Exhibit 4.2
AMENDED AND RESTATED
DEBT AGREEMENT
DATED AS OF
JUNE 30, 2004
AMENDED AND RESTATED
DEBT AGREEMENT
THIS AGREEMENT is made as of the 30th day of June, 2004 between Ovation
Products Corporation, a corporation organized and existing under the laws of the
State of Delaware (the "Company"), and WMS Family I LLC, a Delaware limited
liability company with principal offices at 000 Xxxxxxxxxxx Xxx, Xxxxxxx,
Xxxxxxxxxxxxx 00000 (the "Lender").
WHEREAS, the Company's predecessor in interest and Lender's predecessor in
interest entered into a certain Debenture Purchase Agreement dated as of August
21, 1997 (the "Purchase Agreement");
WHEREAS, in a series of amendments, the parties have altered their
understandings, including the issuance of Debentures, notes in the total
aggregate amount of $478,535 (the "Existing Notes") and warrants for an
aggregate of 192,964 shares of the Company's Common Stock , which total does not
include, and this Agreement does not affect, warrants for 1200 shares of the
Company's Preferred Stock issuable to the Lender or it predecessor in interest
by reason of the investment of $20,000 in a financing round of $800,000
commenced in October 2003 (the "Existing Warrants");
WHEREAS, for the sake of convenience, the parties wish to amend the
Existing Notes and Existing Warrants in their entirety by the issuance of a
single Note and two Warrants;
WHEREAS, the parties now wish to update this Agreement to reflect
subsequent understandings;
NOW THEREFORE, the Purchase Agreement is hereby amended and restated as
follows:
The Lender and the Company hereby agree as follows:
1. DEFINITIONS.
The following terms, as used herein, have the following respective
meanings:
1.1 "BUDGET" means operating expenses, including, but not limited to,
salaries, outside fabrication costs, by month, generated and projected, as a
result of, or anticipated as a result of, the design and development of the
Product.
1.2 "BUSINESS DAY" means any day except Saturday, Sunday or a day on which
banking institutions in Delaware are authorized by law to close.
1.3 "CLOSING" and "CLOSING DATE" mean the date set forth in the first
paragraph above.
1.4 "CODE" means the Internal Revenue Code of 1986, as amended.
1.5 "COMPANY" means Ovation Products Corporation, a Delaware corporation,
and its assigns.
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1.6 "DEFAULT" means any Event of Default hereunder or any other event or
condition which, with the giving of notice or the lapse of time or both, would
constitute an Event of Default hereunder.
1.7 "EVENT OF DEFAULT" has the meaning set forth in Section 6.
1.8 "FOUNDERS" means Xxxxxxx Xxxxxx.
1.9 "FUNDAMENTAL CHANGE" means the occurrence of any of the following
events: (a) the Company shall, or shall agree, to merge or consolidate with any
other corporation; (b) the Company shall be acquired, or shall agree to be
acquired, by any Person (including any individual, partnership, joint venture,
corporation, trust or group thereof), whether pursuant to a stock tender or
otherwise; or (c) the Company shall sell, lease, transfer or otherwise dispose
of, or shall agree to sell, lease, transfer or otherwise dispose of, all or
substantially all of its assets.
1.10 "LENDER" means WMS Family I LLC, a Delaware limited liability
company, as successor to Xxxxxxx X. Xxxxxxx, dba WMS Enterprises, a
Massachusetts proprietorship.
1.11 "NOTE(S)" shall have the meaning given that term in Section 2.2
hereof;
1.12 "OUTSTANDING EQUITY SECURITIES" means all authorized and outstanding
shares of the Company's capital stock, on a fully diluted basis, including,
without limitation, the authorized employee stock reserve approved by the Board
of Directors and all securities issuable upon exercise of outstanding warrants
and options and upon conversion of outstanding convertible instruments.
1.13 "PERSON" means an individual, corporation, partnership, trust,
organization, association, governmental body or agency or other entity.
1.14 "PRODUCT" means the inventions relating to a countertop and
undercounter distiller to be used to purify water in the home.
1.15 "PUBLIC OFFERING" means public offering pursuant to a registration
statement filed and declared effective under the Securities Act or upon some
other means by which the Common shares of the Company become publicly traded and
listed on a national securities exchange or listed on the National Market System
("NMS") of the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") allowing WMS to sell its Warrant Shares.
1.16 "Restated License Agreement" means that certain "restated license
agreement" of even date referencing an agreement between each parties'
predecessors in interest executed in August 1997;
1.17 "RIGHT OF FIRST REFUSAL" has the meaning set forth in Section 8.
1.18 "SECURITIES ACT" means the Securities Act of 1933, as amended.
1.19 "SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
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1.20 "VOTING SHARES" of any corporation means securities of any class or
classes (however designated) having ordinary voting power for the election of
members of the board of directors (or other governing body) of such corporation.
1.21 "WARRANT SHARES" means the shares of Common Stock issuable upon
conversion of the Warrant in accordance with the terms hereof.
1.22 "WARRANT(S)" shall have the meaning given that term on Section 2.2
hereof.
2. EXCHANGE OF DEBENTURE FOR NOTES AND WARRANTS.
2.1 DELIVERIES BY LENDER. Simultaneously herewith, the Lender shall
deliver to the Company:
(a) the Convertible Debenture(s), the delivery of which shall
constitute the exchange by Lender of all rights to reinstate its rights to
acquire Securities of the Company pursuant to the Debenture Agreement, and
(b) the Existing Notes;
(c) the Existing Warrants;
(d) its check for $100,000 in good funds as its payment for its
subscription to the Preferred Series C offering of the Company; and
(e) the Restated License Agreement.
2.2 DELIVERIES BY COMPANY. Simultaneously herewith, Company shall deliver
to Lender its duly authorized and executed
(a) promissory note in the total aggregate amount due Lender under
the Existing Notes and all prior agreements in the form attached hereto as
EXHIBIT A (the "Note");
(b) warrants with respect to the issuance of its Securities in the
total aggregate amount due Lender under the Existing Warrants (and at the
strike prices of each) and otherwise in the forms attached hereto as
EXHIBITS B AND C in exchange for the Existing Warrants and its warrant for
50,000 shares in the form attached hereto as EXHIBIT D issued with respect
to the extension of the debt reflected by issuance of the Note (all such
warrants and any other warrant issued to the Lender or any assignee of
Lender by the Company to be included in the defined term the "Warrants"
and if referred to individually in the term "Warrant" herein). Each
Warrant shall have an expiration date of June 30, 2014; and
(c) the Restated License Agreement.
