fact or any fact necessary
to make the statements contained therein not misleading. Neither this Agreement,
19
the other Loan Documents, nor any other document, certificate, or report or
statement or other information furnished to any Purchaser by or on behalf of the
Company in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact in order
to make the statements contained herein and therein not misleading. There is no
fact known to the Company which materially and adversely affects, or which in
the future may (so far as the Company can now foresee) materially and adversely
affect, the business, properties, operations, condition, financial or otherwise,
or prospects of the Company or the Subsidiary, which has not been set forth in
this Agreement or in the other documents, certificates, statements, reports or
other information furnished in writing to any Purchaser by or on behalf of the
Company in connection with the transactions contemplated hereby.
4.15. Stock Ownership. The authorized capital stock of the Company
consists of (i) 15,000,000 shares of Common Stock, without par value, of which
9,029,901 shares are outstanding, and (ii) 400,000 shares of Preferred Stock,
without par value, none of which are outstanding. Such outstanding shares of
Common Stock are duly authorized, validly issued and outstanding and fully paid
and nonassessable. Except for the Warrants and options to purchase 982,600
shares of Common Stock granted to employees of the Company pursuant to the
Company's stock option plans, there are no outstanding options, warrants,
rights, convertible securities or other agreements or plans under which the
Company may become obligated to issue, sell or transfer shares of its capital
stock or other securities.
4.16. No Defaults or Conflicts.
(a) No Event of Default or Potential Default has occurred and is
continuing.
(b) The execution, delivery and performance by the Company of this
Agreement and of the Loan Documents to which it is a party and any of the
transactions contemplated hereby or thereby (including, without limitation, the
issuance of the Notes, the Warrants and the Shares as contemplated herein or
therein) do not and will not (i) violate or conflict with, with or without the
giving of notice or the passage of time or both, any provision of (A) the
Articles of Incorporation or By-Laws of the Company or (B) any law, rule,
regulation, order, judgment, writ, injunction, decree, agreement, indenture or
other instrument applicable to the Company or the Subsidiary or any of their
respective properties (or to which the Company of the Subsidiary is a party or
by which any of their respective properties may be bound), (ii) other than
pursuant to this Agreement or the Loan Documents, result in the creation of any
Lien upon any of the Company's or the Subsidiary's Properties, (iii) require the
consent, waiver, approval, order or authorization of, or declaration,
registration, qualification or filing with, any Person (whether or not a
governmental authority and including, without limitation any shareholder
approval) other than (A) the consent of the Senior Lender (B) any registration,
qualification or filing with the Securities and Exchange Commission or any state
securities commission necessary in connection with the Company's obligations
under Section 17 hereof and (C) the Company's routine filing obligations under
the Securities Exchange Act or (iv) cause anti-dilution clauses of any
outstanding securities to become operative or give rise to any preemptive
rights. No such provision referred to in the preceding clause (i) will have a
Material Adverse Effect.
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4.17. Offering of Notes. Neither the Company nor any agent nor any
other Person acting on their behalf, directly or indirectly, (i) offered any of
the Notes, Warrants or any similar security of the Company (A) by any form of
general solicitation or general advertising (within the meaning of Regulation D
under the Securities Act) or (B) for sale to or solicited offer to buy any
thereof from, or otherwise approached or negotiated with respect thereto with,
any Person other than the Purchasers and additional potential investors in
compliance with Regulation D under the Securities Act or (ii) has done, or
caused to be done (or has omitted to do or to cause to be done) any act which
act (or which omission) would result in bringing the issuance or sale of the
Notes, Warrants or Shares within the provisions of Section 5 of the Securities
Act.
4.18. Outstanding Securities. All securities (as defined in the
Securities Act) of each of the Company have been offered, issued, sold and
delivered in compliance with, or pursuant to exemptions from, all applicable
federal and state laws, and the rules and regulations of federal and state
regulatory bodies governing the offering, issuance, sale and delivery of
securities.
4.19. Solvency. The Company is and has been experiencing cash flow
difficulties such that it would likely not meet a definition of "solvency"
meaning that it can pay its debts as they mature. However, the assets of the
Company, at a fair valuation, exceed its total liabilities (including
contingent, subordinated, uni-natured and unliquidated liabilities) and the
Company does not have an unreasonably small capital with which to engage in its
anticipated business. Assuming all $1,500,000 of the Notes are purchased, the
Company believes that it will have sufficient cash flow to meet its obligation
and to enable it to put in place its business plans.
4.20. Chief Executive Office. The chief executive office of the Company
and its records with respect to the Collateral are located at Farmington Hills,
Michigan.
SECTION 5. REPRESENTATIONS OF THE PURCHASERS
Each Purchaser severally represents and warrants, but only as to
itself, to the Company that:
5.1. Power and Authority. Such Purchaser has all requisite power,
authority and legal right to execute, deliver, enter into, consummate and
perform this Agreement and the Loan Documents to which it is a party. The
execution, delivery and performance of this Agreement and the Loan Documents to
which it is a party by such Purchaser have been duly authorized by all required
corporate and other actions. Such Purchaser has duly executed and delivered this
Agreement and the Loan Documents to which it is a party, and this Agreement and
the Loan Documents to which it is a party constitute the legal, valid and
binding obligation of such Purchaser enforceable against such Purchaser in
accordance with their respective terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to the rights of
creditors generally and subject to the availability of equitable remedies and
the application of equitable principles.
5.2. Purchase for Investment. Such Purchaser is capable of evaluating
the risk of its investment in the Notes and Warrants being purchased by it and
is able to bear the economic risk of such investment. Such Purchaser is
purchasing the Notes and Warrants to be purchased by it
21
for its own account, and the Notes and Warrants are being purchased by it for
investment and not with a present view to any distribution thereof. Such
Purchaser is an "accredited investor" as defined in Rule 501(a) under the
Securities Act.
It is understood that the disposition of such Purchaser's property
shall, subject to the terms of this Agreement, at all times be within such
Purchaser's control. If such Purchaser should in the future decide to dispose of
any of its Notes, Warrants or Shares, it is understood that it may do so only in
compliance with the Securities Act and this Agreement.
SECTION 6. PREPAYMENTS AND REPAYMENTS
6.1. Prepayment at Holder's Option.
(a) In the event of a Change of Control Event, each holder of a Note or
Notes shall have the right, at such holder's option, to require the Company to
prepay such holder's Note or Notes in whole at a price equal to (i) 100% of the
aggregate principal amount of Notes to be prepaid plus (ii) all accrued interest
on the Notes to the date of prepayment. Such option shall be exercised by
written notice to the Company under Section 6.1(b) hereof given at any time from
and after the Change of Control Event. As soon as possible after a Change of
Control Event occurs, or the Company has knowledge that it is likely to occur,
the Company shall give written notice to each holder of a Note or Notes
notifying each such holder of the occurrence or likely occurrence of such Change
of Control Event and informing each such holder of its right to exercise an
option to require a prepayment under this Section 6.1(a).
(b) In order to exercise its rights to require a prepayment under this
Section 6.1, a holder requiring such prepayment shall send to the Company a
written notice demanding prepayment under this Section 6.1 and specifying the
date of such prepayment (which must be a Business Day and which shall not be
less than thirty (30) days after receipt of such notice by the Company, but in
no event earlier than such Change of Control Event).
(c) In the event that on any date for prepayment pursuant to this
Section 6.1 the Company, for whatever reason, does not pay in full the
prepayment amount or amounts due to any holder or holders of Notes who have
requested prepayment, then the amount actually prepaid by the Company to all
holders of Notes pursuant to this Section 6.1 shall be allocated among all such
holders of Notes in proportion, as nearly as practicable, to the respective
unpaid principal amount of Notes then held by each such holder; provided,
however, such non-payment in full shall nonetheless constitute a Potential
Default.
6.2. Optional Prepayments.
(a) At any time after April 1, 2002 (but not before) the Company may at
its option (subject to the other provisions of this Section 6.2) prepay all or
part of the principal amount of outstanding Notes, at a price equal to the
aggregate principal amount of the outstanding Notes to be prepaid plus accrued
interest thereon to the date of prepayment.
22
(b) The aggregate amount of each prepayment of the principal amount of
Notes pursuant to this Section 6.2 shall be allocated among all Notes at the
time outstanding, in proportion, as nearly as practicable, to the respective
unpaid principal amounts of such Notes.
(c) The right of the Company to prepay Notes pursuant to this Section
6.2 shall be conditioned upon its giving notice of prepayment, signed by a
principal financial officer, to the holders of Notes not less than thirty (30)
days and not more than sixty (60) days prior to the date upon which the
prepayment is to be made specifying (i) the registered holder of each Note to be
prepaid, (ii) the aggregate principal amount being prepaid, (iii) the date of
such prepayment (which must be a Business Day), (iv) the accrued and unpaid
interest (to but not including the date upon which the prepayment is to be made)
and (v) that the prepayment of Notes is being made pursuant to this Section 6.2.
Notice of prepayment having been so given, the aggregate principal amount of the
Notes so specified in such notice, and all accrued and unpaid interest thereon,
shall become due and payable on the specified prepayment date, but the right to
apply any or all of the Notes as payment to exercise any Warrant or Warrants
shall continue to, but not including, the date of such prepayment.
6.3. Obligations Unconditional. The Company hereby agrees and confirms
that its obligations under the Notes shall be deemed to constitute for all
Purposes obligations for the payment of indebtedness for borrowed money and
shall accordingly be absolute and unconditional in accordance with the terms of
the Notes and this Agreement and shall not be affected by (and the Company
agrees not to assert) any right the Company may now or at any time hereafter
have, including any right to terminate, cancel, quit or surrender this Agreement
or any Note except in accordance with the express terms thereof.
SECTION 7. AFFIRMATIVE COVENANTS
The Company covenants and agrees that, until payment in full of the
principal of and accrued interest on the Notes and the payment or performance of
all other obligations under the Loan Documents, the Company shall:
7.1. Preservation of Corporate Existence; Etc. Do or cause to be done
all things necessary to preserve, renew and keep in full force and effect its
legal existence, except to the extent permitted by Section 8.5, and its
qualification as a foreign corporation in good standing in each jurisdiction in
which such qualification is necessary under applicable law, and the rights,
licenses, permits (including those required under Environmental Laws),
franchises, patents, copyrights, trademarks and trade names material to the
conduct of its businesses; and defend all of the foregoing against all claims,
actions, demands, suits or proceedings at law or in equity or by or before any
governmental instrumentality or other agency or regulatory authority.
7.2. Compliance with Laws, Etc. Comply with all Governmental
Regulations (including ERISA, the Code and Environmental Laws), in effect from
time to time; and pay and discharge promptly when due all taxes, assessments and
governmental charges or levies imposed upon it or upon its income, revenues or
property, before the same shall become delinquent or in default, as well as all
lawful claims for labor, materials and supplies or otherwise, which, if unpaid,
might
23
give rise to any Lien upon such properties or any portion thereof, except to the
extent that payment of any of the foregoing is then being contested in good
faith by appropriate legal proceedings and with respect to which adequate
financial reserves have been established on the books and records of the
Company.
7.3. Maintenance of Properties; Insurance. Maintain, preserve and
protect all property that is material to the conduct of its business and keep
such property in good repair, working order and condition and from time to time
make, or cause to be made, all needful and proper repairs, renewals, additions,
improvements and replacements thereto necessary in order that the business
carried on in connection therewith may be properly conducted at all times in
accordance with customary and prudent business practices for similar businesses;
and maintain in full force and effect insurance with responsible and reputable
insurance companies or associations in such amounts, on such terms and covering
such risks, including fire and other risks insured against by extended coverage,
as is usually carried by companies engaged in similar businesses and owning
similar properties similarly situated and maintain in full force and
effect public liability insurance, business interruption insurance, insurance
against claims for personal injury or death or property damage occurring in
connection with any of its activities or any properties owned, occupied or
controlled by it, in such amounts as it shall reasonably deem necessary, and
maintain such other insurance as may be required by Governmental Regulations or
as may be reasonably requested by the Majority Noteholders. Upon request, the
Company shall deliver to each Purchaser copies of all or any of such insurance
policies or the related certificates of insurance.
7.4. Reporting Requirements. Furnish to each Purchaser the following:
(a) promptly and in any event within five (5) calendar days after
becoming aware of the occurrence of (A) any Potential Default or Event
of Default, (B) the commencement of any material litigation against, by
or affecting the Company or any Subsidiary, and any material
developments therein, or (C) any development in the business or affairs
of the Company which has resulted in or which is likely, in the
reasonable judgment of the Company, to result in a Material Adverse
Effect, a statement of the chief financial officer of the Company
setting forth details of such Potential Default or Event of Default or
such litigation or such event or condition and the action which the
affected person has taken and proposes to take with respect thereto;
(b) as soon as available and in any event within 30 days after the end
of each fiscal month of the Company, the consolidated balance sheet of
the Company as of the end of each such month and consolidated income
statement of the Company for each such month and for the period
commencing at the end of the previous fiscal year and ending with the
end of such month, setting forth in each case in comparative form the
corresponding figures for the corresponding date or period of the
preceding fiscal year, all in reasonable detail and duly certified
(subject to normal, immaterial year-end audit adjustments) by the chief
financial officer or controller of the Company as having been prepared
in accordance with GAAP, together with a certificate of the chief
financial officer or controller of the Company (A) stating that no
Potential Default or Event of Default has occurred and is continuing
or, if any Potential Default or Event of Default has occurred
24
and is continuing a statement setting forth the details thereof and the
action which the applicable person has taken and proposes to take with
respect thereto, and (B) setting forth a computation (which computation
shall accompany such certificate and shall be in reasonable detail)
showing compliance with Sections 8.1 and 8.4 in conformity with the
terms of this Agreement;
(c) as soon as available and in any event within 90 days after the end
of each fiscal year of the Company, a copy of the annual audited
consolidated financial statements of the Company for such fiscal year,
with a customary audit report the Accountants, and a certificate of the
chief financial officer or controller of the Company (A) stating that
no Potential Default or Event of Default has occurred or is continuing
or if any Potential Default or Event of Default has occurred and is
continuing, a statement setting forth the details thereof and the
action which the applicable person has taken and proposes to take with
respect thereto, and (B) setting forth a computation (which computation
shall accompany such certificate and shall be in reasonable detail)
showing compliance with Sections 8.1and 8.4 in conformity with the
terms of this Agreement;
(d) as soon as available, and in any event no later than 30 days prior
to the beginning of each fiscal year of the Company and prior to the
final approval by its Board of Directors, a budget for such fiscal year
presented on a monthly basis regarding the Company's operations and
capital expenditures on a consolidated basis, including a balance sheet
and statements of income and cash flow for each month, together with an
analysis of such budget prepared in reasonable detail by the chief
financial officer or the President of the Company, and, within fifteen
(15) days following their preparation, (1) any operating budget of the
Company otherwise prepared and submitted to its Board and (2) any
revisions or amendments made by the Company (and submitted to its
Board) to any budget delivered under this clause (d);
(e) promptly after receipt thereof by the Company, copies of any audit
or management reports submitted to it by independent accountants in
connection with any audit, interim audit or other report submitted to
the board of directors of the Company;
(f) promptly after the same are available, copies of each annual
report, proxy or financial statement or other communication sent to the
Company's stockholders and copies of all annual, regular, periodic and
special reports and registration statements which the Company may file
or be required to file with the Securities and Exchange Commission or
with any securities exchange or the National Association of Securities
Dealers, Inc.; and
(g) promptly, such other information respecting the business,
properties, operations or condition, financial or otherwise, of the
Company as any Purchaser may from time to time reasonably request upon
reasonable notice.
Without limiting the foregoing provisions of this Section 7.4, the
Company agrees that, if expressly requested in writing by any holder of Notes or
Warrants, it will not deliver to such
25
holder (until otherwise instructed by such holder) (x) any information or
materials regarding the Company (whether described in this Section 7.4 or
otherwise) that is nonpublic and (y) any information (whether or not included in
clause (x)) which such holder specifies it does not want to receive.
Each holder of Notes and Warrants hereby acknowledges that it is aware
of the restrictions imposed by federal and state securities laws on a person
possessing material nonpublic information about a company. In this regard, each
such holder hereby agrees that (i) while it is in possession of material
nonpublic information with respect to the Company and its Subsidiaries, such
holder will not purchase or sell any securities of the Company, or communicate
such information to any third party, in violation of any such laws and (ii) it
will keep all such nonpublic information confidential.
7.5. Accounting; Access to Records, Books; Etc. Maintain a system of
accounting established and administered in accordance with sound business
practices to permit preparation of financial statements in accordance with GAAP
and to comply with the requirements of this Agreement and, at any reasonable
time and from time to time, (i) permit the Agent to examine and make copies of
and abstracts from the records and books of account of, and visit the properties
of, such person and to discuss the affairs, finances and accounts of such person
with their respective directors, officers, employees and independent auditors,
and by this provision the Company does hereby authorize the same, and (ii)
permit the Agent to conduct a comprehensive field audit of its books, records,
properties and assets.
7.6. Further Assurances. Execute and deliver promptly after request
therefor by any Purchaser, all further instruments and documents and take all
further action that may be necessary or desirable, or that any Purchaser may
request, in order to give effect to, and to aid in the exercise and enforcement
of the rights and remedies of any Purchaser under, this Agreement and the other
Loan Documents.
7.7. Use of Proceeds. The Company will use the net proceeds realized
from the sale of the Notes and Warrants for working capital and other general
corporate purposes. No portion of such proceeds will be used for the purpose,
whether immediate, incidental or ultimate, of purchasing or carrying, within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System,
as amended from time to time, any "margin stock" as defined in said Regulation
U, or any "margin stock" as defined in Regulation G of the Board of Governors of
the Federal Reserve System, as amended from time to time, or for the purpose of
purchasing, carrying or trading in securities within the meaning of Regulation T
of the Board of Governors of the Federal Reserve System, as amended from time to
time, or for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase any such margin stock or other securities.
7.8. Inspection. The Company will permit the Agent to visit and inspect
any of the properties of the Company and its Subsidiaries, to examine their
respective books of account and to discuss their business, affairs, finances and
accounts with their officers, all at such reasonable times (during normal
business hours and after notice to the Company) and as often as may be
reasonably requested and, if there is no Event of Default or Potential Default
continuing, at such
26
holder's expense, otherwise at the Company's expense.
7.9. Office for Payment, Exchange and Registration. So long as any of
the Notes or Warrants are outstanding, the Company will maintain an office or
agency where Notes or Warrants may be presented for payment, exchange, exercise
or registration of transfer as provided in this Agreement or in the Warrants.
Such office or agency initially shall be the office of the Company set forth in
Section 22 hereof, which place may from time to time be changed by notice to the
holders of all Notes and Warrants then outstanding.
7.10. Notices. The Company will give notice to each holder of a Note or
Warrant promptly after it learns (other than by notice from all of such holders)
of the existence of any default under any Senior Indebtedness or any material
default under any other evidence of Indebtedness or under any indenture,
mortgage or other agreement relating to any evidence of Indebtedness in respect
of which the Company or any Subsidiary is liable.
7.11. Fiscal Year. The fiscal year of the Company for tax, accounting
and any other purposes shall end on December 31 of each calendar year.
7.12. Communication with Accountants. The Company hereby authorizes the
Agent (on behalf of the Purchasers) to communicate directly with the independent
certified public accountants for the Company and authorizes such accountants to
disclose to the Agent any and all financial statements and any other information
of any kind that they may have with respect to the assets, properties,
liabilities, business, affairs, results of operations, condition (financial or
otherwise) or prospects of the Company; provided, that the Company be informed
of any such disclosures and participate in any conversations between such
accountants and the Agent (and the Company agrees that it will not fail to
cooperate in arranging or unreasonably delay any such conversations); and
further provided that the Agent shall not incur charges from such accountants in
exercise of such rights for more than ten (10) hours per calendar year without
the Company's prior written consent. The Company shall deliver a letter
addressed to such accountants instructing them to comply with the provisions of
this Section 7.12.
7.13. Environmental Matters. The Company agrees to indemnify, defend,
protect and hold harmless Purchasers, their officers, directors, shareholders,
employees, and agents from and against any and all liability, loss, damage, cost
and expense, including, but not limited to, attorneys' and consultants fees and
disbursements arising from any breach of representations and warranties set
forth in Section 4.12 or covenants set forth in Section 7.2 herein, the Release
or presence of Hazardous Materials on, under, about, adjacent to, from or at any
properties or facilities currently or previously owned, operated or leased by
the Company or any Subsidiary, any predecessors of the Company or any Subsidiary
or any entities previously owned by the Company or any Subsidiary, or at any
off-site location to which Hazardous Materials generated by the Company or any
Subsidiary, any predecessors of the Company or any Subsidiary or any entities
previously owned by the Company or any Subsidiary were sent for handling,
treatment, storage, or disposal or any violation of any Environmental Law or
Environmental Permit by the Company or any Subsidiary or any entity previously
owned by the Company or any Subsidiary. The obligations of the Company under
this Section shall survive the Closing indefinitely.
27
In the event the Company receives notice of violation of any
Environmental Claim and does not take prompt action to do so, the Agent (on
behalf of the Purchasers) shall have the right to designate such persons
("Environmental Auditors") as the Agent may select to visit, inspect and have
access to any of the properties, facilities, products or wastes owned, leased or
operated by the Company (including, without limitation, any location where
records and documents created or maintained in connection with Environmental
Laws may be located) for the purpose of investigating actual or potential
Environmental Claims or any condition which could result in any liability, cost
or expense to the Purchasers. Such investigation may include, among other
things, above and below ground testing of air, soil, groundwater and surface
water, for the presence of Hazardous Materials and such other tests as may be
necessary or advisable in the opinion of the Agent or the Environmental
Auditors. The Company will supply to the Environmental Auditors such historical
and operational information, including without limitation analytical records and
results, correspondence with governmental authorities and environmental audits
or reviews regarding properties, products and wastes of the Company (including
such information respecting Environmental Cleanup Sites) as are within its
possession, custody or control, or which are available to it, and will make
available for meetings with the Environmental Auditors, appropriate employees of
the Company having knowledge of such matters.
7.14. Taxes. All payments to a holder of Notes or to a partner of a
holder (or to a partner of such a partner) (any of the foregoing referred to
herein as a "recipient") of principal of, and interest on, the Notes and all
other amounts payable under this Agreement and any other Loan Document shall be
made free and clear of, and without deduction for, any present or future income,
stamp or other taxes, fees, duties, withholding or other charges of any nature
whatsoever imposed by any taxing authority, other than taxes imposed on or
measured by the net income of such recipient (such non-excluded items being
herein called "Taxes"). In the event that any withholding or deduction from any
payment to be made hereunder is required in respect of any Taxes pursuant to any
applicable law, rule or regulation, then the Company will:
(a) pay to the relevant authority the full amount required to be so
withheld or deducted; and
(b) promptly forward to such recipient an official receipt or other
documentation satisfactory to such recipient evidencing such payment to
such authority.
7.15. Delivery of Information for Rule 144A Transactions. If a holder
of Notes proposes to transfer any such Notes pursuant to Rule 144A under the
Securities Act (as in effect from time to time), the Company agrees to provide
(upon the request of such holder or the prospective transferee) to such holder
and (if requested) to the prospective transferee any financial or other
information concerning the Company which is required to be delivered by such
holder to any transferee of such Notes pursuant to such Rule 144A.
SECTION 8. NEGATIVE COVENANTS
The Company further covenants and agrees that it will not:
28
8.1. Minimum Net Worth. Permit its Consolidated Tangible Net Worth to
be less than $2,500,000 as of the end of each fiscal quarter of the Company
beginning March 31, 2001 and thereafter.
8.2. Liens. Create, incur, assume or suffer to exist any Lien upon any
of its Property, whether now owned or hereafter acquired, except Permitted
Liens.
8.3. Merger and Acquisition. Consolidate with or merge with or into any
Person, or acquire directly or indirectly all or substantially all of the
capital stock of any Person; provided that, so long as no Event of Default or
Potential Default is continuing, a merger after which the Company is the
surviving corporation and which does not cause a Potential Default or Event of
Default shall be permitted if either the Company is the surviving corporation
or, if not, the surviving corporation assumes all of the Company's obligations
under the Loan Documents in a manner satisfactory to the Purchasers.
8.4. Contingent Liabilities. Assume, guarantee, endorse, contingently
agree to purchase, become liable in respect of any letter of credit, or
otherwise become liable upon the obligation of any Person, except (i)
liabilities arising from the endorsement of letters of credit, notes, drafts,
instruments or documents for deposit or collection or similar transactions in
the ordinary course of business, (ii) deposit account guaranties of the
Subsidiaries not in excess of (pound)100,000 in the aggregate in the United
Kingdom, and (iii) other Contingent Liabilities not in excess of $500,000 in the
aggregate.
8.5. Restricted Payments. Make any Restricted Payment or Restricted
Investment, except from Earnings Available for Dividends.
8.6. Sale or Transfer of Assets. Sell, lease, assign, transfer or
otherwise dispose of any Property except for disposition of (i) inventory in the
ordinary course of business, (ii) unusable, obsolete or uneconomic items or
equipment the proceeds of which, in the ordinary course of the Company's
business, are used to purchase new items or equipment of like function and
comparable value to the replaced items or equipment when the same were new;
provided, however, that such replacement items and equipment shall become
subject to the Security Interests, (iii) other Property disposed of on an arm's
length basis in any twelve month period which did not account for more than 10%
of the Company's Consolidated Net Income for the prior fiscal year, or (iv)
Collateral upon payment to the Purchasers of 50% of the net proceeds received by
the Company from the sale of such Collateral, up to the full amount of the
Company's Obligations to the Purchasers.
8.7. Amendment of Charter. Amend, modify or waive any term or provision
of its corporate charter, unless required by law.
8.8. Issuance of Stock. Issue or cause to be issued or sell any shares
of capital stock or, except for the Warrants, any securities convertible into or
exercisable for any shares of capital stock of the Company which will result in
the occurrence of a Change of Control Event.
29
8.9. Corporate Offices; Corporate Name; Corporate Records. Transfer its
executive offices or change its corporate name or maintain records (including
computer printouts and programs) with respect to the Collateral at any locations
other than those at which the same are presently kept or maintained, except upon
the Majority Noteholders' prior written consent and after the delivery to the
Agent of financing statements in form satisfactory to the Noteholders.
8.10. Private Placement Status. Neither the Company nor any agent nor
any other Person acting on the Company's behalf will do or cause to be done (or
will omit to do or to cause to be done) any act which act (or which omission)
would result in bringing the issuance or sale of the Notes, Warrants or Shares
within the provisions of Section 5 of the Securities Act (other than in
accordance with a registration and qualification of Shares under Section 17
hereof).
8.11. Amendments to Other Agreements. Without the prior written consent
of the Majority Noteholders, which consent will not be unreasonably withheld,
consent to or request any amendment, modification, supplement or waiver of any
of the provisions of any agreement or instrument evidencing (A) the rights of
stockholders' of the Company or (B) the terms of (including the purchase and
sale of) any form of capital stock of the Company.
8.12. Transactions with Affiliates. Enter into, or permit or suffer to
exist, any transaction or arrangement with any Affiliate, except on terms which
are no less favorable to the Company than could be obtained from persons who are
not Affiliates.
SECTION 9. SUBORDINATION
Each holder of a Note, whether upon original issue or upon transfer or
assignment thereof, by his acceptance thereof agrees that the Notes shall be
subject to the rights of the Senior Lender.
SECTION 10. CONDITIONS TO PURCHASERS' OBLIGATIONS
The Purchasers' obligations to purchase a Note or Notes and a Warrant
or Warrants hereunder is subject to satisfaction of the following conditions at
the Closing (any of which may be waived by the Purchasers):
10.1. Accuracy of Representations and Warranties. The representations
and warranties of the Company in this Agreement and in the Loan Documents or in
any certificate or document delivered pursuant hereto or thereto shall be
correct and complete on and as of the Closing Date with the same effect as
though made on and as of the Closing Date (after giving effect to the
transactions contemplated by this Agreement).
10.2. Compliance with Agreements; No Defaults. The Company performed
and complied in all material respects with all agreements, covenants and
conditions contained in this Agreement or the Loan Documents and any other
document contemplated hereby or thereby which are required to be performed or
complied with by the Company on or before the Closing Date. On the Closing Date
(after giving effect to the transactions contemplated hereby), there
30
shall be no Event of Default or Potential Default.
10.3. Proceedings. All corporate and other proceedings in connection
with the transactions contemplated by the Loan Documents, and all documents
incident thereto, shall be in form and substance satisfactory to the Purchasers
and their counsel, and the Purchasers shall have received all such originals or
certified or other copies of such documents as the Purchasers or their counsel
may reasonably request.