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The parties have previously executed a security agreement dated as of August 21,
1997, which agreement, as amended to date, shall continue to secure the Notes
and the obligations of the Company to Lender described herein and therein (the
"Security Agreement").
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants that:
3.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has all corporate power and authority to own and lease its
properties and to conduct its business as presently conducted, and as proposed
to be conducted pursuant to the Budget as agreed upon. The copies of the
Company's Articles and Bylaws furnished are complete and correct on or prior to
the Closing Date. The Company is not controlled by, directly or indirectly, by
any corporation, association or business organization. The Company is duly
qualified to transact business as a foreign corporation in each jurisdiction in
which the conduct of its business, as presently conducted, or its ownership, or
leasing, of property makes such qualification necessary and in which the failure
to so qualify would have a material adverse effect on the Company's business or
financial condition, taken as a whole, and has obtained all governmental
licenses, authorizations, consents, approvals and made all filings which are
required to conduct its business as presently conducted, and as proposed to be
conducted, and the failure to obtain which would have a material adverse effect
on the Company's business or financial condition, taken as a whole. The Company
does not have any Subsidiaries and does not directly or indirectly own any
interest in any other corporation, partnership or entity.
3.2 AUTHORIZATION AND VALIDITY OF THIS AGREEMENT. The execution, delivery
and performance by the Company of this Agreement, including the execution,
delivery and performance of the Debenture and the offer, issuance, sale and
delivery of the Debenture and the Warrant Shares contemplated hereby are within
the Company's corporate powers, have been duly authorized by all necessary
corporate action, require no approval of, filing with or other action by, or in
respect of, any governmental body, agency or official, and do not and will not
contravene or constitute a default under any applicable law or regulation, the
Articles of Incorporation or Bylaws of the Company or any agreement, judgment,
injunction, order, decree or instrument binding upon the Company, or result in
the creation or imposition of any lien, claim or encumbrance on any asset of the
Company. This Agreement constitutes a valid and binding agreement of the Company
and the Debenture, when executed and delivered by the Company in accordance with
this Agreement, will constitute valid and binding obligations of the Company,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or equitable remedies. The Company has obtained any and all
consents or waivers of third parties that are necessary in connection with the
execution, delivery and performance of this Agreement, the Debenture and the
consummation of the transactions contemplated hereby and thereby, including the
issuance by the Company of the Debenture and the Warrant Shares. True and
complete copies of the Articles of Incorporation and Bylaws of the Company, each
as amended to date, have been or will be provided to Lender.
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3.3 CAPITALIZATION. As of the date hereof, the authorized capital stock of
the Company consists of (a) eight million (8,000,000) shares of Common Stock, of
which (i) 623,301 shares are issued and outstanding, and (ii) 530,931 shares are
reserved for issuance upon the exercise of outstanding options and warrants; and
(b) two million (2,000,000) shares of Preferred Stock, of which; 186,800 shares
of Class A Preferred Stock are issued and outstanding; 425,102 shares of Class B
Preferred Stock are issued and outstanding; and 400,016 shares of Class C
Preferred Stock are issued and outstanding. All of such outstanding shares are
duly authorized, validly issued, fully paid and non-assessable. All outstanding
securities of the Company were issued in compliance with all applicable state
and federal laws concerning the issuance of securities. Except as described
above or in SCHEDULE 1, and as specifically contemplated by this Agreement, no
subscription, warrant, option, plan or other right to purchase or acquire from
the Company any shares of any class of capital stock of the Company or
securities convertible into such capital stock is authorized or outstanding and
there is no commitment of the Company to issue any such shares, warrants,
options or other such rights or securities. SCHEDULE 1 hereto contains a true
and complete list of the names and addresses of the record holders of all of the
outstanding Common Stock and options of the Company and the number of shares
and/or options held by each such holder. To the best of Company's knowledge,
there are no voting trusts, voting agreements or voting arrangements among any
of the record holders of such stock or options other than as will be provided
herein. Except as provided under this Agreement or in SCHEDULE 1, no stockholder
has any preemptive or similar right to acquire additional shares of capital
stock and there are no restrictions on the transfer of shares of capital stock
of the Company other than those imposed by relevant state, federal and foreign
securities laws. None of the Company's capital stock is entitled to cumulative
voting rights and no registration rights under the Securities Act of 1933 (the
"Securities Act") have been granted by the Company with respect to shares of its
capital stock other than as provided under the Agreement. To the best of
Company's knowledge, except as set forth in or specifically contemplated by this
Purchase Agreement, no stockholder of the Company has granted options or other
rights to any other person to purchase from such stockholder any shares of
capital stock of the Company. Except as described or contemplated by this
Agreement and SCHEDULE 1 hereto, there are no agreements, written or oral,
between the Company and any holder of its securities, or to the best knowledge
of the Company, among any holders of its securities, relating to the
acquisition, disposition or voting of the securities of the Company.
3.4 AUTHORIZATION AND ISSUANCE OF THE WARRANTS AND THE NOTES. The issuance
of the Warrant will be free of preemptive or similar rights. When issued upon
exercise of the Warrant, in accordance with the terms hereof, the Warrant Shares
will have been validly issued and fully paid and will be nonassessable and free
of preemptive or similar rights. Upon the issuance of the Warrant, the Company
will have duly authorized and reserved sufficient shares of Common Stock for
issuance as Warrant Shares, and the Warrant and Warrant Shares will be free of
any liens or encumbrances other than those created by or imposed upon the Lender
through no action of the Company; provided, however, that the Warrant and the
Warrant Shares will be subject to the restrictions on transfer set forth in
Section 7 hereof and the Warrant and the Warrant Shares may be subject to
restrictions on transfer under state and/or federal securities laws as set forth
herein.
3.5 LITIGATION. There is no action, suit, proceeding or investigation
relating to the Company which is pending or threatened (nor, to the knowledge of
the Company, any basis
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therefor) before or by any court, arbitrator or governmental body, agency or
official in which there is a reasonable possibility of an adverse decision which
could materially adversely affect the business, consolidated financial position
or consolidated results of operations of the Company of which, in any manner,
questions the validity of this Agreement, the Debenture or the Warrant Shares.
3.6 PATENTS AND TRADEMARKS. The Company has such right, title and
ownership of, or licenses under, all patents, trademarks, service marks, trade
names, copyrights, licenses, trade secrets, information, proprietary rights and
processes as is necessary for the lawful conduct of the business of the Company
as it is contemplated to be conducted, without any conflicts with the rights of
others. No officer or directors of the Company owns any rights therein which are
competitive with those to be owned or used by the Company. The Company has not
been sued or charged with any infringement of any patent, trademark, copyright
or mask work, with misappropriation of any trade secret or other proprietary
information, or with the violation of any license, which remains unresolved by
agreement, license or otherwise, or has any knowledge of the existence of any
such infringement, misappropriation or violation, whether or not claimed by any
Person.