10.4. Legality; Governmental and Other Authorization. The purchase of
and payment for the Notes and Warrants shall not be prohibited by any law or
governmental order, rule, ruling, regulation, release, interpretation or opinion
applicable to the Purchasers and shall not subject the Purchasers to any
penalty, tax, liability or other onerous condition. Any necessary consents,
approvals, licenses, permits, orders and authorizations of, and registrations or
qualifications with, any governmental or administrative agency, the Senior
Lender or other Person, with respect to the transactions contemplated by the
Loan Documents shall have been obtained or made and shall be in full force and
effect. The Company shall have delivered to the Purchasers, upon their
reasonable request setting forth what is required, factual certificates or other
evidence, in form and substance satisfactory to the Purchasers and their
counsel, to enable the Purchasers to establish compliance with this condition.
10.5. No Change in Law, etc. No legislation, order, rule, ruling or
regulation shall have been proposed, enacted or made by or on behalf of any
governmental body, department or agency, and no legislation shall have been
introduced in either House of Congress, and no investigation by any governmental
authority or administrative body shall have been commenced or threatened, and no
action, suit or proceeding shall have been commenced before, and no decision
shall have been rendered by, any court, other governmental body or arbitrator,
which, in any such case, in the Purchasers' reasonable judgment could adversely
affect, restrain, prevent or change the transactions contemplated by this
Agreement and the Loan Documents (including without limitation the issuance of
the Notes and the Warrants hereunder or the issuance of Shares upon exercise of
the Warrants) or materially and adversely affect the business, affairs, assets,
properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company on a consolidated basis.
10.6. Delivery of Additional Disclosure Documents. The Company shall
have delivered a copy of its most recent Form 10-K and any interim reports,
including financial statements, as filed with the Commission.
10.7 Related Agreements. The Company shall have delivered to the
Purchasers executed original copies of the Collateral Assignment.
10.8 Security Interests. All filings of UCC financing statements and
all other filings and actions necessary to perfect the Security Interests as
second, valid and perfected Liens in the Property covered thereby, subject only
to Permitted Liens in effect on the date hereof, shall have been filed or taken
and confirmation thereof shall have been received by the Agent.
31
10.9 Searches. The results of tax lien, litigation, UCC, bankruptcy,
and judgment searches with respect to the Company obtained by the Purchasers
shall be acceptable.
10.10. Material Agreements. Review and approval by the Purchasers, at
their option and expense, of all material agreements to which the Company is a
party, including without limitation, all such documents in respect of the
borrowing of money, all joint venture agreements, supply agreements or
requirements contracts, royalty agreements, license agreements,
employment/management incentive agreements, and product warranties.
10.11 Insurance. The Purchasers shall have received such evidence
satisfactory to them as they have requested that the Company and the
Subsidiaries have in effect such casualty, hazard, public liability, product
liability and other insurance policies required by the Purchasers, written by
insurers and in amounts and forms satisfactory to the Purchasers.
10.12 Other Documents and Opinions. The Purchasers shall have received
such other certificates, documents and opinions, in form and substance
satisfactory to the Purchasers and their counsel, relating to matters incident
to the transactions contemplated hereby as the Purchasers may reasonably
request.
SECTION 11. AMENDMENT AND WAIVER
11.1. Amendments and Waivers. This Agreement and any Loan Document may
be amended (or any provision hereof or thereof waived) only with the written
consent of (i) the Majority Noteholders, and (ii) the holder or holders of
Warrants or Shares representing at least a majority of the sum of the Shares
then outstanding and the Shares then obtainable upon the exercise of all
Warrants then outstanding, if any; provided, however, that no such amendment or
waiver shall (i) change the fixed maturity of any Note, the rate or the time of
payment of interest thereon, the principal amount thereof, the premium thereon,
the currency in which the Notes are payable, the prepayment provisions of
Section 6 hereof, the current exercise price of a Warrant or the registration
rights under Section 17 hereof, without the consent of the holder of each Note,
Warrant or Share so affected or (ii) reduce the aforesaid percentage of Notes,
or reduce the aforesaid percentage of Warrants or Shares, the holders of which
are required to consent to any such amendment or waiver, without the consent of
the holders of all the Notes, or, as the case may be, the holders of all
Warrants and Shares, then outstanding or (iii) exchange the definition of
"Majority Noteholders" without the consent of the holders of all the Notes then
outstanding or (iv) increase the percentage of the amount of the Notes, the
holders of which may declare the Notes to be due and payable under Section 14
hereof, without the consent of the holders of all the Notes then outstanding.
11.2. Notice of Proposed Amendments and Waivers. The Company agrees
that all holders of Notes, Warrants or Shares shall be notified by the Company
in advance of any proposed amendment or waiver of any Loan Document, but failure
to give such notice shall not in any way affect the validity of any such
amendment or waiver. In addition, promptly after obtaining the written consent
of the holders herein provided, the Company shall transmit a copy of any
amendment or waiver which has been adopted to all holders of Notes, Warrants or
Shares then
32
outstanding, but failure to transmit copies shall not in any way affect the
validity of any such Amendment or waiver.
11.3. All Holders Bound by Amendments and Waivers. The Company and each
holder of a Note, Warrant or Share then or thereafter outstanding shall be bound
by any amendment or waiver effected in accordance with the provisions of this
Section 11, whether or not such Note, Warrant or Share shall have been marked to
indicate such modification, but any Note, Warrant or Share issued thereafter
shall bear a notation as to any such modification (but the failure to bear any
such notation shall not affect the validity of any such subsequently issued
Note, Warrant or Share, which shall be enforceable in accordance with its terms
subject to any such modification).
SECTION 12. EXCHANGE OF NOTES AND WARRANTS; CANCELLATION OF
SURRENDERED NOTES
12.1. Exchange of Notes. Subject to Section 16 hereof, at any time at
the request of any holder of one or more of the Notes to the Company at its
office provided under Section 7.9 hereof, the Company at its expense (except for
any transfer tax or any other tax arising out of the exchange) will issue and
deliver to or upon the order of the holder in exchange therefor new Notes, in
such denomination or denominations as such holder may request (which must be in
denominations of no less than $ 10,000 plus one Note in a lesser denomination,
if required), in aggregate principal amount equal to the unpaid principal amount
of the Note or Notes surrendered and substantially in the form thereof, dated as
of the date to which interest has been paid on the Note or Notes surrendered
(or, if no interest has yet been so paid thereon, then dated the date of the
Note or Notes so surrendered) and payable to such Person or Persons or order as
may be designated by such holder. Any such new Note shall bear any notation
required by Section 11 hereof.
12.2. Exchange of Warrants. Subject to Section 16 hereof, at any time
at the request of any holder of one or more of the Warrants to the Company at
its office provided under Section 7.9 hereof, the Company at its expense (except
for any transfer tax or any other tax arising out of the exchange) will issue
and deliver to or upon the order of the holder in exchange therefor a new
Warrant certificate or certificates of like tenor, in such amount or amounts as
such holder may request and calling in the aggregate on the face or faces
thereof for the number of Shares which are called for on the face or faces of
the Warrant certificate or certificates so surrendered, and in the name of such
holder or as such holder may direct. Any such new Warrant certificate shall bear
any notation required by Section 11 hereof.
12.3. Percent of Interest on Surrendered Notes. In the event that any
Note is surrendered to the Company upon the exercise of all or a portion of any
Warrant using the principal amount of, or accrued and unpaid interest on, the
Notes in accordance with the terms of the Warrants, or upon a prepayment under
Section 6 hereof, the Company shall pay all accrued and unpaid interest on such
Note or such portion thereof and interest shall cease to accrue upon that
portion of the principal amount of such Note used for such exercise or which was
prepaid, and the right to
33
receive, and any right or obligation to make, any prepayment on such portion of
the principal amount pursuant to Section 6 hereof shall terminate all upon the
date of such exercise or prepayment and upon presentation and surrender of such
Note to the Company.
12.4. Surrender of Note in Exercise of Warrants. Upon the exercise in
whole or in part of any Warrant using the principal amount of, or accrued and
unpaid interest on, the Notes in accordance with the terms of the Warrants or
upon any prepayment under Section 6 hereof, if only a portion of the principal
amount of a Note is used in such exercise or prepayment, then such Note shall be
surrendered to the Company and the Company shall simultaneously execute and
deliver to or on the order of the holder thereof, at the expense of the Company,
a new Note or Notes in principal amount equal to the unused portion of such
Note.
12.5. Cancellation of Surrendered Notes. All Notes or portions thereof
which have been used to exercise all or a portion of a Warrant, or which have
been prepaid under Section 6 hereof, shall be canceled by the Company and no
Notes shall be issued in lieu of the principal amount so used for such exercise
or prepayment.
SECTION 13. REGISTRATION; REPLACEMENT OF NOTES AND WARRANTS
13.1. Registration of Transfers. The Company shall keep a register in
which provisions shall be made for the registration of the Notes and Warrants
and the registration of transfers of the Notes and Warrants. The register shall
be kept at the office of the Company provided under Section 7.9 hereof. Upon
surrender for registration of transfer of any Note or Warrant at the office of
the Company, the Company shall execute and deliver, in the name of the
designated transferee or transferees, one or more new Notes or Warrants, as the
case may be, of a like aggregate principal amount of Notes or number of Shares.
Each new Note issued upon transfer shall be in a principal amount of at least
$10,000 and in integral multiples of $10,000 and dated the date or dates to
which interest on the Notes or Warrants surrendered shall have been paid. Each
new Warrant issued upon transfer shall be for at least 5% of the total number of
Shares and dated the date of the original Warrant. All Notes or Warrants issued
upon any registration of transfer of Notes or Warrants, as the case may be,
shall be the valid obligations of the Company evidencing the same respective
obligations, and entitled to the same security and benefits under this Agreement
and the other Loan Documents, as the Notes or Warrants surrendered upon such
registration of transfer. The Company shall make a notation on each new Note of
the amount of all payments of principal previously made on the old Notes with
respect to which such new Note is issued and the date to which interest accrued
on such old Note has been paid.
13.2. Replacement of Notes and Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Note or Warrant and, in the case of any such loss, theft or
destruction, upon delivery of an indemnity agreement reasonably satisfactory to
the Company, or in the case of any such mutilation, upon surrender of such Note
or Warrant (which surrendered Note or Warrant shall be canceled by the Company),
the Company will, without charge, issue a new Note or Warrant, as the case may
be, of like tenor in lieu of such lost, stolen, destroyed or mutilated Note or
Warrant as if the lost, stolen, destroyed or mutilated Note or Warrant were then
surrendered for exchange.
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SECTION 14. DEFAULTS
14.1. Events of Default. Any of the following shall constitute an
"Event of Default" (whether any such event shall be voluntary or involuntary or
come about or be effected by operation of law or pursuant to or in compliance
with any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) the Company defaults in the payment (whether or not such payment is
prohibited under Section 9 hereof) of (A) any part of the principal of any Note,
when the same shall become due and payable, whether at maturity or at a date
fixed for prepayment or by acceleration or otherwise, or (B) the interest on any
Note, when the same shall become due and payable, and such default in the
payment of interest shall have continued for ten (10) days or (C) the Company
fails to pay any other amount due hereunder or under any Loan Document and such
default shall have continued for ten (10) Business Days after notice thereof
from the Agent;
(b) Any representation or warranty made by Borrower in this Agreement
or in any Loan Document or in any certificate, report, financial statement other
document furnished by or on behalf of the Company in connection with this
Agreement, shall prove to have been incorrect in any material respect when made
or deemed made;
(c) Any term, covenant or agreement contained in Section 8 shall be
breached;
(d) Any term, covenant or agreement contained in this Agreement or any
other Loan Document (other than in Section 8 hereof or with regard to payments)
shall be breached, and such breach shall remain unremedied for thirty (30)
calendar days after receipt by the Company of written notice thereof;
(e) The Company shall fall to pay any part of the principal of, the
premium, if any, or the interest on, or any other payment of money due under,
any of its Indebtedness (other than Indebtedness under this Agreement), beyond
any period of grace provided with respect thereto, which individually or
together with other such Indebtedness as to which any such failure exists has an
aggregate outstanding principal amount in excess of $100,000; or the Company
shall fail to perform or observe any other term, covenant or agreement contained
in any agreement, document or instrument evidencing or securing any Indebtedness
in an aggregate outstanding principal amount in excess of $100,000, or under
which any such Indebtedness was issued or created, beyond any period of grace,
if any, if the effect of such failure is to cause, or permit the holders of such
Indebtedness (or a trustee on behalf of such holders) to cause, any payment in
respect of such Indebtedness to become due prior to its due date.
(f) One or more judgments or orders for the payment of money in an
aggregate amount of $250,000 or more shall be rendered against any of the
Company, or any other judgment or order (whether or not for the payment of
money) shall be rendered against or shall affect Company which causes or could
cause a Material Adverse Effect or which does or could have an adverse effect on
the legality, validity or enforceability of this Agreement or any other Loan
Document
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and either (i) such judgment or order shall have remained unsatisfied and the
Company shall not have taken action necessary to stay enforcement thereof by
reason of pending appeal or otherwise, prior to the expiration of the applicable
period of limitations for taking such action or, if such action shall have been
taken, a final order denying such stay shall have been rendered, or (ii)
enforcement proceedings shall have been commenced by any creditor upon any such
judgment or order; provided that no final judgment shall be included in the
calculation under this subsection to the extent that the claim underlying such
judgment is covered by insurance and defense of such claim has been tendered to
and accepted by the insurer without reservation.
(g) The occurrence of a Reportable Event that results in or could
result in liability of the Company or its ERISA Affiliates to the PBGC or to any
Plan in excess of $50,000 and such Reportable Event is not corrected within
thirty (30) days after the occurrence thereof, or the occurrence of any
Reportable Event which could constitute grounds for termination of any Plan of
the Company or its ERISA Affiliates by the PBGC or for the appointment by the
appropriate United States District Court of a trustee to administer any such
Plan and such Reportable Event is not corrected within thirty (30) days after
the occurrence thereof, or the filing by the Company, or any of its ERISA
Affiliates of a notice of intent to terminate a Plan or the institution of other
proceedings to terminate a Plan; or the Company or any of its ERISA Affiliates
shall fail to pay when due any liability to the PBGC or to a Plan in excess of
$50,000; or the PBGC shall have instituted proceedings to terminate, or to cause
a trustee to be appointed to administer, any Plan of the Company or its ERISA
Affiliates; or any person engages in a Prohibited Transaction with respect to
any Plan which results in or could result in liability of the Company, any of
its ERISA Affiliates, any Plan of the Company, or its ERISA Affiliates or any
fiduciary of any such Plan in excess of $50,000; or failure by the Company, or
any of its ERISA Affiliates to make a required installment or other payment to
any Plan within the meaning of Section 302(o) of ERISA or Section 412(n) of the
Code that results in or could result in liability of the Company or any of its
ERISA Affiliates to the PBGC or any Plan in excess of $50,000; or the withdrawal
of the Company or any of its ERISA Affiliates from a Plan during a plan year in
which it was a "substantial employer" as defined in Section 4001 (a)(2) of
ERISA; or the Company or any of its ERISA Affiliates becomes an employer with
respect to any Multiemployer Plan without the prior written consent of the
Purchasers.
(h) The Company shall be dissolved or liquidated (or any judgment,
order or decree therefor shall be entered); or shall make a general assignment
for the benefit of creditors; or shall institute, or there shall be instituted
against the Company any proceeding or case seeking to adjudicate it a bankrupt
or insolvent or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief or protection of
debtors or seeking the entry of an order for relief, or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its assets, rights, revenues or property, and, if such
proceeding is instituted against the Company and is being contested by the
Company in good faith by appropriate proceedings, such proceeding shall remain
undismissed or unstayed for a period of 60 days; or shall take any action
(corporate or other) to authorize or further any of the actions described above
in this subsection.
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(i) This Agreement or any of the other Loan Documents shall, at any
time after their respective execution and delivery, and for any reason, cease to
be in full force and effect or shall be declared null and void, or be revoked or
terminated, or the validity or enforceability thereof or hereof shall be
contested by the Company or any stockholder of the Company, or the Company shall
deny that it has any further liability or obligation thereunder or hereunder, as
the case may be.
14.2. Acceleration of Notes. If an Event of Default occurs, then and in
each such event the Majority Noteholders may at any time (unless all such Events
of Default shall theretofore have been waived or remedied) at its or their
option, by written notice or notices to the Company, declare all the Notes to be
due and payable in full. Upon any such declaration or upon the occurrence of an
Event of Default pursuant to clause (h) of Section 14.1 hereof (in which case no
declaration is required), all Notes shall forthwith immediately mature and
become due and payable, together with interest accrued thereon, without
presentment, demand, protest or notice, all of which are hereby waived. However,
if, at any time after the principal of the Notes shall so become due and payable
and prior to the date of maturity stated in the Notes, all arrears (without
giving effect to any such acceleration) of principal and interest on the Notes
(with interest at the rate specified in the Notes on any overdue principal and,
to the extent legally enforceable, on any overdue interest) shall be paid by or
for the account of the Company, then the Majority Noteholders, by written notice
or notices to the Company, may rescind or annul such declaration. If any holder
of a Note shall give any notice or take any other action with respect to a
claimed default, the Company, forthwith upon receipt of such notice or obtaining
knowledge of such other action, will give written notice thereof to all other
holders of the Notes then outstanding, describing such notice or other action
and the nature of the claimed default.
SECTION 15. REMEDIES
15. 1. Enforcement of Rights; Exercise of Remedies. In case any one or
more Events of Default shall occur and be continuing, the holder of a Note or
Warrant then outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Loan Document, or for an injunction against a violation of any of the terms
hereof or thereof, or in aid of the exercise of any power granted hereby or
thereby or by law or for any other remedy (including, without limitation,
damages). In addition, the Agent may:
(a) without notice to or demand upon the Company, make such payments
and do such acts as the Agent considers necessary or reasonable to protect
interest in the Collateral. The Company agrees to assemble the Collateral if the
Agent so requires, and to make the Collateral available to the Agent as the
Agent may designate. The Company authorizes the Agent to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or Lien that in the Agent's determination appears to be
prior or superior to its security interest and to pay all expenses incurred in
connection therewith. With respect to any of the Company's owned premises, the
Company hereby grants the Agent a license to enter into possession of such
premises and to occupy the same, without charge, for up to one hundred twenty
(120) days in
37
order to exercise any of the Agent's rights or remedies provided herein, at law,
in equity, or otherwise;
(b) ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. The Agent is hereby granted a license or other right to use, without
charge, the Company's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising matter,
and the goodwill associated with any of the foregoing, or any property of a
similar nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and the Company's rights under
all licenses and all franchise agreements shall inure to the Agent's benefit;
(c) sell the Collateral at either a public or private sale, or both, by
way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including the Company's premises) as the Agent
determines is commercially reasonable. It is not necessary that the Collateral
be present at any such sale;
(d) give notice of the disposition of the Collateral as follows:
(i) the Agent shall give the Company and each holder of a
security interest in the Collateral who has filed with the
Agent a written request for notice, a notice in writing of the
time and place of public sale, or, if the sale is a private
sale or some other disposition other than a public sale is to
be made of the Collateral, then the time on or after which the
private sale or other disposition is to be made;
(ii) the notice shall be personally delivered or mailed,
postage prepaid, to the Company as provided in Section 22, at
least ten (10) calendar days before the date fixed for the
sale, or at least ten (10) calendar days before the date on or
after which the private sale or other disposition is to be
made, unless the Collateral is perishable or threatens to
decline speedily in value. Notice to persons other than the
Company claiming an interest in the Collateral shall be sent
to such addresses as they have furnished to the Agent;
(iii) if the sale is to be a public sale, the Agent also shall
give notice of the time and place by publishing a notice one
time at least ten (10) calendar days before the date of the
sale in a newspaper of general circulation in the county in
which the sale is to be held;
(d) the Agent or any Purchaser may bid and purchase at any public or
private sale and can offset the Company's Obligations against the purchase
price; and
(e) any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by the Company. Any excess will be
returned, without interest and subject to the rights of third parties, by the
Agent to the Company.
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15.2. Payment of Expenses of Enforcement and Collection. In case of a
default in the, payment of any principal of or interest on any Note, or default
in the payment of amounts owing under this Agreement or any Loan Document, or
default in the observance of any other agreement or covenant of the Company
contained in this Agreement or any Loan Document, the Company will pay to the
holder thereof or party thereto, in addition to any interest or premium
otherwise required, such further amount as shall be sufficient to cover any and
all costs and expenses of enforcement and collection, including, without
limitation, reasonable attorneys' fees and expenses.
15.3. Delay Not a Waiver. No course of dealing and no delay on the part
of the Agent, any holder of any Note or Warrant or any party to this Agreement
or any Loan Document in exercising any rights or remedies shall operate as a
waiver thereof or otherwise prejudice such holder's or party's rights. No right
or remedy conferred hereby or by any Loan Document shall be exclusive of any
other right or remedy referred to herein or therein or available at law, in
equity, by statute or otherwise. To the extent permitted under any applicable
law, the Company hereby irrevocably waives and relinquishes the benefit of any
valuation, stay, appraisal, extension or redemption laws, whether such laws
presently exist or may exist in the future, which laws might, but for this
Section 15.3, be applicable to any sale of any or all of the assets of the
Company (including without limitation the Collateral) made pursuant to any
judgment, order or decree of any court, or otherwise based on any claim relating
to or arising out of this Agreement or of any of the Loan Documents.
15.4. Specific Enforcement. The Purchasers shall, in addition to other
remedies provided by law, have the right and remedy to have the provisions of
this Agreement and any Loan Document specifically enforced by any court having
equity jurisdiction, it being acknowledged and agreed that any breach or
threatened breach of the provisions of this Agreement or any Loan Document will
cause irreparable injury to the Purchasers and that money damages will not
provide an adequate remedy. Nothing contained herein shall be construed as
prohibiting the Purchasers from pursuing any other remedies available to the
Purchasers for such breach or threatened breach, including, without limitation,
the recovery of damages from the Company.
15.5. Certain Waivers. Except as may be otherwise specifically provided
herein or in any other agreement between the Purchasers and the Company which
may be applicable, the Company waives any right, to the extent applicable law
permits, to receive prior notice of or a judicial or other hearing with respect
to (i) any action or prejudgment remedy or proceeding by the Agent to take
possession, exercise control over, or dispose of any item of the Collateral in
any instance (regardless of where the same may be located) where such action is
permitted under the terms of this Agreement, any other Loan Document or by
applicable law, and (ii) of the time, place or terms of sale in connection with
the exercise of the Agent's rights hereunder. The Company also waives, to the
extent permitted by law, any bonds, security or sureties required by any
statute, rule or otherwise by law as an incident to any taking of possession by
the Agent of Property subject to the Agent's Lien. The Company also waives any
damages (direct, indirect, consequential or otherwise) occasioned by the
enforcement of the Agent's rights under this Agreement including the taking of
possession of any Collateral or the giving of notice to any account debtor, all
to the extent that such waiver is permitted by law. The Company also
39
consents that the Agent may enter upon any premises owned by or leased to the
Company without obligation to pay rent or other compensation or for use and
occupancy, through self help, without judicial process and without having first
given notice to the Company or obtained an order of any court. These waivers and
all other waivers provided for in this Agreement, the other Loan Documents and
any other agreements or instruments executed in connection herewith have been
negotiated by the parties and the Company acknowledges that it has been
represented by counsel of its own choice and has consulted such counsel with
respect to its rights hereunder.
SECTION 16. RESTRICTIONS ON TRANSFER
Each holder of a Note or Warrant by acceptance thereof agrees that it
will not sell or otherwise dispose of any Notes, Warrants or Shares unless such
Notes, Warrants or Shares have been registered under, or have been sold pursuant
to an exemption from registration under, the Securities Act. As a condition to
the Company's obligation to issue a new Note or Warrant to a transferee thereof
which (x) is not a holder of a Note or Warrant, the transferor must certify to
the Company the facts on which the transferor is relying for such exemption and
(y) is a holder of a Note or Warrant, the transferor must represent to the
Company in writing that the transfer is so exempt.
SECTION 17. REGISTRATION RIGHTS
17.1. Piggyback Rights. If the Company shall at any time propose to
file a registration statement under the Securities Act for any sales of shares
of the Company's Common Stock (or any warrants, units, convertibles, rights or
other securities related or linked to any shares of the Company's Common Stock)
on behalf of the Company or otherwise, the Company shall give written notice of
such registration no later than 60 days before its filing with the Commission to
all holders of Warrants or Shares; provided that registrations relating solely
to securities to be issued by the Company in connection with any employee stock
option or employee stock purchase or savings plan on Form S-8 (or successor
forms) under the Securities Act shall not be subject to this Section 17.1. If
holders of Warrants or Shares so request within thirty (30) days of receipt of
such notice, the Company shall include in any such registration the Shares held
or to be held after exercise of Warrants by such holders and requested to be
included in such registration.
17.2. Expenses. Subject to the limitations contained in this Section
17.2 and except as otherwise specifically provided in this Section 17, the
entire costs and expenses of any registration and qualification pursuant to
Section 17.1 hereof shall be borne by the Company. Such costs and expenses shall
include, without limitation, the fees and expenses of counsel for the Company
and of its accountants, all other costs, fees and expenses of the Company
incident to the preparation, printing and filing under the Securities Act of the
registration statement and all amendments and supplements thereto, the
reasonable fees and expenses of one counsel to the holders of Warrants or Shares
relating to such registration and qualification, the cost of furnishing copies
of each preliminary prospectus, each final prospectus and each amendment or
supplement thereto to underwriters (if any), dealers and other purchasers of the
Shares and the costs and expenses (including fees and disbursements of counsel)
incurred in connection with the qualification of the Shares under the securities
laws of various jurisdictions. The Company shall
40
not, however, pay underwriting fees or commissions to the extent related to the
sale of Shares sold in any registration and qualification.
17.3. Procedures.
(a) In the case of each registration or qualification pursuant to
Section 17.1, the Company will keep all holders of Warrants or Shares advised in
writing as to the initiation of proceedings for such registration and
qualification and as to the completion thereof, and will advise any such holder,
upon request, of the progress of such proceedings.
(b) At the Company's expense, the Company will keep each registration
and qualification under this Section 17 effective (and in compliance with the
Securities Act) by such action as may be necessary or appropriate for a period
of one hundred twenty (120) days after the effective date of such registration
statement, including, without limitation, the filing of posteffective amendments
and supplements to any registration statement or prospectus necessary to keep
the registration statement current and the further qualification under any
applicable state securities laws to permit such sale or distribution, all as
requested by such holder or holders, provided, that such 120-day period shall be
extended by the number of days (i) that a stop order or similar proceeding is in
effect which prohibits the distribution of the Shares registered pursuant to
this Section 17 and (ii) from and including the date that each holder on whose
behalf Shares have been registered pursuant to this Section 17 shall have
received a notice delivered pursuant to paragraph (c) below until the date on
which such holders shall have received a reasonable number of copies of a
supplement to or an amendment of the prospectus so that the prospectus
thereafter shall not include an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading; in light of the circumstances then existing.
(c) The Company will immediately notify each holder on whose behalf
Shares have been registered pursuant to this Section 17 at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing.
(d) If any registration under this Section 17 is in connection with an
underwritten offering, the Company will furnish to each holder on whose behalf
Shares have been registered pursuant to this Section 17 a signed counterpart,
addressed to such holder, of (i) an opinion of counsel for the Company, dated
the effective date of such registration statement, and (ii) a so called "cold
comfort" letter signed by the independent public accountants who have certified
the Company's financial statements included in such registration statement, and
such opinion of counsel and accountants' letter shall cover substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are
41
customarily covered in opinions of issuer's counsel and in accountants' letters
delivered to underwriters in connection with underwritten public offerings of
securities.
(e) Without limiting any other provision hereof, in connection with any
registration of Shares under this Section 17, the Company will comply with the
Securities Act, the Securities Exchange Act and all applicable rules and
regulations of the Commission, and will make generally available to its
securities holders, as soon as reasonably practicable, an earnings statement
covering a period of at least twelve (12) months, beginning with the first month
of the first fiscal quarter after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act.
(f) In connection with any registration of Shares under this Section
17, the Company will provide a transfer agent and registrar for the Shares not
later than the effective date of such registration statement.
(g) In connection with any underwritten registration of Shares under
this Section 17, the Company will, if requested by the underwriters for any
Shares included in such registration, enter into an underwriting agreement with
such underwriters for such offering, such agreement to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including, without limitation, provisions relating
to indemnification and contribution. The holders on whose behalf Shares are to
be distributed by such underwriters shall be parties to any such underwriting
agreement, and the representations and warranties by, and the other agreements
on the part of, the Company to and for the benefit of such underwriters shall
also be made to and for the benefit of such holders of Warrants or Shares and
the conditions precedent to the obligations of such underwriters under such
underwriting agreement shall be conditions precedent to the obligations of such
holders of Warrants or Shares. The Company shall cooperate with such holders of
Warrants or Shares in order to limit any representations or warranties to, or
agreements with, the Company or such underwriters to be made by such holders
only to those representations, warranties or agreements regarding such holder,
such holder's Shares and such holder's intended method of distribution and any
other representation required by law. Such underwriting agreement shall comply
with Section 17.4 hereof.