3.7 PROPERTIES. The Company has good and marketable title to the tangible
properties and assets owned by it and material to its business, and good title
to all of its leasehold estates, in each case subject to no mortgage, pledge,
lien, lease, claim or encumbrance of any nature whatsoever, except minor
encumbrances to title which, in the aggregate, do not materially adversely
affect the use, proposed use or value of the property or other assets of the
Company. All of the Company's properties and assets are, in material respects,
in good operating and usable condition, subject to normal wear and tear. With
respect to the property and assets it leases, the Company is in compliance in
all material respects with such leases and holds valid leasehold interests.
3.8 EMPLOYEES. To the best of the Company's knowledge, no activity of any
employee of the Company as, or while, an employee of the Company has caused a
violation of any term of any employment contract, confidentiality agreement,
patent disclosure agreement or any other contract or agreement, and the
continued employment by the Company of its present employees will not result in
any such violation. There are neither pending nor threatened any actions, suits,
proceedings or claims, or any threats thereof, with respect to any contract,
agreement, covenant or obligation referred to in the preceding sentence, nor is
there any judgment, decree or order of any court or administrative agency that
would interfere with the use by any employee or consultant of his or her best
efforts to promote the interests of the Company or would conflict with the
Company's business as proposed to be conducted. No present or former officer,
employee or consultant of the Company is in violation of any obligation relating
to the use of confidential or proprietary information of the Company. Each
person employed by the Company, or retained by the Company as a consultant,
including, without limitation, all officers of the Company, has executed a
proprietary information agreement restricting such person's right to disclose
proprietary information of the Company and its clients. The Company is not aware
of any key employee of the Company who has any plans to terminate his or her
employment with the Company.
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3.9 ERISA. Except as set forth on SCHEDULE 2, (a) the Company does not
have any "employee pension benefit plans" as such term is defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended, and the
Company is not required to maintain or contribute to any such plans; and (b) the
Company has not ever maintained and has not ever made contributions to any
deferred compensation, pension, profit sharing, retirement, bonus or other
employee benefit or fringe benefit plan or other Employee Benefit Plan within
the meaning of Section 3 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (including health, life insurance and other benefit plans
maintained for retirees). The Company is not a party to any pension plan that is
a "multi-employer plan" as defined in ERISA. The Company is not in violation of
any provision of ERISA, has filed all required reports with the Department of
Labor and the Internal Revenue Service with respect to all Employee Benefit
Plans and no lien exists on any of the Company's assets pursuant to Section
302(f) of ERISA or Section 412(n) of the Code.
3.10 FINANCIAL STATEMENTS.
(A) The Company has furnished to the Lender unaudited financial
information pertaining to the Company as of March 31, 2004. All of the foregoing
financial information is herein referred to as "Financial Statements". The
Financial Statements are correct and complete and fairly present the financial
position of the Company at the dates thereof and the results of operations of
the Company, for the periods covered thereby, subject in the case of statements
to year-end audit adjustments (which are, neither individually or in the
aggregate, material). All financial information furnished hereunder has been
prepared in accordance with GAAP, consistently applied, and the Company has
furnished to Lender the Budget of the Company as of March 31, 2004, which
fairly, accurately and in all material respects presents the information set
forth therein. The Company has no material liability, contingent or otherwise,
not adequately reflected in the Budget, nor does the Company have any reasonable
grounds to know of any such liability. The Company has previously delivered the
Budget to Lender which was prepared by the Company based upon the best available
information and in good faith.
(B) Since March 31, 2004, and at all times up to the Closing, (i)
there has not been, nor, so far as reasonably can be foreseen at this time, is
there likely to be, any event or condition of any character, either individually
or, in the aggregate, which has materially adversely affected, or is likely to
materially adversely affect, the Company's business operations, assets,
condition (financial or otherwise), liabilities, earnings, results of operations
or prospects; (ii) no employee or consultant of the Company, the loss of whose
services could materially and adversely affect the Company or the business or
prospects of the Company, taken as a whole, has left the employ of the Company,
has given any indication that he or she intends to do so or is considering doing
so, or is being terminated, (iii) there has been no damage, destruction or loss,
whether or not covered by insurance, materially and adversely affecting the
properties or business of the Company, taken as a whole, (iv) there has been no
waiver by the Company of a valuable right or of a material debt owed to it, (v)
there has been no loan made by the Company to any employee, officer or director
other than advances of expenses made in the ordinary course of business, (vi)
there has been no declaration or payment of any dividend or other distribution
of the assets of the Company or any director or indirect redemption, purchase or
acquisition of any securities of the Company, (vii) there has been no labor
organization activity or labor trouble,
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and (viii) there has been no sale, transfer or lease of, except in the ordinary
course of business, or mortgage or pledge of or imposition of lien on, any of
the Company's assets.
3.11 EXEMPT TRANSACTIONS. Subject to the accuracy of the Lender's
representations in Section 4 hereof, the offer, issuance, sale and delivery of
the Warrant(s) and the Warrant Shares pursuant to this Agreement are exempt from
the registration requirements of the Securities Act and the registration or
qualification requirements of the State of Delaware and neither the Company nor
anyone acting on its behalf will take any action hereafter that would cause the
loss of such exemption.
3.12 TAX RETURNS AND AUDITS.
(A) All required federal, state and local tax returns of the Company
have been accurately prepared and duly and timely filed, and all federal, state
and local taxes required to be paid with respect to the periods covered by such
returns have been paid. No deficiency assessment or proposed adjustment of the
Company's United States income tax or state or municipal taxes is pending,
except as disclosed on the Company's books and records as furnished to the
Lender and its counsel, and the Company has no knowledge of any proposed
liability for any tax to be imposed upon its income, properties or assets for
which there is not adequate reserve reflected in the unaudited Financial
Statements.
(B) PAYMENT OF TAXES. The Company has accurately prepared and filed
within the time prescribed by law all federal, state and local income, excise
and franchise tax returns, real estate and personal property tax returns, sales
and use tax returns, payroll tax returns and other tax returns required to be
filed by it and has paid or made provision for the payment of all taxes shown to
be due thereon and adequate provision has been made for all taxes and other
charges to which the Company is subject and which are not currently due and
payable. The federal income tax returns of the Company have never been examined
by the Internal Revenue Service. Neither the Internal Revenue Service nor any
other taxing authority is now asserting or, to the best of Company's knowledge,
is threatening to assert against the Company, any deficiency or claim for
additional taxes or interest thereon or penalties in connection therewith, and
the Company does not know of any basis for any such deficiency or claim.
3.13 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or subject
to any contract, commitment or arrangement with any labor union and no labor
union has requested or, to the knowledge of the Company, sought to represent any
of the employees, representatives or agents of the Company. There is no strike
or other labor dispute involving the Company pending or, to the knowledge of the
Company, threatened, nor is the Company aware of any labor organization activity
involving the employees of the Company.
3.14 INSURANCE COVERAGE. There are, in full force, policies of insurance
issued by insurers of recognized responsibility insuring the Company, their
properties and business against such losses and risks and in such amounts as are
adequate for their business and proposed business and customary among companies
engaged in the same or similar businesses.
3.15 INTEREST IN COMPETITORS. Neither the Company nor any of its officers
or directors has any interest, either by way of contract or by way of investment
(other than as holder of not
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more than one percent [1%] of the outstanding capital stock of a publicly traded
Person) or otherwise, directly or indirectly, in any Person other than the
Company that (i) provides any services or designs, produces or sells any product
or product lines or engages in any activity similar to or competitive with any
activity currently conducted or proposed to be conducted by the Company, or (ii)
has any direct or indirect interest in any assets or property, real or personal,
tangible or intangible, of the Company.
3.16 ENVIRONMENTAL MATTERS. To the best of its knowledge, the Company is
not in violation in any material respect of any applicable statute, law or
regulation relating to the environment or occupational health and safety and, to
the best of the Company's knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
3.17 DISCLOSURE. The Company has provided Lender with all the information
it has requested for deciding whether to purchase the Debenture and all
information which the Company believes is reasonably necessary to make such a
decision. Neither this Purchase Agreement (including all schedules and exhibits
hereto), nor any other written statements, certificates or other written
information delivered pursuant to, or in connection with, the transactions
contemplated hereby contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein not
misleading. To the best of the Company's knowledge, there is no fact that
materially adversely affects the business, projections, condition, affairs or
operations of the Company, taken as a whole, or any of either of their
properties or assets that has not been set forth in this Agreement or the
Exhibits other than facts relating generally to the state of the economy or
which otherwise affect the Company and all persons in its industry similarly
situated in the same manner.
3.18 REGISTRATION RIGHTS. Except as set forth in EXHIBIT E, "Registration
Rights", the Company is not under any contractual obligation to register any of
its presently outstanding securities or any of its securities which may
hereafter be issued.
3.19 NO BROKERS OR FINDERS. The Company has not incurred, and will not
incur, directly or indirectly, as a result of any action taken by the Company,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with any financing since 1997 except for a 2%
commission payable in connection with the Company's closing of its issuance of
Preferred C Shares on June 30, 2004.
3.20 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is in compliance with
all material obligations, agreements and conditions contained in any evidence of
indebtedness or any loan agreement or other contract or agreement (whether or
not relating to indebtedness) of the Company, the lack of compliance with which
would afford to any Person the right to accelerate any material indebtedness or
terminate any material right or agreement of the Company. The Company is in
compliance in all respects with the provisions of its Articles and Bylaws.
3.21 LICENSES AND OTHER RIGHTS, COMPLIANCE. The Company has all
franchises, permits, licenses and other rights and privileges necessary to
permit it to own its properties and to conduct its business as presently
conducted and as planned to be conducted. The Company is
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in compliance in all material respects under each, and the transactions
contemplated by this Agreement will not cause a violation under any, of such
franchises, permits, licenses or other rights and privileges. The Company is in
compliance in all material respects with all laws and governmental rules and
regulations applicable to its businesses, properties and assets and to the
products, systems, machinery and equipment and services designed, manufactured
or provided or sold by it, including, without limitation, all such laws, rules
and regulations relating to fair employment and anti-discrimination practices,
public or employee safety and to environmental protection, water or air
pollution and similar matters.
3.22 INVESTMENTS IN OTHER PERSONS. The Company has not made any loan or
advance to any Person which is outstanding on the date hereof or the Closing
Date, nor is it committed or obligated to make any such loan or advance, nor
does the Company have any material interest in any capital stock, assets or
obligations of, or any financial or equity interest in, any Person.
3.23 TRANSACTIONS WITH AFFILIATES. Except as previously disclosed, there
are no loans, leases or other continuing transactions between the Company and
any person or entity associated with the Company in each case, except as
specifically contemplated herein; nor to the best of the Company's knowledge and
belief does any person or entity associated with the Company own, directly or
indirectly, individually or collectively, any equity interest in any Person
which is a competitor, customer or supplier of the Company or have any existing
contractual relationship with any such Person. "A Person or Entity Associated
with the Company" shall be deemed to be any person who, or entity which, is a
stockholder, officer or director of the Company or a relative by blood or
marriage of, a trust or estate for the benefit of, or a person or entity which
directly or indirectly controls, is controlled by or is under common control
with, any such stockholder, director or officer.
4. REPRESENTATIONS OF THE LENDER; SECURITIES LAW TRANSFER RESTRICTIONS.
4.1 REPRESENTATIONS AND WARRANTIES. The Lender understands that the
securities are being offered hereby under exemptions from the securities law
based in part on the following representations and warranties:
(A) INVESTMENT REPRESENTATION. The Lender has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment in the Warrant(s) and the Warrant Shares
(collectively, the "Securities"), and of protecting its own interests in
connection with the transaction contemplated by this Agreement. The Lender is
capable of bearing the economic risks of such investment and is purchasing the
Securities for its own account for investment with no present intention of
distributing or selling the Securities or any interest therein. Lender is a
Qualified Investor as such term in used by the SEC. Lender acknowledges that the
Securities have not been registered under the Securities Act and cannot be
resold unless they are registered under the Securities Act, or unless an
exemption from such registration is available.
(B) ACCESS TO INFORMATION. During the negotiation of the
transactions contemplated herein, the Lender and its representatives have been
afforded full and free access to corporate books, records, contracts, documents
and other information concerning the Company
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and to its offices and facilities, have been afforded an opportunity to ask such
questions of the Company's officers, employees, agents, accountants and
representatives concerning the Company's business, operations, financial
condition, assets, liabilities and other relevant matters as they have deemed
necessary or desirable, and have been given, to the Lender's knowledge, all such
information as has been requested, in order to evaluate the merits and risks of
the prospective investments contemplated herein, all as it has found necessary
to make an informed investment decision; provided, however, that any due
diligence investigation undertaken by Lender shall not limit or modify, in any
way, the Company's obligations and representations in Section 3.17 or in any
other Section hereof.