(h) Upon request by any holder of Warrants or Shares who has requested
that their shares be included in a registration, the Company will give such
holder and their underwriters, if any, and their respective counsel and
accountants, (i) such information regarding the preparation of such registration
statement, each prospectus included therein or filed with the Commission, and
each amendment thereof or supplement thereto, as such holder may specify, and
(ii) opportunities to discuss the business of the Company with its officers, its
counsel and the independent public accountants who have certified its financial
statements, as shall be necessary, in the opinion of such holders or such
underwriters or their respective counsel, in order to conduct a reasonable and
diligent investigation within the meaning of the Securities Act. Without
limiting the foregoing, each registration statement, prospectus, amendment,
supplement or any other document filed with respect to a registration under this
Section 17 shall be subject to review and reasonable approval by the holders
registering Shares in such registration and by their counsel.
42
(i) The Company will cause all of the Shares registered pursuant to
this Section 17 to be accepted for quotation as a National Market Security on
The NASDAQ Stock Market to the same extent as similar securities issued by the
Company.
17.4. Provision of Documents. The Company will, at the expense of the
Company, furnish to each holder of Warrants or Shares with respect to which
registration has been effected, such number of registration statements,
prospectuses, offering circulars and other documents incident to any
registration or qualification referred to in Section 17.1 as such holder from
time to time may reasonably request.
17.5. Indemnification. The Company will indemnify and hold harmless, to
the extent permitted by law, each holder of Warrants or Shares and any
underwriter (as defined in the Securities Act) for such holder and each person,
if any, who controls the holder or underwriter within the meaning of the
Securities Act or the Exchange Act and each of their respective directors,
officers, general partners and members against any losses, claims, damages or
liabilities, joint or several, and expenses (including reasonable attorneys'
fees and expenses and reasonable costs of investigation) to which the holder or
underwriter or such controlling person may be subject, under the Securities Act
or otherwise, insofar as any thereof arise out of or are base&upon (i) any
untrue statement or alleged untrue statement of a material fact contained in (A)
any registration statement under which such Shares were registered under the
Securities Act pursuant to Section 17.1 hereof (including all documents
incorporated therein by reference), any prospectus or preliminary prospectus
contained therein, or any amendment or supplement thereto, or (B) any other
document incident to the registration of the Shares under the Securities Act or
the qualification of the Shares under any state securities laws, or (ii) the
omission or alleged omission to state in any item referred to in the preceding
clause a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any violation or alleged violation
by the Company of the Securities Act, the Securities Exchange Act or any other
federal or state securities law, rule or regulation applicable to the Company
and relating to action or inaction by the Company in connection with any such
registration or qualification, except insofar as such losses, claims, damages,
liabilities or expenses arise out of or are based upon any untrue statement or
alleged untrue statement or omission or alleged omission based upon information
furnished to the Company in writing by such holder or by any underwriter for
such holder expressly for use therein (with respect to which information such
holder or underwriter shall so indemnify and hold harmless the Company, any
underwriter for the Company and each person, if any, who controls the Company or
such underwriter within the meaning of the Securities Act or the Exchange Act
and each of their respective directors, officers, general partners and members).
The Company will enter into an underwriting agreement and other agreements with
the underwriter or underwriters for any offering registered under the Securities
Act pursuant to Section 17.1 hereof and with the holders of Securities selling
Shares pursuant to such offering, and such underwriting agreement and other
agreements shall contain customary provisions with respect to indemnification
and contribution which shall, at a minimum, provide the indemnification set
forth above.
17.6. Periodic Payments. The indemnification provided for in Section
17.5 shall be made
43
by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred, upon the presentation by the indemnified party
to the indemnifying party of a statement showing the amount of expense, loss,
damage or liability for which payment is then requested.
17.7. Indemnification Procedure. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding involving a claim referred to in Section 17.5, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action;
provided that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under Section
17.5 except to the extent that the indemnifying party is actually prejudiced by
such failure to give notice. In case any such action is brought against an
indemnified party, the indemnifying party will be entitled to participate in and
to assume the defense thereof, jointly with any other indemnifying party
similarly notified, to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party for
any legal fees and expenses subsequently incurred by the latter in connection
with the defense thereof, unless in such indemnified party's reasonable judgment
an actual or potential conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim. The indemnifying party
will not, without the prior written consent of each indemnified party, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification may be
sought hereunder (whether or not such indemnified party or any Person who
controls such indemnified party is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of such indemnified party from all liability arising out
of such claim, action, suit or proceeding. Notwithstanding anything to the
contrary set forth herein, and without limiting any of the rights set forth
above, in any event any party will have the right to retain, at its own expense,
counsel with respect to the defense of a claim.
17.8. Contribution. If the indemnification provided for in Section 17.5
is unavailable (for any reason other than a determination of its inapplicability
by a court of competent jurisdiction) to hold harmless an indemnified party
under such Section, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of the losses, claims,
damages, liabilities or expenses referred to in Section 17.5 in such proportion
as is appropriate to reflect the relative fault of the indemnifying party on the
one hand, and the indemnified party on the other, in connection with statements
or omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations, including
without limitation the relative benefits received by each party from the
offering of the securities covered by such registration statement, the parties'
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted and the opportunity to correct and prevent any
statement or omission. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
44
information supplied by the indemnifying party or the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statements or omission. The parties hereto agree
that it would not be just and equitable if contributions pursuant to this
Section 17.8 were to be determined by pro rata or per capita allocation (even if
the underwriters, if any, were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in the first and second sentences of this Section
17.8. The Company and each holder of Warrants or Shares agrees with each other
and any underwriters of the Shares, if requested by such underwriters, that (i)
the underwriters' portion of such contribution shall not exceed the underwriting
discount and (ii) that the amount of such contribution shall not exceed an
amount equal to the net proceeds actually received by such indemnifying party
from the sale of securities in the offering to which the losses, liabilities,
claims, damages or expenses of the indemnified parties relate. No Person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
17.9. Certain Limitations in Connection with Future Grants of
Registration Rights.
(a) From and after the date of this Agreement, the Company shall not
enter into any agreement with any holder or prospective holder of any of its
Common Stock providing for the granting to such holder of demand registration
rights unless such agreement includes provisions to the effect that (i) the
Company will give the holders of Warrants and Shares notice at least thirty (30)
days prior to the filing of a registration statement pursuant to the exercise of
such rights and (ii) notwithstanding Section 17.1 hereof, if a holder of
Warrants or Shares requests inclusion of Shares (whether such Shares are held
directly or through the right to obtain such Shares upon the conversion of
Warrants held by such holder) and requests priority for such Shares in such
registration statement within thirty (30) days after receipt of such notice,
then such holder's Shares requested to be so included will be given priority
over the securities sought to be registered by the holders of such demand
registration rights if marketing factors require a limitation on the number of
securities to be included in such registration statement If a holder of Warrants
or Shares requests inclusion of its Shares (whether such Shares are held
directly or through the right to obtain such Shares upon conversion of Warrants
held by such holder), but does not request such priority for such Shares in such
registration, then such Shares shall be included in such registration statement
in the manner described in Section 17.1 hereof.
(b) From and after the date of this Agreement, the Company shall not
enter into any agreement with any holder or prospective holder of any of its
Common Stock providing for the granting to such holder of incidental or
"piggyback" registration rights unless such agreement includes provisions to the
effect that, in the case of a registered underwritten public offering of the
Company's Common Stock to which Section 17.1 hereof applies, such agreement
gives the following priority to holders of Warrants or Shares if marketing
factors require a limitation on the number of shares of Common Stock to be
included in such offering the holders of Warrants or Shares and other holders of
securities of the Company having piggyback registration rights shall have an
equal right to include securities in such registration (beyond the amount to be
included on behalf of the Company) in proportion to their relative holdings of
shares of Common
45
Stock of the Company (whether held directly or obtainable upon conversion or the
exercise of warrants or other rights).
SECTION 18. INDEMNIFICATION
18.1. Indemnification. Whether or not the transactions contemplated by
this Agreement are consummated, the Company hereby agrees to indemnify and hold
each Purchaser and each holder of a Note or Warrant or Share harmless (including
any of such Purchaser's or holder's affiliated companies) and any of such
Purchaser's or holder's directors, officers, employees, or agents and any person
controlling (within the meaning of Section 20(a) of the Securities Exchange Act)
such Purchaser or holder or any of its affiliated companies (collectively, the
"Indemnified Persons") from and against any and all losses, claims, damages,
liabilities, securities law penalties, and expenses whatsoever (including, but
not limited to, any and all reasonable fees and expenses whatsoever incurred by
an Indemnified Person and its attorneys in investigating, preparing for,
defending against, acting as a witness, providing evidence, producing documents,
or taking any other action in respect of any litigation or proceeding, commenced
or threatened, or any claim whatsoever), (collectively, the "Losses") arising
out of or in connection with this Agreement or any Loan Document, other than to
the extent Losses result from the gross negligence or wilful misconduct of the
Indemnified Person. The foregoing indemnity shall be in addition to any other
rights which the Indemnified Persons may have against the Company otherwise than
under this paragraph. If a court shall hold for any reason that the preceding
indemnification is unavailable to any Indemnified Person as to any matter for
which it would be available if enforceable in accordance with its terms, the
Company on the one hand and the Indemnified Person on the other agree to
contribute to such loss in such proportion as is appropriate to reflect the
relative benefits and the relative fault of the Company on the one hand and of
the Indemnified Person on the other in connection with the statements, actions,
or omissions which results in such Loss, as well as any other relevant equitable
considerations.
18.2. Indemnification Procedures. If any Indemnified Party is entitled
to indemnification hereunder, such Indemnified Party shall give prompt notice to
the Company of any claim or of the commencement of any proceeding with respect
to which such Indemnified Party seeks indemnification pursuant hereto and of
which such Indemnified Party knew or reasonably should have known; provided,
however, that the failure so to notify the Company shall not relieve the Company
from any obligation or liability except to the extent that the amount owed by
the Company has been increased by such failure. The Company shall have the
right, exercisable by giving written notice to an Indemnified Person within 20
Business Days after receipt of written notice from such Indemnified Person of
such claim or proceeding, to assume, at its expense, the defense of any such
claim or proceeding; provided, however, that an Indemnified Person shall have
the right to employ separate counsel in any such claim or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Person unless: (1) the Company
agrees to pay such fees and expenses; or (2) the Company fails promptly to
assume, or to diligently pursue, the defense of such claim or proceeding; or (3)
the named parties to any such claim or proceeding (including any impleaded
parties) include both such Indemnified Person and one or more of the Company or
an Affiliate of the Company, and such Indemnified Person shall have been advised
by counsel that there may be
46
one or more material defenses available to such Indemnified Person which are
different from or additional to those available to the Company or such
Affiliate; or (4) an Event of Default is continuing; or (5) the claim or
proceeding seeks to impose criminal penalties against the Indemnified Person (in
which case if such Indemnified Person notifies the Company in writing that it
elects to employ separate counsel at the expense of the Company, the Company
shall not have the right to assume the defense thereof, it being understood,
however, that the Company shall not, in connection with any one such claim or
proceeding or separate but substantially similar or related claims or
proceedings in the same jurisdiction, arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for such Indemnified Person). Whether or not such defense is assumed by the
Company, such Indemnified Person will not be subject to any liability for any
settlement made without its consent (but such consent will not be unreasonably
withheld or delayed).
SECTION 19. DIRECT PAYMENTS
As long as the Purchaser or any payee named in the Notes delivered to
the Purchaser on the Closing Date, or any institutional holder which is a direct
or indirect transferee from the Purchaser or such payee, shall be the holder of
any Note, the Company will make payments (whether at maturity, upon mandatory or
optional prepayment, upon repurchase or otherwise) of principal, interest and
premium, if any, (i) by check payable to the order of the holder of any such
Note duly mailed or delivered to such address as the Purchaser or such other
holder may designate in writing or (ii) if requested by the Purchaser or such
other holder, by wire transfer to the Purchaser's or such other holder's (or its
nominee's) account at any bank or trust company in the United States of America,
notwithstanding any contrary provision herein or in any Note with respect to the
place of payment. IF THE PURCHASER HAS PROVIDED AN ADDRESS ON EXHIBIT A HERETO
FOR PAYMENTS BY WIRE TRANSFER, THEN THE PURCHASER SHALL BE DEEMED TO HAVE
REQUESTED WIRE TRANSFER PAYMENTS UNDER THE PRECEDING CLAUSE (ii). All such
payments shall be made in federal or other immediately available funds and shall
arrive by 2:00 p.m. local time at the place of payment on the day when due.
SECTION 20. SECURITY INTEREST
The Company shall grant to the Agent for the benefit of the Purchasers
a security interest in the Collateral pursuant to the Collateral Assignment.
SECTION 21. THE AGENT
21.1. Appointment. Each Purchaser hereby irrevocably designates and
appoints the Agent as the agent of such Purchaser under this Agreement and the
Loan Documents, and each such Purchaser irrevocably authorizes the Agent, as the
agent for such Purchaser, to take such action on its behalf under the provisions
of this Agreement and the Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms of this
Agreement and the Loan Documents, together with such other powers as are
47
reasonably incidental thereto.
21.2. Application of Proceeds of the Collateral. All Collateral shall
be held or administered by the Agent for the ratable benefit of the Purchasers.
Any proceeds received by the Agent from the foreclosure, sale, lease or other
disposition of any of the Collateral and any other proceeds received pursuant to
the terms of the Loan Documents shall be applied, first, to the cost of any such
foreclosure, sale, lease or other disposition and, second, to the payment in
full of the remaining Company's Obligations pro rata in proportion to the amount
of the Company's Obligations owed to each Person.
21.3. Delegation of Duties. The Agent may execute any of its duties
under this Agreement by or through agents or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
21.4. Reliance by Agent. The Agent may deem and treat the registered
owner of any Note as the owner thereof for all purposes. The Agent shall be
fully justified in failing or refusing to take any action under this Agreement
unless it shall first receive such advice or concurrence of the Majority
Noteholders as it deems appropriate. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement, the
Notes or any Loan Document in accordance with a request of the Majority
Noteholders, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Purchasers and all future holders of the
Notes.
21.5. Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Potential Default or Event of
Default hereunder unless the Agent has received notice from the Company
referring to this Agreement, describing such Potential Default or Event of
Default and stating that such notice is a "notice of default". The Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Potential Default or Event of Default as it shall
deem advisable and in the best interests of the Purchasers.
21.6. Agent in Its Individual Capacity. The Agent and its Affiliates
may make loans to and generally engage in any kind of business with the Company
as though the Agent were not the Agent hereunder. With respect to any Note
issued to it, the Agent shall have the same rights and powers under this
Agreement as any Purchaser and may exercise the same as though it were not the
Agent, and the terms "Purchaser" and "Purchasers" shall include the Agent in its
individual capacity.