(C) VALIDITY OF THIS AGREEMENT AND QUALIFICATION. The Lender has
full right, power, capacity and authority to execute, deliver and perform its
obligations under this Agreement; to purchase the Securities and to consummate
the transactions contemplated hereby. This Agreement has been duly authorized by
Lender. This Agreement constitutes and, when duly executed and delivered by
Lender, will constitute a valid and binding obligation of the Lender in
accordance with its terms.
(D) NO BROKERS OR FINDERS. The Lender has not engaged any broker or
finder for the transactions contemplated hereby.
4.2 TRANSFERS TO COMPLY WITH THE SECURITIES ACT. The Lender understands
and agrees that the Notes and Warrants, and any interest in either, may not be
sold, assigned, pledged, hypothecated, encumbered or in any other manner
transferred or disposed of, in whole or in part, except in compliance with
applicable United States federal and state securities or Blue Sky laws and the
terms and conditions hereof. Any certificate for the Warrant Shares, unless, at
the time of conversion, such Warrant Shares are registered under the Securities
Act, shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MA Y NOT BE MORTGAGED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933,
OR AN OPINION OF COUNSEL FOR THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT.
Such legend shall be removed by the Company from any Warrant or the
certificate for any Warrant Shares at any such time upon the effectiveness of
any registration statement under the Securities Act as the holder of such
securities satisfies the requirements of Rule 144(k) under the Securities Act,
provided that Rule 144(k), as then in effect, does not differ substantially from
Rule 144(k) as in effect as of the date of this Agreement and, provided further
that the Company has received from the holder a written representation that (i)
such holder otherwise satisfies the requirements of Rule 144(k) as then in
effect with respect to such securities, and (ii) such holder will submit the
certificate for any such securities to the Company for reapplication of the
legend at such time as the holder becomes an affiliate of the Company or
otherwise ceases to satisfy the requirements of Rule 144(k) as then in effect.
DEBT AGREEMENT
Page 12
5. AFFIRMATIVE COVENANTS OF THE COMPANY.
5.1 INFORMATION. Without limiting any other covenants and provisions
hereof, the Company covenants and agrees that it will perform and observe the
following covenants and provisions:
(A) PAYMENT OF TAXES AND TRADE DEBT. Pay and discharge all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income, profits or business, or upon any properties belonging to it, prior to
the date on which penalties attach thereto, and all lawful claims which, if
unpaid, might become a lien or charge upon any properties of the Company,
provided that the Company shall not be required to pay any such tax, assessment,
charge, levy or claim which is being contested in good faith and by appropriate
proceedings if the Company shall have set aside on its books adequate reserves
with respect thereto; and pay when due or in conformity with customary trade
terms all lease obligations, all trade debt and all other indebtedness incident
to the operations of the Company, except such as are being contested in good
faith and by proper proceedings if the Company shall have set aside on its books
adequate reserves with respect thereto.
(B) REPORTING REQUIREMENTS. Furnish to Lender the following:
(i) As soon as available and, in any event, within fifteen
(15) days after the end of every calendar month, the unaudited balance sheet of
the Company as at the end of such month and unaudited statements of income and
cash flow of the Company for the month then ended, and for the current fiscal
year to the end of such month, fairly presenting the financial condition of the
Company on the date of such statements and the results of its operations and
changes in cash flow for the respective periods covered thereby; in accordance
with XXXX and subject to year-end audit adjustments and the absence of
footnotes.
(ii) As soon as available and, in any event, within ninety
(90) days after the end of each fiscal year of the Company, the reviewed balance
sheets of the Company as at the end of such fiscal year and the related audited
statements of income and changes in stockholders' equity and cash flow of the
Company for such fiscal year, setting forth in each cash in comparative form the
corresponding figures for the preceding fiscal year, such balance sheet and such
statements to be accompanied by a certificate of an independent certified public
accountant, reasonably acceptable to Lender, to the effect that such financial
statements, in its opinion, with qualification, fairly present the financial
condition of the Company as at the end of such fiscal year and the results of
its operations and changes in stockholders' equity and cash flow for such fiscal
year in conformity with generally accepted accounting principles consistently
applied and on a basis consistent with those principles applied for the
preceding fiscal year.
(iii) Promptly after the happening thereof, notice of any
material adverse change in the business, properties, assets or condition,
financial or otherwise, of the Company, and promptly after the commencement
thereof, notice of all actions, suits, proceedings and investigations pending or
threatened against the Company, or against any officer, director, key employee
or principal stockholder of the Company, before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, affecting
DEBT AGREEMENT
Page 13
or relating to the Company or any of its or their assets, rights or agreements
which, if decided adversely to the Company, could have a material negative
effect on the conduct by its business, or result in a money judgment in excess
of twenty thousand dollars ($20,000.00).
(iv) With reasonable promptness, such other financial or other
information and data as Lender may, from time to time, reasonably request;
provided, however, that the request for information or material which already
exists in the Company's records shall always be deemed "reasonable" hereunder.
(C) Simultaneously, with the delivery of each set of Financial
Statements referred to in Section 5.1(B) above, if there exists on the date of
such Financial Statements any Default, a certificate of an officer of the
Company, setting forth the details thereof, and the action which the Company is
taking, or proposes to take, with respect thereto.
(D) As soon as available, the Company's projected financial plan and
projected revenue and operating expense and capital expense budgets for the
forthcoming year, including monthly cash flow projections, quarterly profit and
loss projections and annual projected balance sheets, itemized in such detail as
the Board of Directors of the Company may reasonably require.
(E) MAINTENANCE OF INSURANCE. Maintain insurance with responsible
and reputable insurance companies or associations in such amounts and covering
such risks as is customarily carried by companies engaged in similar businesses
and owning similar properties in the same general areas in which the Company
operates.
(F) PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain its
corporate existence, rights, franchises and privileges in the jurisdiction of
its incorporation and qualify and remain qualified as a foreign corporation in
each jurisdiction in which the absence of such qualification could have a
material adverse effect upon the Company.
(G) MAINTENANCE OF PROPERTIES. Maintain and preserve all of its
properties necessary or useful in the proper conduct of its business in good
repair, working order and condition, ordinary wear and tear excepted.
(H) LICENSES AND OTHER RIGHTS, COMPLIANCE WITH LAWS. Use its best
efforts to obtain all franchises, permits, licenses and other rights and
privileges necessary to permit it to conduct its business substantially as
proposed to be conducted at any time hereafter. Comply with the requirements of
all applicable laws, rules, regulations and orders of any governmental
authority, noncompliance with which could materially adversely affect its
business, assets or condition, financial or otherwise.
(I) COMPLIANCE; TRANSACTION DOCUMENTS. Comply with all the
provisions of each of the Transaction Documents.
(J) Promptly, upon the mailing thereof to holders of capital stock,
a copy of all financial statements, reports or proxy statements so mailed.
DEBT AGREEMENT
Page 14
5.2 MAINTENANCE OF BOOKS; INSPECTION. The Company will keep books of
record and account in which full, true and correct entries are made of all of
its dealings, business and affairs in accordance with generally accepted
accounting principles. The Company will permit the Lender and its authorized
representatives to visit and inspect the properties of the Company, to examine
its respective operating records, books of account and tax returns and to
discuss their business, assets, financial condition, results of operations or
prospects with their officers, all at such reasonable times and as often as may
be reasonably requested by the Lender.
5.3 CONFIDENTIALITY AND TERMINATION OF COVENANTS.
(A) Lender agrees that any information obtained by it pursuant to
Section 5.1 and 5.2 will not be disclosed to any Person or entity without the
prior written consent of the Company. Notwithstanding the foregoing, Lender may
disclose such information without the prior written consent of the Company to
its legal counsel, professional accountants, associates or employees in order to
evaluate this investment and as may be necessary to continue to evaluate the
Company. Lender agrees that any recipient of information obtained by the Lender
pursuant to Sections 5.1 and 5.2 shall agree to be bound by the provisions of
this Section 5.3 or shall be otherwise bound by applicable ethical standards of
confidentiality with respect to such information.
(B) The covenants set forth in Sections 5.1 and 5.2 shall terminate
and be of no further force or effect upon the first to occur of (i) the sale of
securities pursuant to a registration statement filed by the Company under the
Securities Act in connection with the firm commitment underwritten offering of
its securities to the general public is consummated or (ii) when the Company
first becomes subject to the periodic reporting requirements of Sections 12(g)
or 15(d) of the Securities Exchange Act, whichever event shall first occur.
5.4 NEGATIVE COVENANTS OF THE COMPANY. Without limiting any other
covenants and provisions hereof, the Company covenants and agrees that, until
the consummation of a Public Offering or repayment of all debt owed to the
Lender by the Company, it will not:
(A) DEALINGS WITH AFFILIATES. Except as may be undertaken in the
ordinary course of the Company's business and approved by members of the Board
of Directors who have no direct or indirect material interest in the
transaction, other than as a stockholder of the Company, enter into any
transaction including, without limitation, any loans, compensation arrangements
or extensions of credit or royalty agreements with any "person or entity
associated with the Company" as that term is defined herein, or any transaction
in which any of such persons or entities has a direct or indirect material
interest other than as a stockholder of the Company.
(B) REDEMPTIONS; DIVIDENDS. Declare or pay any dividends on Common
Stock, or purchase or redeem securities of the Company, other than (i) pursuant
to the terms of the Articles or the Bylaws or (ii) repurchases of shares of
Common Stock held by employees or consultants of the Company upon termination of
their employment or services pursuant to the terms of employment agreements
providing for such repurchase.
DEBT AGREEMENT
Page 15
(C) DEBT FINANCING. Except with the consent of Lender, subsequent to
his failure to exercise his Right of First Refusal, enter into or materially
modify any debt financing of the Company senior to the Debt of the Lender.
(D) TRANSFERS OF TECHNOLOGY. Transfer any ownership or interest
(including but not limited to any license, sale, or grant of exclusive
distribution rights) in, or material rights relating to, any of its technology,
trade secrets, patents, patent rights, copyrights or other intellectual property
rights to any person or entity except in the normal course of business.
(E) MERGER, CONSOLIDATION, SALE OF ASSETS. Merge, consolidate or
reorganize the Company or lease or sell substantially all of the assets of the
Company or sell or pledge shares constituting more than fifty percent (50%) of
the Company's stock, unless as part of the transaction all Debt owed to the
Lender by the Company will be repaid at the closing.
(F) LOANS/GUARANTIES. Except with the consent of the Lender, make
any loans or advances greater than twenty thousand dollars ($20,000.00) to any
person or guaranty any obligations of any person, firm or corporation.
(G) BUSINESS. Except as approved by the Board of Directors in
furtherance of the Company's business purposes, make any material changes in the
nature of its business as carried on at the date hereof.
5.5 RESTRICTIONS AS TO PAYMENT OF DISTRIBUTIONS.
(A) Without the prior written consent of the Lender, the Company
will not make any distribution of cash or property other than equity securities
of the Company on account of any shares of capital stock of the Company, now or
hereafter outstanding, or set apart any sum for any such purpose.
(B) The Company will not, without the prior written approval of the
Lender, make any payment on account of the purchase, redemption or other
acquisition or retirement of any shares of any class of the Company's stock, how
or hereafter outstanding (except in connection with repurchases of Common Stock
held by employees and directors of, or consultants to, the Company upon
termination of their employment or their status as a director or consultant
pursuant to agreements providing for such repurchase), or any security
convertible into, or option, warrant or other right to acquire any such shares.
5.6 NOTIFICATION OF FUNDAMENTAL CHANGE. Unless waived in writing by the
Lender, the Company shall deliver to the Lender at least twenty (20) days prior
to the effective date of a Fundamental Change, a notice in writing stating the
date on which such Fundamental Change is expected to become effective.
Notwithstanding anything contained herein to the contrary, the Company shall not
undertake a Fundamental Change without the prior written consent of the Lender.
5.7 TERMINATION OF PROVISIONS. Except for the covenant contained in
Section 5.4(D) and then only if and to the extent that any such transaction
serves to defeat or otherwise avoid the realization of the rights of the Lender
or its predecessor interest under the Restated License Agreement or the
Distribution Agreement dated August __, 1997, all the provisions of Section 5
DEBT AGREEMENT
Page 16
shall terminate upon the occurrence of a Public Offering by the Company or upon
repayment of all of the Debt owed by the Company to the Lender.