21.7. Successor Agent. The Agent may resign as Agent upon 20 days
notice to the Purchasers. If the Agent shall resign as Agent under this
Agreement and the other Loan Documents, then the Purchasers on whose behalf such
Agent is acting shall appoint a successor agent for the Purchasers, whereupon
such successor agent shall succeed to the rights, powers and duties of the
Agent, and the term "Agent" shall mean such successor agent effective upon its
appointment, and the former Agent's rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent or any of the parties to
48
this Agreement or any Loan Document or any holders of the Notes. After any
retiring Agent's resignation hereunder as Agent, the provisions of this Section
21 shall inure to its benefit as to any actions taken or omitted to be taken by
it while it was Agent under this Agreement and the other Loan Documents. The
Agent shall use its best efforts to notify the Company of any such resignation;
provided, however, neither the Agent nor the Purchasers shall be held liable in
any respect for the failure to provide such notice; and further provided,
however, that until the Company receives notice of the Agent's resignation and
of the appointment of a successor agent, the Company shall be entitled to rely
upon the Agent as the Agent hereunder.
SECTION 22. NOTICES
Unless otherwise expressly specified or permitted by the terms hereof,
all notices, requests, demands, consents and other communications hereunder or
under the Loan Documents shall be in writing and shall be delivered by hand or
shall be sent by telex or telecopy (confirmed by registered, certified or
overnight mail or courier, postage and delivery charges prepaid or shall be sent
by overnight mail or courier (postage and delivery charges prepaid), to the
following addresses:
(a) if to the Purchaser, at the Purchaser's address as set forth in
Exhibit A hereto, or at such other address as may have been furnished to the
Company by the Purchaser in writing; or
(b) if to any other holder of a Note or Warrant, at such address as the
payee or registered holder thereof shall have designated to the Company in
writing; or
(c) if to the Company, at 38700 Grand River Avenue, Farmington Hills,
MI 48335-1563, Attention: Charles J. Drake, telephone: 248-471-2660, fax:
248-615-2971 or at such other address as may have been furnished in writing by
the Company to the Agent, the Purchasers and the other holders of Notes or
Warrants; or
(d) if to the Agent, at 2161 Commons Parkway, Okemos, MI 48864,
Attention: J. Michael Warren, telephone: 517-349-8600, fax: 517-349-3311 or at
such other address as may have been furnished in writing by the Agent to the
Company, the Purchasers and the other holders of Notes or Warrants.
Whenever any notice is required to be given hereunder, such notice
shall be deemed given and such requirement satisfied only when such notice is
delivered or, if sent by telex or telecopier, when received, unless otherwise
expressly specified or permitted by the terms hereof
SECTION 23. MISCELLANEOUS
23.1. Entire Agreement. This Agreement and the Loan Documents, together
with any further agreements entered into by the Purchaser and the Company at the
Closing, contain the entire agreement between the Purchaser and the Company, and
supersede any prior oral or written agreements, commitments, terms or
understandings, regarding the subject matter hereof.
49
23.2. Survival. All agreements, representations and warranties
contained herein in an; Loan Document or any document or certificate delivered
pursuant hereto or thereto shall survive, and shall continue in effect
following, the execution and delivery of this Agreement and of such Loan
Documents, the closings hereunder and thereunder, any investigation at any time
made by the Purchasers or on their behalf or by any other Person, the issuance,
sale and delivery of the Notes and the Warrants, any disposition thereof, any
payment or cancellation of the Notes, and any exercise of the Warrants;
provided, that Sections 7 and 8 shall terminate upon the payment in full of all
outstanding Notes. All statements contained in any certificate or other document
delivered by or on behalf of the Company pursuant hereto shall constitute
representations and warranties by the Company hereunder.
23.3. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument, and all signatures need not appear on any one
counterpart.
23.4. Headings. The headings and captions in this Agreement are for
convenience of reference only and shall not define, limit or otherwise affect
any of the terms or provisions hereof.
23.5. Binding Effect and Assignment.
(a) The terms of this Agreement shall be binding upon, and inure to the
benefit of, the parties and their respective successors and permitted assigns
whether so expressed or not.
(b) The Company may not assign any of its obligations, duties or rights
under any of the Loan Documents, except pursuant to Section 8.5 hereof or with
the Majority Noteholders' consent, which shall not be unreasonably withheld.
(c) In addition to any assignment by operation of law, a Purchaser may
assign, in whole or in part, any or all of its rights (and/or obligations) under
this Agreement and any of the Loan Documents to any transferee of any or all of
its Notes, Warrants or Shares, subject to the terms of Section 16 hereof, and
(unless such assignment expressly provides otherwise) any such assignment shall
not diminish the rights the Purchaser would otherwise have under this Agreement
or with respect to any remaining Notes, Warrants or Shares held by the
Purchaser.
23.6. Severability. Any provision of this Agreement or of any Loan
Document which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
thereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
To the extent permitted by applicable law, the parties hereby waive any
provision of law which may render any provision hereof prohibited or
unenforceable in any respect.
50
23.7. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Michigan (other than any conflict
of laws rule which might result in the application of the laws of any other
jurisdiction).
23.8. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. THE PARTIES
HEREBY CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN
THE STATE OF MICHIGAN AND IRREVOCABLY AGREE THAT ALL ACTIONS OR PROCEEDINGS
RELATING TO THE LOAN DOCUMENTS MAY BE LITIGATED IN SUCH COURTS. THE PARTIES
ACCEPT GENERALLY AND UNCONDITIONALLY THE EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND WAIVE ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREE TO
BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LOAN
DOCUMENTS. THE PARTIES HEREBY AGREE THAT SERVICE UPON THEM BY MAIL AT THE
ADDRESSES PROVIDED IN SECTION 22 HEREOF SHALL CONSTITUTE SUFFICIENT NOTICE AND
SERVICE OF PROCESS IN ANY SUCH PROCEEDING. NOTHING HEREIN SHALL AFFECT THE RIGHT
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
23.9. WAIVER OF JURY TRIAL. THE COMPANY AND THE PURCHASERS HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF ANY LOAN DOCUMENT, OR ANY DEALINGS BETWEEN THEM RELATING
TO THE SUBJECT MATTER OF THIS TRANSACTION. THE COMPANY AND THE PURCHASERS ALSO
WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS
WAIVER, BE REQUIRED OF THE PURCHASERS. THE SCOPE OF THIS WAIVER IS INTENDED TO
BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND
THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. THE COMPANY AND THE PURCHASERS FURTHER WARRANT
AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND
THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT PAYMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO (OR ASSIGNMENTS
OF) ANY LOAN DOCUMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED
AS A WRITTEN CONSENT TO A TRIAL (WITHOUT A JURY) BY THE COURT.
IN WITNESS WHEREOF, the parties hereto have caused this Note and
Warrant Purchase Agreement to be executed as of the date first above written.
51
Integral Vision, Inc.
--------------------------
Charles J. Drake
Chairman of the Board
Mid-State Industrial Services, Inc.
----------------------------
Vincent Shunsky
Treasurer
Warren Cameron Faust & Asciutto, P.C.
As Agent for the Purchasers
------------------------------
J. Michael Warren
President
52
EXHIBIT A
List of Purchasers
Principal
Name and Address Amount Of Note Number of Warrants
- ---------------- -------------- ------------------
Mid-State Industrial Services, Inc. $120,000 240,000
1118 Centennial Way
Lansing, MI 48917
Attn: Vincent Shunsky
Tele: 517-321-3130
Fax: 517-321-1022
53
EXHIBIT B
Form of Note
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER ANY APPLICABLE REGULATION OF ANY STATE AND IS NOT TRANSFERABLE EXCEPT
UPON THE CONDITIONS SPECIFIED IN SECTION 16 OF THE PURCHASE AGREEMENT REFERRED
TO HEREIN.
RIGHTS OF THE HOLDER TO RECEIVE PAYMENT AND ITS LIENS SECURING SUCH PAYMENT ARE
SUBJECT AND SUBORDINATE TO THE PRIOR PAYMENT OF ALL OBLIGATIONS OF THE COMPANY
TO NATIONAL CITY BANK OF MICHIGAN/ILLINOIS AND TO THE LIENS OF NATIONAL CITY
BANK OF MICHIGAN/ILLINOIS.
INTEGRAL VISION, INC.
15% Senior Subordinated Secured Note
Due March 31, 2005
Dated March 29, 2001
Farmington Hills, Michigan
No. __
FOR VALUE RECEIVED, the undersigned INTEGRAL VISION, INC., a Michigan
corporation (herein, together with any successor, referred to as the("Company"),
hereby promises to pay to Mid-State Industrial Services, Inc., a Michigan
corporation of 1118 Centennial Way, Lansing, MI 48917, (the "Payee") or
registered assigns, the principal sum of One Hundred Twenty Thousand Dollars
($120,00.00) in quarterly installments of principal of Ten Thousand Dollars
($10,000.00) beginning on June 30, 2002 and thereafter on the 30th day of
September, December, March and June of each year to and including March 30,
2005, and shall pay in full the remaining principal amount of all Notes then
outstanding on the maturity date of March 31, 2005, plus interest (computed on
the basis of the actual number of days elapsed over a 360-day year) on the
unpaid balance of such principal sum from the date hereof at the interest rate
of 15% per annum, payable quarterly on the 30th day of March, June, September
and December of each year, commencing June 30, 2001 (which first interest
payment shall be for the period from and including the date hereof through and
including June 30, 2001) until the entire principal amount hereof shall have
become due and payable, whether at maturity or at a date fixed for prepayment or
by acceleration or declaration or otherwise, and at the Default Rate on any
overdue installment of principal (including any overdue prepayment of principal)
and on any overdue premium and (to the extent permitted by law) on any overdue
installment of interest until paid. The Default Rate shall be equal to the per
annum interest rate on this Note, plus four percent (4%).
Capitalized terms not otherwise defined herein shall have the meaning
ascribed thereto in
54
the Note and Warrant Purchase Agreement dated effective as of March 29, 2001
(the "Purchase Agreement"), by and among the Company, the Agent, the Payee and
the other Purchasers named therein.
If any payment due hereunder becomes due and payable on a day which is
not a Business Day, the due date thereof shall be the next day which is a
Business Day, and the interest payable on such next Business Day shall be the
interest accruing through such actual date of payment.
Payments of principal and interest shall be made in lawful money of the
United States of America at the principal office of the Company at Farmington
Hills, Michigan, or at such other place as the Company shall have designated for
such purpose to the holder thereof in writing, and may be paid by check mailed,
or shall be made by wire transfer, all as provided in the Purchase Agreement, to
the address or account designated by the holder hereof for such purpose.
This Note is one of a duly authorized issue of Notes issued to the
Purchasers pursuant to the Purchase Agreement. This Note is subject to the
provisions of and is entitled to the benefits of the Purchase Agreement. Each
holder of this Note, by accepting the same, agrees to and shall be bound by the
provisions of the Purchase Agreement.
The obligations of the Company under this Note (and under the Purchase
Agreement) are secured by the Collateral. The existence of such Collateral does
not in any way reduce or restrict the rights and remedies available to a holder
of this Note whether such rights and remedies arise under this Note, the
Purchase Agreement or otherwise.
This Note is transferable only upon the terms and conditions specified
in the Purchase Agreement.
In case an Event of Default shall occur and be continuing, all amounts
then remaining unpaid on this Note shall become or may be declared due and
payable in the manner and with the effect provided in the Purchase Agreement.
No reference herein to the Purchase Agreement and no provision hereof
or thereof shall alter or impair the obligations of the Company, which are
absolute and unconditional, to pay the principal hereof and interest hereon at
the respective times and places specified herein and in the Purchase Agreement.
This Note is delivered in and shall be construed and enforced in
accordance with and governed by the laws of the State of Michigan (other than
any conflict of laws rules which might result in the application of laws of any
other jurisdiction).
Subject to the provisions of the Purchase Agreement, the Company may
treat the person in whose name this Note is registered as the owner and holder
of this Note for the purpose of receiving payment of principal of, premium, if
any, and interest on this Note and for all other purposes whatsoever, and the
Company shall not be affected by any notice to the contrary (except that the
Company shall comply with the provisions of the Purchase Agreement regarding the
55
issuance of a new Note or Notes to permitted transferees).
INTEGRAL VISION, INC. has caused this Note to be dated and to be
executed and issued on its behalf by its officer thereto duly authorized.
(Signed on the next page)
INTEGRAL VISION, INC.
By_____________________________
Name: Charles J. Drake
Title: Chairman of the Board
56
EXHIBIT C
Form of Warrant
No. __
THIS WARRANT CERTIFICATE (AND THE COMMON STOCK OR OTHER SECURITIES ISSUABLE UPON
EXERCISE HEREOF) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
UNDER ANY APPLICABLE REGULATION OF ANY STATE AND ARE NOT TRANSFERABLE EXCEPT
UPON THE CONDITIONS SPECIFIED IN SECTION 16 OF THE PURCHASE AGREEMENT REFERRED
TO HEREIN.
INTEGRAL VISION, INC.
Common Stock Purchase Warrant Certificate
Dated March 29, 2001
Farmington Hills, Michigan
FOR VALUE RECEIVED, the undersigned INTEGRAL VISION, INC., a Michigan
corporation (herein referred to as the "Company"), hereby certifies and agrees
that Mid-State Industrial Services, Inc., a Michigan corporation of 1118
Centennial Way, Lansing, MI 48917 or registered assigns, is entitled to purchase
from the Company up to an aggregate of Two Hundred Forty Thousand (240,000) duly
authorized, validly issued, fully paid and nonassessable shares of the Company's
Common Stock, no par value, or any stock into which such Common Stock shall have
been changed or any stock or other securities resulting from a reclassification
thereof (all such shares, stock or other securities which may be purchased by
this, and all other, Warrants are herein known as the "Shares") at a purchase
price per Share of $0.50 at any time and from time to time from the date hereof
until 5:00 p.m. on May 30, 2005. The foregoing agreement and rights are all
subject to the terms, conditions and adjustments (in both the number of Shares
and the purchase price per Share) set forth below in this Warrant Certificate.
This Warrant Certificate is one of the Common Stock Purchase Warrant
Certificates (the "Warrants", which term includes all Warrants issued in
substitution therefor) originally issued in connection with the issue and sale
by the Company of its Senior Subordinated Secured Notes (the "Notes"). The
Warrants and the Notes have been issued pursuant to the Note and Warrant
Purchase Agreement dated effective as of March 29, 2001 (the "Purchase
Agreement") among the Company, and the Purchasers named therein. The Warrants
originally so issued evidence rights to purchase an aggregate of 240,000 shares
at an exercise price of $0.50 per share, subject to adjustment as provided
herein. This Warrant is subject to the provisions, and is entitled to the
benefits, of the Purchase Agreement, including, without limitation, the
registration rights provisions contained therein.