6. EVENTS OF DEFAULT.
6.1 EVENT OF DEFAULT DEFINED: ACCELERATION OF MATURITY; WAIVER OF DEFAULT.
In case one or more of the following events (whatever the reason for such event
and whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body) (an "Event of
Default") shall have occurred and be continuing:
(A) Default in the payment of any interest upon the Note(s) as and
when the same shall become due and payable and continuance of such default for a
period of ten (10) Calendar Days after receipt by the Company of notice of such
default from the Lender;
(B) Default in the payment of all or any part of the principal or
any installment of the principal of the Note(s), as and when the same shall
become due and payable and continuance of such default for a period of ten (10)
Calendar Days after receipt by the Company of notice of such default from the
Lender;
(C) An involuntary case or other proceeding shall be commenced
against the Company seeking liquidation, reorganization or other relief with
respect to it or its debts under any applicable bankruptcy, insolvency or other
similar law, now or hereafter in effect, or seeking the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Company or for any substantial part of the property of the
Company or the winding up or liquidation of the affairs of the Company, and such
case or proceeding shall remain unstayed and undismissed for a period of thirty
(30) days, or an order for relief shall be entered against the Company under the
federal bankruptcy laws as now of hereafter in effect;
(D) Company shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law, now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under any
such law, or consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
the Company or for any substantial part of the property of the Company, or the
Company shall make any general assignment for the benefit of creditors, or shall
fail generally to pay its debts as they come due, or shall take any corporate
action to authorize any of the foregoing;
(E) Any representation or warranty made by the Company in Section 3
hereof, or in any of the Transaction Documents, shall prove to have been
incorrect in any respect which is materially adverse to the Company or Lender
when made or as of the Closing Date; or
(F) The Company shall fail to observe the covenants of this
Agreement, or in any of the Transaction Documents, and such failure shall
continue for twenty (20) days after the receipt of written notice from the
holder (except as to covenants contained in Section 5 as to which no notice
shall be required).
DEBT AGREEMENT
Page 17
Then, and in each and every such case [other than an Event of Default
specified in Section 6.1(C) or (D)], unless all of the principal amount of the
Note(s) shall have already become due and payable, the Lender, for so long as it
holds more than fifty percent (50%) aggregate principal amount of the Note(s),
and thereafter, the holder of more than fifty percent (50%) in aggregate
principal amount of the Note(s) then outstanding, by notice in writing to the
Company, may declare the entire principal amount of the Note(s) and the interest
accrued thereon to be due and payable immediately, and, upon any such
declaration, the same shall become immediately due and payable. If an Event of
Default specified in Section 6.1(C) or (D) occurs with respect to the Company,
the principal of, and accrued interest on, the Note(s) shall become and be
immediately due and payable without any declaration or other act on the part of
the Lender. Presentment, demand, protest and all other notices of any kind are
hereby expressly waived by the Company.
The foregoing paragraph, however, is subject to the condition that if, at
any time after all of the principal of the Note(s) shall have been so declared
due and payable, and before any judgment or decree for the payment of the monies
due shall have been obtained or entered as hereinafter provided, the Company
shall pay, or shall deposit in trust for the benefit of the Lender, a sum
sufficient to pay all matured installments of interest upon the Note(s) and the
principal of the Note(s) which shall have become due otherwise than by
acceleration (with interest upon such principal and, to the extent that payment
of such interest is enforceable under applicable law, on overdue installments of
interest, at the same rate as the rate of interest specified in the Note(s), to
the date of such payment or deposit), and if any and all Defaults and Events of
Default under this Agreement, other than the non-payment of the principal of the
Note(s) which shall have become due by acceleration, shall have been cured,
waived or otherwise remedied as provided herein, then, and in every such case,
the holders of more than fifty percent (50%) of aggregate principal amount of
the Note(s), then outstanding, by written notice to the Company, may waive all
Defaults and rescind and annul such declaration and its consequences, but no
such waiver or rescission and annulment shall extend to or shall affect any
subsequent Default or shall impair any right consequent thereon.
6.2 POWERS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER OF
DEFAULT. No right or remedy herein conferred upon or reserved to the Lender is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
No delay or omission of the Lender to exercise any right or power accruing
upon any Event of Default occurring and continuing as aforesaid shall impair any
such right or power or shall be construed to be a waiver of any such Event of
Default or an acquiescence therein; and every power and remedy given by this
Agreement, any Note or Warrant or by law may be exercised from time to time and
as often as shall be deemed expedient by the Lender.
DEBT AGREEMENT
Page 18
7. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF NOTE(S) OR WARRANT(S).
(A) Upon surrender of any Note or Warrant to the Company, or at the
office of its stock transfer agent, with an instrument of assignment and funds
sufficient to pay any transfer tax, the Company shall, without charge, execute
and deliver a new Note or Warrant in the name of the assignee or assignees named
in such instrument of assignment and, if such holder's entire interest is not
being assigned in the name of such holder, such Note or Warrant shall promptly
be canceled.
(B) A Note or Warrant may be divided or combined with other Note(s)
or Warrant(s) that carry the same rights upon presentation thereof at the office
of the Company or at the office of its stock transfer agent together with a
written notice specifying the names and denominations in which such new Note(s)
or Warrant(s) is/are to be issued and signed by the holder thereof.
(C) Upon receipt by the Company of evidence satisfactory to it of
the loss, theft, destruction or mutilation of any Note(s) or Warrant(s), and (in
the case of loss, theft or destruction) of reasonably satisfactory
indemnification and upon surrender and cancellation of any Note(s) or
Warrant(s), if mutilated, the Company shall execute and deliver a new Note(s) or
Warrant(s) of like tenor and date. Any such new Note(s) or Warrant(s) executed
and delivered shall constitute an additional contractual obligation on the part
of the Company, whether or not the Note(s) or Warrant(s) so lost, stolen,
destroyed or mutilated shall be, at any time, enforceable by anyone.
8. LENDER'S RIGHT OF FIRST REFUSAL.
8.1 RIGHT OF FIRST REFUSAL.
(A) The Company hereby grants to the Lender, for a period of thirty
(30) days, and any subsequent holder (the "Rights Holders") of the Warrants, the
right of first offer to purchase, pro rata, a portion of "New Securities" (as
defined in this Section 8) that the Company may, from time to time, propose to
sell and issue. Each Rights Holder's pro rata share, for purposes of this Right
of First Refusal, is the ratio of (X) the number of shares of capital stock
owned or issuable upon the conversion or exercise of any of the common stock
owned by Rights Holder immediately after the Closing to (Y) the total
Outstanding Equity Securities of the Company; provided, however, that in the
event that any Rights Holder elects not to purchase its pro rata share in
accordance with the above (a "Non-Participating Holder"), then each
participating Rights Holder purchasing New Securities may purchase, on a pro
rata basis, based on the common stock held among the participating Rights
Holders, such Non-Participating Holder's pro rata share. This right of first
refusal shall be subject to the following provisions.
(B) "NEW SECURITIES" shall mean any Common Stock or other securities
(debt or equity) of the Company, whether or not authorized on the date hereof,
and rights, options or warrants to purchase such Common Stock or other
securities, and securities of any type whatsoever that are, or may become,
convertible into said Common Stock or Preferred Stock; provided, however, that
"New Securities" does not include the following:
DEBT AGREEMENT
Page 19
(i) Securities of the Company offered to the public pursuant
to a bona fide Public Offering;
(ii) Securities of the Company issued pursuant to the
acquisition of another corporation by the Company by merger, or purchase
of substantially all of the assets or other reorganization whereby the
Company owns not less than fifty-one percent (51%) of the voting power of
such other corporation; or
(iii) Securities issued in connection with any stock split,
stock dividend or recapitalization by the Company.
(iv) Options approved by the Board of Directors of the Company
for issuance to employees or directors of the Company, or the issuance of
shares upon the exercise of outstanding options or warrants.
(C) In the event that the Company proposes to undertake an issuance
of New Securities, it shall give each Rights Holder written notice of its
intention, describing the type of New Securities, the price, the name and
address of the intended purchaser and the general terms upon which the Company
proposes to issue the same. Each Rights Holder shall have twenty (20) business
days from the date of such notice is given to agree to purchase its pro rata
share of such New Securities or any portion thereof at the price and upon the
general terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased.
(D) In the event that the Rights Holders' aggregate pro rata
exercised portion is less than the amount of New Securities proposed to be
issued in the notice referred to above, the Company shall have sixty (60) days
thereafter to sell (or enter into an agreement pursuant to which the sale of New
Securities covered thereby shall be closed, if at all, within thirty [30] days
from the date of such agreement) with the New Securities respecting which the
Rights Holders' rights were not exercised at a price and upon general terms no
more favorable to the purchasers thereof than specified in the Company's notice.
In the event the Company has not sold the New Securities within such sixty (60)
day period (or sold and issued New Securities in accordance with the foregoing
within thirty (30) days from the date of such agreement), the Company shall not
thereafter issue or sell any New Securities without first offering such New
Securities to the Rights Holders in the manner provided above.
(E) The Right of First Refusal granted under this Agreement shall
expire immediately after the closing of the Company's initial Public Offering
pursuant to a registration statement filed and declared effective under the
Securities Act or upon some other means by which the shares of the Company
become publicly traded and listed on a national securities exchange or listed on
the National Market System (the "NMS") of the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), but shall be in effect with
respect to such transaction.
(F) This Right of First Refusal is nonassignable except if (i) such
assignee agrees to be bound by the provisions of this Section 8 and (ii) written
notice of such transfer is promptly furnished to the Company.
DEBT AGREEMENT
Page 20
(G) This Right of First Refusal shall terminate as to any Rights
Holder who no longer owns any shares of capital stock issuable upon conversion
of the Warrants as of the date of the notice referred to above.
9. REGISTRATION RIGHTS.
The Lender shall have Piggyback Registration Rights with respect to all
Warrant Shares. The Registration Rights of Lender are defined herein in EXHIBIT
E.
10. MISCELLANEOUS.
10.1 SURVIVAL. All representations, warranties, agreements and covenants
contained herein shall survive the execution of this Agreement, the purchase of
the Note(s) and Warrant(s) contemplated hereby and any disposition or conversion
thereof, notwithstanding any investigation made at any time by any of the
parties hereto.
10.2 SUCCESSORS AND ASSIGNS. Subject to the restrictions or transfer
contained herein, this Agreement shall be binding upon and shall inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns. No assignment or transfer of a Note or Warrant Shares by
the Lender or other holder thereof shall constitute an assignment by the Lender
or other holder of its rights hereunder in the absence of a written assignment
by the Lender or other holder of such rights. The Lender or assignee shall
notify the Company of any such assignment of its rights hereunder.
10.3 NOTICES. All notices, requests and other communications provided for
herein shall be in writing and shall be deemed to have been made or given when
delivered, or mailed postage prepaid, or sent by telex, telegram or telecopier:
(A) If to the Company, to it at:
Ovation Products Corporation
0 Xxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Attn: Xxxxxxx Xxxxxxxx
(B) If to the Lender, to it at:
WMS Family I LLC
000 Xxxxxxxxxxx Xxx
Xxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxx
(C) If to any assignee of the Lender, to it at such address and to
the attention specified in a notice to the Company or in any of the foregoing
cases at such other address as such Person may hereafter specify for such
purpose by notice to the other Persons referred to above.
10.4 AMENDMENTS AND WAIVERS. Any provisions of this Agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by the Company
DEBT AGREEMENT
Page 21
and the Lender. No failure or delay by the Company or the Lender in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
10.5 RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies herein
provided shall be cumulative and not exclusive of any other rights or remedies
provided by law or otherwise.
10.6 SEVERABILITY. Any invalidity, illegality or unenforceability of any
provision of this Agreement in any jurisdiction shall not invalidate or render
illegal or unenforceable the remaining provisions hereof in such jurisdiction
and shall not invalidate or render illegal or unenforceable such provision in
any other jurisdiction.
10.7 HEADINGS. The headings of the Sections of this Agreement are for
convenience of reference only and shall not be deemed to be a part of this
Agreement.
10.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the law of the State of Delaware.
10.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
10.10 USURY. The Company hereby agrees, to the fullest extent permitted by
applicable law, not to insist upon, please or in any manner whatsoever claim the
benefit or advantage of, or assert as a counterclaim or defense, any usury law
of any jurisdiction in connection with any claim, proceeding or other action
which may be brought or instituted hereunder.
10.11 ENTIRE AGREEMENT. This Agreement and the other documents and
agreements delivered pursuant hereto at the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subject hereof and thereof and supersedes any previous agreement among the
parties with respect to such subject matter.
10.12 ADVICE OF COUNSEL. EACH PARTY ACKNOWLEDGES THAT, IN EXECUTING THIS
AGREEMENT, IT HAS HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL
COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS
AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF
THE DRAFTING OR PREPARATION HEREOF.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date and year first above written.
DEBT AGREEMENT
Page 22
OVATION PRODUCTS CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxxx
---------------------------
Title: President and COO
WMS FAMILY I LLC
By: /s/ Xxxxxxx X. Xxxxxxx
---------------------------
Xxxxxxx X. Xxxxxxx, Manager