The Company represents that all Shares to which the holders of the
Warrants shall be entitled upon the exercise thereof (i) are duly authorized by
the Articles of Incorporation of the Company in accordance with the laws of the
State of Michigan, (ii) have been duly authorized to be issued upon the exercise
of the Warrants from time to time in whole or in part, (iii) will be,
57
when issued in accordance with the terms of the Warrants, duly authorized and
validly issued and fully paid and nonassessable and free and clear of all Liens
and rights of others whatsoever (other than Liens and rights of others claiming
by, through or under the holder hereof) and (iv) will not be at the time of such
exercise subject to any restrictions on transfer or sale except as provided by
applicable laws.
Section 1. Exercise of Warrant.
1. 1. Manner of Exercise.
(a) This Warrant may be exercised by the holder hereof, in whole or in
part, during normal business hours on any Business Day by surrender of this
Warrant, together with the form of subscription attached as Annex A hereto (or a
reasonable facsimile thereof) duly executed by such holder in substantially such
form, to the Company at its office designated pursuant to the Purchase Agreement
(or, if such exercise is in connection with an underwritten public offering of
Shares subject to this Warrant, at the location at which the underwriting
agreement requires that such Shares be delivered).
(b) Payment of the exercise price for Shares shall be made, at the
option of the holder (i) as provided in Section 1.5 hereof, or (ii) by check or
wire transfer payable to the order of the Company, in any case, in an amount
equal to (A) the number of Shares specified in such form of subscription,
multiplied by (B) the then current exercise price. Such holder shall thereupon
be entitled to receive the number of Shares specified in such form of
subscription (plus cash in lieu of any fractional share as provided in Section
1.3 hereof).
1.2. Effective Date. Each exercise of this Warrant pursuant to Section
1. 1 (a) hereof shall be deemed to have been effected immediately prior to the
close of business on the Business Day on which this Warrant is surrendered to
the Company as provided in Section 1. 1 hereof (except that if such exercise is
in connection with an underwritten public offering of Shares subject to this
Warrant, then such exercise shall be deemed to have been effected upon such
surrender of this Warrant), and such exercise shall be at the current exercise
price in effect at such time. On each such day that an exercise of this Warrant
is deemed effected, the Person or Persons in whose name or names any certificate
or certificates for Shares are issuable upon such exercise (as provided in
Section 1.3 hereof) shall be deemed to have become the holder or holders of
record thereof.
1.3. Share Certificates; Cash for Fractional Shares; and Reissuance of
Warrants. As promptly as practicable after the exercise of this Warrant, in
whole or in part, and in any event within five (5) Business Days thereafter
(unless such exercise shall be in connection with a public offering of Shares
subject to this Warrant, in which event concurrently with such exercise), the
Company at its expense (including the payment by it of any applicable issue,
stamp or other taxes) will cause to be issued in the name of and delivered to
the holder hereof or such other person as such holder may direct:
(a) a certificate or certificates for the number of Shares to which
such holder shall be entitled upon such exercise plus, in lieu of any fractional
share to which such holder would
58
otherwise be entitled, cash in an amount equal to the same fraction of the
Market Price per Share (determined in accordance with Section 2.2(f) hereof) on
the effective date of such exercise; and
(b) in case such exercise is in part only, a new Warrant or Warrants of
like tenor, calling in, the aggregate on the face or faces thereof for the
number (which may be fractional) of Shares (without giving effect to any
adjustment therein) equal to the number of such Shares called for on the face of
this Warrant minus the number of Shares which could have been obtained upon such
exercise for the exercise price paid if the current exercise price had been
$0.50 per Share.
1.4. Acknowledgment of Obligation. The Company will, at the time of or
at any thereafter each exercise of this Warrant, upon the request of the holder
hereof or of any Shares issued upon such exercise, acknowledge in writing its
continuing obligation to afford to such holder all rights (including, without
limitation, any rights to registration of any such Shares pursuant to the
Purchase Agreement) to which such holder shall continue to be entitled under
this Warrant and the Purchase Agreement; provided, that if any such holder shall
fail to make any such request, the failure shall not affect the continuing
obligation of the Company to afford such rights to such holder.
1.5. Notes. The holder shall have the option, but not the obligation,
upon any exercise of this Warrant, to apply to the payment required by Section
1. 1 hereof all or any part of the accrued and unpaid interest on, or principal
of, any Notes at the time held by the holder. The Company will accept the amount
of accrued and unpaid interest or principal, if such election is selected,
specified in the form of subscription in satisfaction of the exercise price for
such Shares to be purchased. The holder shall have the right to apply all or any
portion of such accrued and unpaid interest or principal to exercise all or any
portion of this Warrant whether or not payment on the Notes is otherwise
prohibited.
1.6. Restriction. The holder acknowledges that the Shares acquired upon
exercise of the Warrant will be "restricted securities" as that term is defined
under the regulations promulgated under the Securities Act, will not be saleable
in the absence of an effective registration statement under the Securities Act
or an exemption from registration, and accordingly may be required to be held
for an indefinite period of time. The holder agrees that Shares issued pursuant
hereto may contain the following legend on the face thereof: "This security has
not been registered pursuant to the Securities Act of 1933, as amended, and each
holder of this security by the acceptance hereof agrees that this security shall
not be transferred in violation of said Act." The Company agrees that such
legend shall be removed from any Shares which are no longer subject to such
restrictions.
Each holder of a Warrant by acceptance thereof agrees that it will not
sell or otherwise dispose of any Warrants or Shares unless such Warrants or
Shares have been registered under, or have been sold pursuant to an exemption
from registration under, the Securities Act. As a condition to the Company's
obligation to issue a new Warrant to a transferee thereof which (x) is not a
holder of a Warrant, the transferor must certify to the Company the facts on
which the transferor is relying for such exemption or (y) is a holder of a
Warrant, the transferor must represent to the Company in writing that the
transfer is so exempt.
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Section 2. Current Exercise Price and Adjustments.
2.1 Current Exercise Price. The term "current exercise price" shall
mean initially $0.50 per Share, subject to adjustment from time to time as
hereinafter provided, in effect at any given time. In determining the current
exercise price, the result shall be expressed to the nearest $.01, but any such
lesser amount shall be carried forward and shall be considered at the time of
and together with the next subsequent adjustment which, together with any
adjustments being carried forward, shall amount to $.01 per Share or more.
2.2. Adjustment of Current Exercise Price. The current exercise price
shall be subject to adjustment, from time to time (but not below zero), as
follows:
(a) Adjustments for Stock Dividends, Recapitalization. etc. In the
event the Company shall, after the Closing Date, issue any shares of Common
Stock (i) by stock dividend or any other distribution upon the stock of the
Company payable in Common Stock or in securities convertible into or exercisable
or exchangeable for shares of Common Stock or (ii) in subdivision of its
outstanding Common Stock, by reclassification or otherwise, the current exercise
price then in effect shall be reduced proportionately; and, in like manner, in
the event of any combination of shares of Common Stock, by reclassification or
otherwise, the current exercise price then in effect shall be increased
proportionately. An adjustment made pursuant to this Section 2.2(a) shall become
effective retroactively immediately after the record date in the case of a
dividend or other distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination.
(b) Adjustments for Issuance of Additional Stock. Subject to the
exception referred to in Section 2.2(e) hereof and except as otherwise provided
for in Section 2.2(a) hereof, in case the Company shall at any time or from time
to time after the Closing Date issue any additional shares of its Common Stock
("Additional Common Stock") either (i) for consideration per share less than the
then current Market Price per share of the Company's Common Stock (determined as
provided in Section 2.2(f) hereof) immediately prior to the issuance of such
Additional Common Stock, or (ii) for a consideration per share less than the
then current exercise price immediately prior to the issuance of such Additional
Common Stock, or (iii) without consideration, then (in the case of either clause
(i), (ii) or (iiii)), and thereafter successively upon each such issuance, the
current exercise price shall forthwith be reduced to a price determined by
multiplying such current exercise price by a fraction, of which
(A) the numerator shall be (i) the number of shares of the
Company's Common Stock outstanding immediately prior to such
issuance of shares of Additional Common Stock plus (ii) the
number of shares of the Company's Common Stock which the
aggregate amount of consideration, if any, received by the
Company for the total number of shares of Additional Common
Stock so issued would purchase at the greater of (x) the
Market Price per share of the Company's Common Stock in effect
immediately prior to such issuance of shares of Additional
Common Stock or (y) the exercise price per Share in effect
immediately prior to such
60
issuance of shares of Additional Common Stock, and
(B) the denominator shall be the number of shares of the
Company's Common Stock outstanding immediately after such
issuance of shares of Additional Common Stock,
provided, however, that such adjustment shall be made only if the current
exercise price determined from the aforesaid fraction shall be less than the
current exercise price in effect immediately prior to the issuance of such
Additional Common Stock. The adjustment described in this Section 2.2(b) shall
be made whenever such Common Stock is issued, and shall become effective
retroactively immediately after the date on which the Company committed to make
such issuance.
(c) Certain Rules in Applying the Adjustment for Additional Stock
Issuances. For purposes of any adjustment as provided in Section 2.2(b), the
following provisions shall also be applicable:
(1) Cash Consideration. In case of the issuance of Additional Common
Stock for cash, the consideration received by the Company therefor shall be
deemed to be the net cash proceeds received by the Company for such Additional
Common Stock after deducting any commissions or other expenses paid or incurred
by the Company for any underwriting of, or otherwise in connection with the
issuance of, such Additional Common Stock.
(2) Non-Cash Consideration. In case of the issuance (other than
application of obligations of the Company) of Additional Common Stock for a
consideration other than cash, or a consideration a part of which shall be other
than cash, the amount of the consideration other than cash so received or to be
received by the Company shall be deemed to be the value of such consideration at
the time of its receipt by the Company as determined in good faith by the Board
of Directors of the Company, provided, that where the non-cash consideration
consists of the cancellation, surrender or exchange of outstanding obligations
of the Company (or where such obligations are otherwise converted into shares of
the Company's Common Stock), the value of the non-cash consideration shall be
deemed to be the amount, including principal and any accrued interest, as of the
time of the Company's receipt, of the obligations canceled, surrendered,
satisfied, exchanged or converted. If the Company receives consideration, part
or all of which consists of publicly traded securities, the value of such
non-cash consideration shall be the aggregate market value of such securities
(based on the latest reported trades) as of the close of the day immediately
preceding the date of their receipt by the Company.
(3) Options, Warrants, Convertibles, etc. In case of the issuance
(other than by way of a Distribution on Common Stock pursuant to Section 2.2(b)
hereof), whether by distribution or sale to holders of its Common Stock or to
others, by the Company of (i) any security that is convertible into the
Company's Common Stock or (ii) any rights, options or warrants to purchase the
Company's Common Stock (except for the Warrants), if inclusion thereof would
result in a current exercise price lower than if excluded, the Company shall be
deemed to have issued, for the consideration described below, the number of
shares of the Company's Common Stock into
61
which such convertible security may be converted when first convertible, or the
number of shares of the Company's Common Stock deliverable upon the exercise of
such rights, options or warrants when first exercisable, as the case may be (and
such shares shall be deemed to be Additional Common Stock for purposes of
Section 2.2(b) hereof). The consideration deemed to be received by the Company
at the time of the issuance of such convertible securities or such rights,
options or warrants shall be the consideration so received determined as
provided in Sections 2.2(c)(1) and (2) hereof deducting any commissions or other
expenses paid or incurred by the Company for any underwriting of, or otherwise
in connection with, the issuance of such convertible securities or rights,
options or warrants, plus (x) any consideration or adjustment payment to be
received by the Company in connection with such conversion, or, as applicable,
(y) the aggregate price at which shares of the Company's Common Stock are to be
delivered upon the exercise of such rights, options or warrants when first
exercisable (or, if no price is specified and such shares are to be delivered at
an option price related to the Market Price of the subject Common Stock, an
aggregate option price bearing the same relation to the Market Price of the
subject Common Stock at the time such rights, options or warrants were granted).
In case any such securities, rights, options or warrants shall be issued in
connection with the issue or sale of other securities of the Company comprising
one integral transaction in which no specific consideration is allocated to such
securities, rights, options or warrants, such securities, rights, options or
warrants shall be deemed to have been issued without consideration. If,
subsequently, (1) such number of shares into which such convertible security is
convertible, or which are deliverable upon the exercise of such right, options
or warrants, is increased or (2) the conversion or exercise price of such
convertible security, rights, options or warrants is decreased, then the
calculations under the preceding two sentences (and any resulting adjustment to
the current exercise price under 2.2(b) hereof) with respect to such convertible
security, rights, options or warrants, as the case may be, shall be recalculated
as of the time of such issuance but giving effect to such changes (but any such
recalculation shall not result in the current exercise price being higher than
that which would be calculated without regard to such issuance). On the
expiration or termination of such rights, options or warrants, or rights to
convert, the current exercise price hereunder shall be readjusted (up or down as
the case may be) to such current exercise price as would have been obtained had
the adjustments made upon the issuance of such rights, options, warrants or
convertible securities been made upon the basis of the delivery of only the
number of shares of the Company's Common Stock actually delivered upon the
exercise of such rights, options or warrants or upon the conversion of any such
securities and at the actual exercise or conversion prices (but any such
recalculation shall not result in the current exercise price being higher than
that which would be calculated without regard to such issuance).
(4) Number of Shares Outstanding. The number of shares of the Company's
Common Stock as at the time outstanding shall exclude all shares of the
Company's Common Stock then owned or held by or for the account of the Company
or any of its Subsidiaries but shall include the aggregate number of shares of
the Company's Common Stock at the time deliverable in respect of the convertible
securities, rights, options and warrants referred to in Section 2.2(c)(3 ));
provided, that to the extent that such rights, options, warrants or conversion
privileges are not exercised, such shares of Common Stock shall be deemed to be
outstanding only until the expiration dates of the rights, warrants, options or
conversion privileges or the prior cancellation thereof.
62
(d) Exclusions from the Adjustment for Additional Stock Issuances. No
adjustment of the current exercise price under Section 2.2(b) hereof shall be
made as a result of or in connection with the issuance of Shares upon exercise
of the Warrants or the exercise of options to purchase 982,600 shares of the
Company's Common Stock pursuant to options previously granted to certain
officers of the Company pursuant to the Company's stock option plans. To the
extent that the issuance (or deemed issuance) of the Company's Common Stock
shall not result in any adjustment of the current exercise price pursuant to the
provisions of this Section 2.2(d), then such Common Stock shall not be taken
into account for purposes of determining any fraction referred to in Section
2.2(b) hereof.
(e) Accountants' Certification. Whenever the current exercise price is
adjusted as provided in this Section 2.2, the Company will promptly obtain a
certificate of a firm of independent public accountants of recognized national
standing selected by the Board of Directors of the Company (who may be the
regular auditors of the Company) setting forth the current exercise price as so
adjusted, the computation of such adjustment and a brief statement of facts
accounting for such adjustment, and will mail to the holders of the Warrants a
copy of such certificate from such firm of independent public accountants.
(f) Determination of Market Price. The current "Market Price" per share
of the Company's Common Stock on any date shall be deemed to be the average of
the daily closing prices for the twenty (20) consecutive trading dates ending on
the trading day before such date. The closing price for each day shall be the
last reported sale price or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, in either case on the principal
national United States securities exchange on which the Company's Common Stock
is listed or admitted to trading, or if the Company's Common Stock is not listed
or admitted to trading on any such national securities exchange, the average of
the highest reported bid and lowest reported asked prices as furnished by the
National Association of Securities Dealers Inc., Automated Quotation System
Level I, or comparable system. If the closing price cannot be so determined, the
Market Price shall be determined:
(x) by the written agreement of the Company and the holders of
Warrants representing a majority of the Shares then obtainable
from the exercise of outstanding Warrants (the "Majority
Holders"); or
(y) in the event that no such agreement is reached within
fifteen (15) days after the event giving rise to the need to
determine the Market Price, by a nationally recognized U.S.
investment banking firm, selected by the Company ("Company
Appraiser") not more than 5 Business Days after the end of
such 15 day period. Any appraiser appointed pursuant to this
paragraph shall be instructed to make its determination as
promptly as possible and in any event within 30 days of
appointment. If no such selection is made within such period,
then the Majority Holders shall as promptly as possible select
such a firm whose determination shall be final and binding. If
such selection is timely made by the Company, and the Majority
Holders do not object to the Market Price as determined by the
Company Appraiser within 10 days of receipt of notice thereof
by all holders of Warrants, then the Market Price as
determined by the Company
63
Appraiser shall be the Market Price. If the Majority Holders
do so object to the Company Appraiser's determination of
Market Price, then the Majority Holders can select a
nationally recognized U.S. investment banking firm ("Alternate
Appraiser") to review the Company Appraiser's report and other
relevant information. Within 10 days after receipt by the
Alternate Appraiser of such report and such other information
as is reasonably requested by the Alternate Appraiser, the
Company Appraiser and Alternate Appraiser shall communicate
and/or meet to resolve any questions or differences with
respect to the Market Price. If such appraisers agree on a
Market Price, such Market Price shall be the Market Price. If
no agreement is reached then the Company Appraiser and
Alternate Appraiser shall select a third nationally recognized
firm ("Third Appraiser"). If the Company Appraiser and the
Alternate Appraiser cannot agree on a Third Appraiser within
20 days of the end of such 10 day period, either may apply to
the American Arbitration Association to appoint the Third
Appraiser. The Third Appraiser shall, within 30 days of its
hire, issue a report with its determination of Market Price
which shall be conclusive and binding. All expenses of the
Company Appraiser shall be borne by the Company. All expenses
of the Alternate Appraiser shall be borne by the holders of
the Warrants. All expenses of the Third Appraiser shall be
borne equally by the Company and the holders of the Warrants.
Market Price shall be determined on the basis of the fair
market value of the Company as if it were sold as a going
concern on the date of valuation and without regard to the
lack of any trading market for, or the lack of liquidity in,
the Common Stock of the Company.
The Company shall cooperate, and shall provide all necessary
information and assistance, to permit any determination under
the preceding clause (x) or (y).
Each Appraiser shall be instructed to use its best efforts to
give the Company and all holders reasonable advance notice of
the Market Price and the contents of its report (by delivering
a draft report) before the report is delivered in final form.
Any communications or reports by an Appraiser to either the
Company or any of the holders regarding Market Price shall be
given simultaneously to both the Company and all of the
holders.
(g) Antidilution Adjustments Under Other Securities. Without limiting
any other rights available hereunder to the holders of Warrants, if there is an
antidilution adjustment (x) under any security which is convertible into Common
Stock of the Company whether issued prior to or after the date hereof or (y)
under any rights, options or warrants to purchase Common Stock of the Company
whether issued prior to or after the date hereof (except for the Warrants and
except as stated in Section 2.2(d) hereof) which (in the case of the preceding
clause (x) or (y)) results in a reduction in the exercise or purchase price with
respect to such security or rights or results in an increase in the number of
shares obtainable under such security or rights, then an adjustment
64
shall be made under this Section 2.2(g) to the current exercise price hereunder.
Any such adjustment under this Section 2.2(g) shall be whichever of the
following results in a lower current exercise price: (A) a reduction in the
current exercise price equal to the percentage reduction in such exercise or
purchase price with respect to such security or rights or (B) a reduction in the
current exercise price which will result in the same percentage increase in the
number of Shares available hereunder as the percentage increase in the number of
Shares available under such security or rights. Any such adjustment under this
Section 2.2(g) shall only be made if it would result in a lower current exercise
price than that which would be determined pursuant to any other antidilution
adjustment otherwise required hereunder as a result of the event or circumstance
which triggered the adjustment to the security or rights described in clause (x)
or (y) above (and if any such adjustment is so made under this Section 2.2(g),
then such other antidilution adjustment otherwise required hereunder shall not
be made as a result of such event or circumstance).
(h) Reorganization Adjustments. In case of any capital reorganization
or reclassification of the capital stock of the Company (other than a change in
par value or a stock split-up), the holder of this Warrant shall thereafter be
entitled to purchase for the current exercise price the securities and property
receivable upon such capital reorganization or reclassification by a holder of
the number of shares of Common Stock which this Warrant entitled the holder
hereof to purchase immediately prior to such capital reorganization or
reclassification. In the event that at any time, as a result of an adjustment
made pursuant to this Section 2.2(h), the holder of this Warrant shall become
entitled to purchase any other securities or property other than Common Stock,
thereafter the number of such other securities or property so purchasable upon
exercise of this Warrant and the current exercise price shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in this
Section 2.2.
(i) Other Adjustments. Without limiting any provisions of this Section
2.2 or any other provisions of this Warrant, in case any event shall occur as to
which any of the provisions of this Section 2.2 are not strictly applicable but
the failure to make any adjustment would not fairly protect the exercise rights
represented by the Warrants in accordance with the intent and principles of this
Section 2.2, the Company shall at its expense appoint a firm of independent
public accountants of recognized national standing selected by the Board of
Directors of the Company (who may be the regular auditors of the Company), and
reasonably satisfactory to the Majority Holders, which shall give their opinion
upon the adjustment, if any, on a basis consistent with the intent and
principles established in this Section 2.2, necessary to preserve, without
dilution, the economic and other rights represented by the Warrants. Upon
receipt of such opinion, the Company will promptly mail copies thereof to the
holders of the Warrants and shall make the adjustments described therein.
(j) Meaning of "Issuance". References in this Warrant to "issuance" of
stock by the Company include issuances by the Company of previously unissued
shares and issuances, sales or other transfers by the Company of treasury stock.
Section 3. Company's Consolidation or Merger. If the Company shall at
any time
65
consolidate with or merge into another entity (where the Company is not the
continuing corporation after such merger or consolidation), the holder of a
Warrant shall thereafter be entitled to receive, upon the exercise thereof in
whole or in part, the securities or other property to which (and upon the same
terms and with the same rights as) a holder of the number of Shares then
deliverable upon the exercise thereof would have been entitled upon such
consolidation or merger (subject to adjustments under Section 2.2 hereof), and
the Company shall take such steps in connection with such consolidation or
merger as may be necessary to assure such holder that the provisions of the
Warrants and the Purchase Agreement shall thereafter be applicable in relation
to any securities or property thereafter deliverable upon the exercise of this
Warrant, including, but not limited to, obtaining a written acknowledgment from
the continuing entity of its obligation to supply such securities or property
upon such exercise and to be so bound by the Warrant and the Purchase Agreement.
A sale, transfer or lease (in one, or a series of related, transactions) of all
or substantially all of the assets of the Company to another person shall be
deemed a consolidation or merger for the foregoing purposes.
Section 4. Notice to Holders of Warrants.
In case at any time:
(i) the Company shall take any action which would require an adjustment
in the current exercise price pursuant to Section 2.2(a), (b), (j), (h) or (i);
or
(ii) there shall be any capital reorganization or reclassification of
the Company's Common Stock (other than a change in par value or from par value
to no par value or from no par value to par value of the Common Stock), or any
consolidation or merger to which the Company is a party and for which approval
of any stockholders of the Company is required, or any sale, transfer or lease
(in one, or a series of related, transactions) of all or substantially all of
the assets of the Company; or
(iii) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give written notice to
the holders of the Warrants, not less than twenty (20) days before any record
date or other date set for definitive action, of the date on which such action,
reorganization, reclassification, sale, transfer, lease, consolidation, merger,
dissolution, liquidation or winding-up, as the case may be, and the terms
thereof.
Section 5. Number of Shares. Upon any adjustment of the current
exercise price, the holder of this Warrant shall thereafter (until another such
adjustment) be entitled to purchase at the current exercise price the number of
Shares, calculated to the nearest 1/100 of a Share, obtained by multiplying the
current exercise price in effect immediately prior to such adjustment by the
number of Shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the new current exercise price
resulting from such adjustment.
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Section 6. Specific Performance. The Company stipulates that the
remedies at law of a holder of this Warrant in the event of any default or
threatened default by the Company in the performance of or compliance with any
of the terms of this Warrant are not and will not be adequate and that, to the
fullest extent permitted by law, such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
Section 7. No Rights or Liabilities as Stockholder. Nothing contained
in this Warrant shall be construed as conferring upon the holder hereof any
rights as a stockholder of the Company (prior to exercise of all or a portion of
this Warrant) or as imposing any liabilities on such holder to purchase any
securities or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors or stockholders of the Company or
otherwise.
Section 8. Ownership; Transfer. The Company may treat the Person in
whose name this Warrant is registered pursuant to the Purchase Agreement as the
owner and holder of this Warrant for all purposes, and the Company shall not be
affected by any notice to the contrary (except that the Company shall comply
with the provisions of the Purchase Agreement regarding the issuance of a new
Warrant or Warrants to transferees). This Warrant is transferable upon the
conditions specified in the Purchase Agreement.
Section 9. Covenants
9.1. Information Requirements. The Company will provide to each holder
of Warrants or Shares, promptly after the same are available, copies of each
annual report, proxy or financial statement or other communication sent to the
Company's or a Subsidiary's stockholders and copies of all annual, regular,
periodic and special reports and registration statements which the Company may
file or be required to file with the Securities and Exchange Commission or with
any securities exchange or the National Association of Securities Dealers, Inc.
9.2. Reservation of Shares. There have been reserved, and the Company
shall at all times keep reserved, out of its authorized Common Stock, a number
of shares of Common Stock sufficient to provide for the exercise of the rights
of purchase represented by the then outstanding Warrants.
9.3. No Dilution or Impairment. The Company will not, by amendment of
its Certificate of Incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant. The Company will at all times in good faith
assist in the carrying out of all such terms, and in the taking of all such
action, as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not permit the par value
of any shares of Common Stock receivable upon the exercise of this Warrant to
exceed the amount payable therefor upon such exercise, (b) will take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of the Company's Common
Stock, free from all taxes,
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Liens and charges with respect to the issue thereof, upon the exercise of this
Warrant from time to time outstanding and (c) will not take any action which
results in any adjustment of this current exercise price under this Warrant if
the total number of shares of the Company's Common Stock (or other securities)
issuable after the action upon the exercise of all of the Warrants would exceed
the total number of shares of Common Stock (or other securities) then authorized
by the Company's Certificate of Incorporation and available for the purpose of
issue upon such exercise.
9.4. Listing of Shares. If the Company shall list any shares of its
Common Stock on any national securities exchange, it will take such action as
may be necessary, from time to time, to list the Shares, subject to issuance, on
such exchange.
9.5. Securities Exchange Act Registration. At any time that the Company
either files and such filing becomes effective, or is required to file, a
registration statement with respect to Common Stock of the Company under Section
5 of the Securities Act or Section 12(b) or Section 12(g) of the Securities
Exchange Act, then thereafter:
(a) The Company will maintain effective a registration statement
(containing such information and documents as the Commission shall specify and
otherwise complying with the Securities Exchange Act) with respect to the Common
Stock of the Company under Section 12(b) or Section 12(g), whichever is
applicable, of the Securities Exchange Act and will file on time such
information, documents and reports as the Commission may require or prescribe
for companies whose stock has been registered pursuant to such Section 12(b) or
Section 12(g), whichever is applicable.
(b) The Company will, upon the request of the holder hereof or of any
Shares, make whatever other filings with the Commission, or otherwise make
generally available to the public such financial and other information, as any
such holder may deem reasonably necessary or desirable in order to enable such
holder to be permitted to sell Shares pursuant to the provisions of Rule 144
under the Securities Act (or any successor statute, rule or regulation to Rule
144).
9.6. Delivery of Information for Rule 144A Transactions. If a holder of
Warrants or Shares proposes to transfer any such Warrants or Shares pursuant to
Rule 144A under the Securities Act (as in effect from time to time), the Company
agrees to provide (upon the request of such holder or the prospective
transferee) to such holder and (if requested) to the prospective transferee any
financial or other information concerning the Company and its Subsidiaries which
is required to be delivered by such holder to any transferee of such Warrants or
Shares pursuant to such Rule 144A.
Section 10. Headings. The headings and captions in this Warrant are for
convenience of reference only and shall not define, limit or otherwise affect
any of the terms or provisions hereof.
Section 11. Governing Law. This Warrant shall be governed by, and
construed in accordance with, the laws of the State of Michigan (other than any
conflict of laws rule which
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might result in the application of the laws of any other jurisdiction).
Section 12. Survival. The obligations of the Company under this Warrant
shall survive its full exercise.
Section 13. Definitions. Terms not otherwise defined herein are defined
in the Purchase Agreement and are used herein with the same definition.
INTEGRAL VISION, INC. has caused this Warrant to be dated and to be
executed and issued on its behalf by its officer thereunto duly authorized.
Integral Vision, Inc.
By:_________________________
Name: Charles J. Drake
Title: Chairman of the Board